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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000
0-24339
(Commission File Number)
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INKTOMI CORPORATION
(Exact name of Registrant as specified in its charter)
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DELAWARE 94-3238130
(State of Incorporation) (I.R.S. Employer Identification No.)
4100 EAST THIRD AVENUE
FOSTER CITY, CALIFORNIA 94404
(Address of principal executive offices)
(650) 653-2800
(Registrant's telephone number, including area code)
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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 outstanding of the Registrant's Common Stock,
$0.001 par value, as of January 31, 2001 was 127,553,658.
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INKTOMI CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
a) Condensed Consolidated Statements of Operations for the three
months ended December 31, 2000 and 1999.......................... 3
b) Condensed Consolidated Balance Sheets as of December 31, 2000
and September 30, 2000........................................... 4
c) Condensed Consolidated Statements of Cash Flows for
the three months ended December 31, 2000 and 1999................ 5
d) Notes to Condensed Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk............. 22
PART II. OTHER INFORMATION:
Item 2. Changes in Securities and Use of Proceeds.............................. 23
Item 6. Exhibits and Reports on Form 8-K....................................... 23
Signature........................................................................ 25
This report on Form 10-Q and other oral and written statements made by
the Company to the public contain and incorporate forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, and Section 21E
of the Securities Exchange Act of 1934. When used in this report, the words
"anticipate," "believe," "expect," "intend," "may," "will" and similar
expressions identify forward-looking statements. Forward-looking statements in
this report include, but are not limited to, those relating to the general rapid
expansion of our business, including the expansion of our Network Products and
Portal Services; our ability to successfully enter new markets such as the
enterprise and Wireless markets; our ability to introduce new products and
services and enhance existing products and services to meet customer needs,
particularly in the area of on-demand and live streaming media; our ability to
expand our sales and distribution capabilities; our focus on both domestic and
international markets; our ability to develop and maintain productive
relationships with providers of leading Internet technologies; and the
possibility of acquiring complementary businesses, products, services and
technologies. Although we believe that our plans, intentions and expectations
reflected in these forward-looking statements are reasonable, we can give no
assurance that these plans, intentions or expectations will be achieved. Actual
results, performance or achievements could differ materially from those
contemplated, expressed or implied by the forward-looking statements contained
in this report. Important factors that could cause actual results to differ
materially from our forward-looking statements are set forth in this report
under the headings "Factors Affecting Operating Results," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and in
other reports filed with the Securities and Exchange Commission. These factors
are not intended to represent a complete list of the general or specific factors
that may affect us. Other factors, including general economic factors and
business strategies, may be significant, presently or in the future, and the
factors set forth in this report may affect us to a greater extent than
indicated. You should not rely on these forward-looking statements, which
reflect our position as of the date of this report. We do not assume any
obligation to revise forward-looking statements.
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Based in Foster City, California, we were incorporated in California in
February 1996 and reincorporated in Delaware in February 1998. In this report,
"Inktomi," "the Company," "our," "us," "we" and similar expressions refer to
Inktomi Corporation and its subsidiaries. Inktomi, Essential to the Internet,
Traffic Server, Content Delivery Suite, Content Bridge, Search Everywhere and
the tri-colored cube design and other marks are service marks, trademarks and
registered trademarks of Inktomi Corporation in the United States and in other
countries. All other trademarks, trade names or service marks appearing herein
are owned by their respective owners.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INKTOMI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED
DECEMBER 31,
-------------------------
2000 1999
--------- ---------
(UNAUDITED)
Revenues
Network products ......................................... $ 54,183 $ 22,137
Portal services .......................................... 26,321 13,990
--------- ---------
Total revenues ....................................... 80,504 36,127
Operating expenses
Cost of revenues ......................................... 10,034 5,921
Sales and marketing ...................................... 47,376 23,159
Research and development ................................. 22,921 11,686
General and administrative ............................... 5,924 3,992
Acquisition-related costs ................................ 19,497 3,999
Purchased in-process research and development ............ 430 --
Amortization of intangibles and other assets ............. 16,208 --
--------- ---------
Total operating expenses ............................. 122,390 48,757
--------- ---------
Operating loss ................................................ (41,886) (12,630)
Other income, net ............................................. 3,995 3,812
--------- ---------
Pretax loss ................................................... (37,891) (8,818)
Income tax provision .......................................... (216) --
--------- ---------
Net loss ...................................................... $ (38,107) $ (8,818)
========= =========
EARNINGS PER SHARE
Basic and diluted net loss per share .......................... $ (0.31) $ (0.08)
========= =========
SHARES OUTSTANDING
Shares used in calculating basic and diluted net loss per share 124,452 110,138
========= =========
See Notes to the Condensed Consolidated Financial Statements
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INKTOMI CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, SEPTEMBER 30,
2000 2000
------------ -------------
(UNAUDITED) (RESTATED)
ASSETS
Current assets
Cash and cash equivalents ..................................................... $ 9,269 $ 41,879
Restricted cash ............................................................... 119,616 119,616
Short-term investments ........................................................ 182,262 176,632
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Total cash and cash equivalents, restricted cash and short-term
investments ........................................................... 311,147 338,127
Accounts receivable, net ...................................................... 53,365 50,633
Prepaid expenses and other current assets ..................................... 8,512 7,895
--------- ---------
Total current assets ...................................................... 373,024 396,655
Investments in equity securities .................................................. 52,341 126,598
Property and equipment, net ....................................................... 89,634 85,055
Other assets ...................................................................... 331,914 310,948
--------- ---------
Total assets .............................................................. $ 846,913 $ 919,256
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable .............................................................. $ 14,846 $ 10,101
Accrued liabilities ........................................................... 72,456 38,816
Deferred revenue .............................................................. 44,894 53,774
Current portion of notes payable .............................................. 2,939 5,307
Current portion of capital lease obligations .................................. 3,458 3,713
--------- ---------
Total current liabilities ................................................. 138,593 111,711
Notes payable, less current portion ............................................... 1,002 1,261
Capital lease obligations, less current portion ................................... 1,100 2,487
Other liabilities ................................................................. 342 735
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Total liabilities ......................................................... 141,037 116,194
Stockholders' equity
Common Stock, $0.001 par value; 300,000 authorized at December 31, 2000
and September 30, 2000; 127,133 outstanding at December 31, 2000
and 126,649 at September 30, 2000 .............................................. 127 127
Additional paid-in capital ........................................................ 901,281 894,844
Deferred compensation and other ................................................... (43,080) (46,514)
Accumulated other comprehensive income ............................................ (8,807) 60,143
Accumulated deficit ............................................................... (143,645) (105,538)
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Total stockholders' equity ................................................ 705,876 803,062
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Total liabilities and stockholders' equity ................................ $ 846,913 $ 919,256
========= =========
See Notes to the Condensed Consolidated Financial Statements
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INKTOMI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE THREE MONTHS
ENDED DECEMBER 31,
--------------------------
2000 1999
-------- --------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ........................................................................ $(38,107) $ (8,818)
Adjustments to reconcile net loss to net cash used in operating activities:
Purchased in-process research and development .............................. 430 --
Amortization of intangibles and other assets ............................... 16,208 --
Depreciation and amortization .............................................. 7,794 4,405
Stock based compensation ................................................... 3,434 805
Changes in assets and liabilities:
Accounts receivable ........................................................ (2,732) (3,423)
Prepaid expenses and other assets .......................................... (2,318) (209)
Accounts payable ........................................................... 4,745 (2,956)
Accrued liabilities and other .............................................. 33,247 2,329
Deferred revenue ........................................................... (8,880) 8,574
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Net cash provided by operating activities .............................. 13,821 707
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ........................................ (12,373) (18,042)
Proceeds from sale of equipment ............................................ -- 3,380
Investments in equity securities, net ...................................... 5,627 (21,177)
Sales (purchases) of short term investments, net ........................... (5,630) 4,607
Business acquisition ....................................................... (35,903) --
-------- --------
Net cash used in investing activities .................................. (48,279) (31,232)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) on notes payable, net .................................. (2,627) (3,744)
Proceeds (payments) on obligations under capital leases, net ............... (1,642) 1,518
Proceeds from notes receivable for stock ................................... -- 66
Proceeds from exercises of stock options and warrants ...................... 6,437 8,182
-------- --------
Net cash provided by financing activities .............................. 2,168 6,022
Effect of exchange rates on cash and cash equivalents ...................... (320) (41)
-------- --------
Decrease in cash and cash equivalents ...................................... (32,610) (24,544)
Cash and cash equivalents at beginning of period ........................... 41,879 87,324
-------- --------
Cash and cash equivalents at end of period ................................. $ 9,269 $ 62,780
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest ..................................................... $ (212) $ (465)
======== ========
Taxes paid ................................................................. $ (216) $ --
======== ========
Assets acquired under capital leases ....................................... $ -- $ 3,599
======== ========
See Notes to the Condensed Consolidated Financial Statements
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INKTOMI CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. THE COMPANY AND BASIS OF PRESENTATION
Inktomi was incorporated in February 1996 to develop and market scalable
software applications designed to significantly enhance the performance and
intelligence of large-scale networks.
We have prepared the condensed consolidated financial statements
included herein pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, the condensed consolidated
financial statements reflect all adjustments that are necessary for the fair
presentation of results for the periods shown. The results of operations for
such periods are not necessarily indicative of the results expected for the full
fiscal year or for any future period. These financial statements should be read
in conjunction with our audited consolidated financial statements and notes
thereto included in our annual report on Form 10-K/A for the year ended
September 30, 2000 filed with the SEC on January 2, 2001 and our Current Report
on Form 8-K dated January 8, 2001.
The accompanying condensed consolidated financial statements include the
accounts of Inktomi Corporation and its wholly owned subsidiaries. All
intercompany accounts and transactions have been eliminated. While the quarterly
financial information is not audited, the financial statements included herein
reflect all normal, recurring adjustments that are, in the opinion of
management, necessary to state fairly the results for the three month period
ended December 31, 2000. Certain prior period balances have been reclassified to
conform to the current period presentation.
NOTE 2. ACQUISITIONS
In October 1999, we acquired WebSpective Software, Inc. ("WebSpective"),
a developer of software solutions for content and application distribution,
delivery and management. The acquisition of WebSpective was accounted for as a
pooling of interests. Accordingly, all financial information included herein has
been restated to reflect the combined operations of Inktomi and WebSpective. The
consideration paid for all equity interests of WebSpective consisted of
1,655,048 shares of our Common Stock. WebSpective revenues from inception
through September 30, 1999 were $3.2 million. WebSpective raised $12.4 million
through various stock issuances since its inception in March 1997, and had net
losses from inception to September 30, 1999 of $13.5 million. We recorded
acquisition-related costs of approximately $4.0 million in fiscal 2000,
primarily for investment banking fees, accounting, legal and other expenses.
In July 2000, we acquired 100% of all outstanding stock and assumed all
stock options of Ultraseek Corporation ("Ultraseek"), a subsidiary of GO.com,
the Internet business of The Walt Disney Company, in exchange for $3.5 million
in cash and 2,512,880 shares of our Common Stock. Ultraseek operates under our
name, and all employees of Ultraseek joined us in the fourth quarter of fiscal
2000. As a result of the acquisition, we recorded purchased in-process research
and development charges of $4.4 million and amortization of intangibles and
other assets charges of $13.2 million in fiscal 2000. We accounted for the
transaction under the purchase method of accounting. This acquisition supports
our initiative in the enterprise market enabling us to provide customizable
search and navigation software for corporate intranet and extranet sites.
In October 2000, we acquired FastForward Networks, Inc. ("FastForward"),
a developer of software solutions for efficiently enabling streaming media over
networks. The transaction was accounted for as a pooling of interests.
Accordingly, all financial information included herein has been restated to
reflect the combined operations of Inktomi and FastForward. The consideration
paid for all equity interests in FastForward consisted of approximately 12.0
million shares of our Common Stock. FastForward had $0.7 million in revenues and
raised $88.9 million through various stock issuances from its inception in May
1998 through September 30, 2000. We recorded acquisition-related costs of
approximately $19.5 million in the three months ended December 31, 2000,
primarily for investment banking fees, accounting, legal and other expenses.
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In December 2000, we acquired various business assets of Adero, Inc.
("Adero") relating to billing, settlement and traffic reporting and licensed
other related technologies from Adero. With this transaction, we assumed the
role of operator for Content Bridge alliance services. Content Bridge is an
alliance of technology and network service providers formed to enable
cross-network content distribution and speed the delivery of content from the
point of origin to end users. As a result of the acquisition, we recorded
goodwill of $35.9 million under Intangibles and Other Assets, which will be
amortized on a straight-line basis over the next 60 months, as well as $0.4
million for in-process research and development that was expensed in a one-time
charge. We accounted for the transaction under the purchase method of
accounting. In the three months ended December 31, 2000, we also recognized
installment basis revenue from Adero on an agreement consummated in December
1999.
NOTE 3. INVESTMENT ACCOUNTED FOR UNDER THE EQUITY METHOD
At December 31, 2000, we held 4,219,854 shares of Series B Preferred
Stock purchased at $2.84 per share, representing a 31.6% ownership share of
AirFlash, Inc. ("AirFlash"), a global application service provider for the
delivery of mobile content and commerce services. The investment is recorded in
the Condensed Consolidated Balance Sheet under Investments in Equity Securities.
Previously this investment was accounted for under the equity method, which
requires that a proportionate share of their net income or net loss, based on
our percentage of ownership, be reflected in our consolidated financial
statements. We have determined that a more appropriate accounting treatment is
to amortize on a straight-line basis over the next 60 months the difference
between the cost of our investment in AirFlash and the amount of underlying
equity in the net assets of AirFlash.
NOTE 4. CALCULATION OF NET LOSS PER SHARE
Shares used in computing basic and diluted net loss per share ("EPS")
are based on the weighted average shares outstanding in each period. Basic net
loss per share is calculated by dividing net loss by the average number of
outstanding shares during the period. Diluted net loss per share is calculated
by adjusting the average number of outstanding shares assuming conversion of all
potentially dilutive stock options and warrants under the treasury stock method.
For the three months ended December 31, 2000 and 1999, potentially dilutive
stock options and warrants were excluded from the calculation of diluted net
loss per share, as their effect would have been anti-dilutive.
NOTE 5. COMPREHENSIVE NET INCOME (LOSS)
Comprehensive income includes foreign currency translation gains and
losses and unrealized gains and losses on equity securities that have been
previously excluded from net income and reflected instead in stockholders'
equity. The components of comprehensive income are as follows (in thousands):
FOR THE THREE MONTHS
ENDED DECEMBER 31,
----------------------------
2000 1999
--------- ---------
(UNAUDITED)
Net loss .................................................... $ (38,107) $ (8,818)
Unrealized gain (loss) on available-for-sale securities ..... (68,630) 242,264
Foreign currency translation loss ........................... (320) (41)
--------- ---------
Comprehensive net income (loss) ............................. $(107,057) $ 233,405
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NOTE 6. DERIVATIVES
In the three months ended December 31, 2000, we adopted Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation.
We designate our derivatives based upon criteria established by SFAS No.
133. For a derivative designated as a fair value hedge, the gain or loss is
recognized in earnings in the period of change together with the offsetting loss
or gain on the hedged item attributed to the risk being hedged. For a derivative
designated as a cash flow hedge, the effective portion of the derivative's gain
or loss is initially reported as a component of other comprehensive income and
subsequently reclassified into earnings when the hedged exposure affects
earnings. The ineffective portion of the gain or loss is reported in earnings
immediately. For a derivative not designated as a hedging instrument, the gain
or loss is recognized in earnings in the period of change.
Currently, we do not enter into any foreign exchange forward contracts
or any other hedging activities. In conjunction with certain investing
activities, we have acquired derivative securities. The value associated with
these derivatives has been minimal. There were no other significant derivatives
as of December 31, 2000. The adoption of SFAS No. 133 did not have a material
impact on our operations or financial position.
NOTE 7. SEGMENT INFORMATION
Effective September 30, 1999, the Company adopted SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS No.
131 established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services, and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. Our chief
operating decision-maker is our Chief Executive Officer.
We have two reportable operating segments: Network Products and Portal
Services. Network Products consists of Inktomi Traffic Server, Content Delivery
Suite, Media Products, Wireless Products and associated applications. Portal
Services consists of Inktomi Search Solutions and the Inktomi Commerce Engine.
Our reportable segments are organized primarily by technology. Each of these
segments is managed separately because they offer and distribute distinct
technologies and services with different methods of delivery and customer bases.
We evaluate performance and allocate resources to our operating segments
based on a variety of factors, including revenues, operating profit, market
potential, customer commitments and strategic direction. Acquisition-related
costs, purchased in-process research and development, amortization of
intangibles and other assets, and amortization of deferred compensation expense
are not included in management's evaluation of performance by the operating
divisions, as they are primarily organizational in nature. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies in our Form 10-K/A for the year ended
September 30, 2000, as filed on January 2, 2001. We do not track assets by
operating segments.
Financial information about segments (in thousands):
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FOR THE THREE MONTHS ENDED DECEMBER 31, 2000
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PURCHASED
IN-PROCESS AMORTIZATION
ACQUISITION- RESEARCH OF INTANGIBLES AMORTIZATION
NETWORK PORTAL RELATED AND AND OTHER OF DEFERRED
PRODUCTS SERVICES COSTS DEVELOPMENT ASSETS COMPENSATION TOTAL
-------- --------- ------------- ----------- -------------- ------------ ----------
(UNAUDITED)
Revenues...................... $54,183 $ 26,321 $ -- $ -- $ -- $ -- $ 80,504
Operating income (loss)....... $3,271 $ (5,588) $(19,497) $(430) $(16,208) $(3,434) $(41,886)
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
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PURCHASED
IN-PROCESS AMORTIZATION
ACQUISITION- RESEARCH OF INTANGIBLES AMORTIZATION
NETWORK PORTAL RELATED AND AND OTHER OF DEFERRED
PRODUCTS SERVICES COSTS DEVELOPMENT ASSETS COMPENSATION TOTAL
-------- --------- ------------- ----------- -------------- ------------ ----------
(UNAUDITED)
Revenues...................... $22,137 $13,990 $ -- $-- $-- $-- $ 36,127
Operating loss................ $(1,491) $(7,140) $ (3,999) $-- $-- $-- $(12,630)
One customer exceeded 10% of Network Products revenues in the three
months ended December 31, 2000 and a different customer exceeded 10% of Network
Products revenues in the three months ended December 31, 1999. No customer
exceeded 10% of Portal Services revenues in the three months ended December 31,
2000 and one customer exceeded 10% of Portal Services revenues in the three
months ended December 31, 1999.
NOTE 8. RECENT ACCOUNTING PRONOUNCEMENTS
In November 2000, the Financial Accounting Standards Board ("FASB")
Emerging Issues Task Force ("EITF") reached a consensus on EITF Issue 00-19,
Determination of Whether Share Settlement is Within the Control of the Issuer
for Purposes of Applying Issue No. 96-13, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock. The
issue requires derivatives indexed to, and potentially settled in, a company's
own stock to be classified in stockholders' equity only if the contract permits
the company to settle in unregistered shares (among other requirements).
Derivatives outstanding before the effective date of this pronouncement are not
impacted until June 30, 2001. Our existing warrants that have been issued under
the provisions of EITF Issue 96-18, Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services, will likely need to be carefully evaluated and could lose
equity treatment under the provisions of Issue 00-19 as of June 30, 2001. We do
not expect the adoption of EITF Issue 00-19 to have a material impact on our
financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No.
101, Revenue Recognition in Financial Statements. SAB No. 101 discusses certain
generally accepted accounting principles regarding revenue recognition in
financial statements, including the specification of certain criteria that
should be met before revenue is recognized. These criteria include: persuasive
evidence that an arrangement exists, delivery has occurred or services have been
rendered, the seller's price to the buyer is fixed or determinable, and
collectibility is reasonably assured. In March 2000, the SEC issued SAB No.
101A, Amendment: Revenue Recognition in Financial Statements, and SAB No. 101B,
Second Amendment: Revenue Recognition in Financial Statements, to defer for the
effective date of implementation of SAB No. 101 until no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999, with earlier
application encouraged. We adopted SAB No. 101, as amended, in the three months
ending December 31, 2000. The adoption of SAB No. 101, as amended, has not had a
material effect on our financial position or results of operations.
In November 1999, the SEC issued SAB No. 100, Restructuring and
Impairment Charges. SAB No. 100 discusses the accounting for and disclosure of
certain expenses commonly reported in connection with exit activities
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and business combinations. We adopted SAB No. 100 in the three months ending
December 31, 2000. The adoption of SAB No. 100 has not had a material effect on
our financial position or results of operations.
NOTE 9. STOCK SPLITS
In December 1999, our Board of Directors approved a two-for-one stock
split (in the form of a 100% stock dividend) of our Common Stock.
Historical weighted average shares outstanding and loss per share
amounts have been restated to reflect all stock splits and the pooling of
interests with WebSpective and FastForward.
NOTE 10. SUBSEQUENT EVENTS
In January 2001, we signed an agreement to sell our Commerce Engine
division to e-centives Inc. ("e-centives") in exchange for up to 19.9 percent of
e-centives' outstanding shares of Common Stock, some of which will be earned
upon the satisfaction of certain revenue and performance targets. In addition,
we will receive a warrant to purchase additional e-centives' Common Stock upon
the satisfaction of additional revenue targets. e-centives intends to operate
the Commerce Engine division in the San Francisco Bay Area, and the majority of
our Commerce Engine division employees are expected to join e-centives. The
transaction is subject to satisfaction or waiver of various closing conditions.
In February 2001, the Inktomi Board of Directors approved an employee
retention program. Under the program, all employees (including executive
officers and outside directors) have the opportunity to cancel one or more stock
options previously granted to them in exchange for one or more new stock options
to be granted six months and one day from the date the old options are
cancelled. The number of shares subject to the new options will be equal to the
number of shares subject to the old options, and the exercise price of the new
options will be the fair market value of Inktomi Common Stock on the date they
are granted. The new options will have the same vesting schedule as the old
options and will be immediately exercisable as to vested shares when granted
(however new options granted to executive officers and outside directors will
lose three months of vesting and be subject to a trading blackout of three
months following the grant). The total number of unexercised shares subject to
outstanding options as of February 12, 2001 with an exercise price greater than
$14.563 (the closing price on such date) was approximately 18.8 million.
In accordance with accounting rules, stock options granted during the
six month period prior to implementation of the option exchange program that are
not canceled as part of the program may be subject to variable plan accounting
beginning in the fiscal quarter ending March 31, 2001. Inktomi granted options
to purchase approximately 6.0 million shares at an average exercise price of
$33.90 per share during the six months prior to February 12, 2001, including
approximately 3.2 million shares granted in December 2000 at an exercise price
of $17.88 per share. Other stock options that may be granted in the six months
following implementation of the option exchange program may also be accounted
for in this manner. In accordance with GAAP accounting, this will require us to
record a non-cash compensation cost for the options until the options are
exercised, forfeited or cancelled without replacement. The valuation will be
based on any excess of the closing stock price at the end of the reporting
period or date of exercise, forfeiture or cancellation without replacement, if
earlier, over the fair market value of our Common Stock on the option's issuance
date. The resulting compensation charge to earnings will be recorded over the
remaining vesting period, using the straight-line basis of amortization.
Depending upon movements in the market value of our Common Stock, this
accounting treatment may result in significant compensation charges in future
periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including, without limitation, statements regarding our
expectations, beliefs, intentions or future strategies that are signified by the
words "expects", "anticipates", "intends", "believes", "may", "will" or similar
language. All forward-looking statements included in this document are based on
information available to us on the date hereof, and we assume no obligation to
update any such forward-looking statements. Actual results could differ
materially from those projected in any such forward-looking statements. In
evaluating our business, prospective investors should carefully consider the
information set forth
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below under the caption "Factors Affecting Operating Results" set forth herein.
We caution investors that our business and financial performance are subject to
substantial risks and uncertainties.
OVERVIEW
Inktomi Corporation is a leading provider of scalable infrastructure
software. Our software products are designed to significantly enhance the
performance and intelligence of large-scale networks utilized by Internet
Service Providers, content delivery and hosting providers, Web portal and
commerce sites, wireless operators and global enterprises. We believe that in
order for networks to scale cost-effectively, network and service providers must
deploy a layer of high-performance software throughout the network
infrastructure. Our software networking solutions are designed to provide our
customers with improvements in quality of service, cost-effectiveness and
revenue opportunities.
Our core software products and services are divided into two broad
categories: Network Products and Portal Services. Networks Products is composed
of three core technologies: the Traffic Server network cache platform, a
powerful caching technology that enables frequently accessed information to be
stored in and served from dedicated local systems close to the users who use the
information most often; the Content Delivery Suite software solution, a set of
applications that manage the complex task of distributing and tracking content
and applications across service provider and enterprise networks; and Media
Products, technologies enabling live and on-demand Internet and enterprise
broadcasting across service provider and enterprise networks. Portal Services
consists of our Search Solutions, which includes our Internet search engine
services and licensed enterprise search and categorization software; and our
Commerce Engine, a high-performance commerce application that enables portals
and other Internet destination sites to offer online commerce services through
their sites to end users.
Network Products revenues are composed of license, consulting, support
and upgrade fees in connection with the Traffic Server network cache platform,
Content Delivery Suite software solutions, Media Products and Wireless Products.
License fees are generally based on the number of CPUs running the software and
are generally recognized upon shipment of the software assuming all other
revenue recognition criteria have been met. Consulting, support and upgrade fees
are recognized ratably over the service period as the services are performed.
Portal Services revenues are composed of revenues generated through our
Search Solutions and Commerce Engine. We generate revenues from our Search
Solutions through a variety of contractual arrangements, which include general
service fees, per-query search fees and search service hosting fees, database
inclusion fees and search software licensing fees, all of which are recognized
in the period earned. Our contracts for our Commerce Engine provide for payments
to us consisting of annual infrastructure service fees, transaction fees from
participating online merchants and per-query search fees, and advertising
revenues and general service fees from Internet portals and other Web site
customers. To date, revenues from online commerce have consisted primarily of
annual infrastructure service fees and non-recurring engineering fees.
The Network Products segment generated operating income of $3.3 million
in the three months ended December 31, 2000, an increase in operating income of
$4.8 million over an operating loss of $1.5 million in the comparable period in
fiscal 1999. The Portal Services segment generated an operating loss of $5.6
million in the three months ended December 31, 2000, a decrease in operating
loss of $1.6 million or 22% over the comparable period in fiscal 1999. The
Network Products and Portal Services results exclude acquisition-related costs,
purchased in-process research and development and amortization of intangibles
and other assets. For additional segment information, refer to Note 7, Segment
Information, included in the Notes to the Condensed Consolidated Financial
Statements, as presented earlier in this Form 10-Q.
We have undertaken a broad initiative in the global wireless Internet
space. This initiative encompasses our Portal Services and Network Products and
is directed at providing the infrastructure software necessary for wireless
network operators, Internet portals and global enterprises to deliver the
next-generation of mobile data services. To facilitate our entry into the
wireless space, we will need to substantially modify our products and services,
establish and maintain strategic alliances with a variety of companies, and hire
new management, technical, sales and other personnel. We expect to incur
significant expenses across all wireless expense categories and expect that
revenues from this initiative will be modest for the next few quarters.
We expect to continue to incur significant sales and marketing, product
development and administrative expenses across all lines of business, and in
particular, to focus on the enterprise market and to support our new wireless
initiative. We expect that these expenses coupled with our projections that
revenues will be lower for our
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Network Products for the foreseeable future will result in a loss of
profitability. We will need to significantly increase revenues over current
levels to return to profitability in the future. We cannot be sure that this
growth will occur.
In January 2001, subsequent to the date of the financial statements
included herein, we signed an agreement to sell our Commerce Engine division to
e-centives Inc. ("e-centives") in exchange for up to 19.9 percent of e-centives'
outstanding shares of Common Stock, some of which will be earned upon the
satisfaction of certain revenue and performance targets. In addition, we will
receive a warrant to purchase additional e-centives' Common Stock upon the
satisfaction of additional revenue targets. e-centives intends to operate the
Commerce Engine division in the San Francisco Bay Area, and the majority of our
Commerce Engine division employees are expected to join e-centives. The closing
of this transaction is scheduled to occur in the quarter ending March 31, 2001
subject to satisfaction or waiver of various closing conditions. We expect to
incur disposition related charges in connection with the transaction.
RESULTS OF OPERATIONS
REVENUES
Total revenues were $80.5 million in the three months ended December 31,
2000, an increase of $44.4 million or 123% over the comparable period in fiscal
1999, and an increase of $1.2 million or 2% over the preceding quarter ended
September 30, 2000. One customer exceeded 10% of total revenues in the three
months ended December 31, 2000 and a different customer exceeded 10% of total
revenues in the three months ended December 31, 1999. We market and sell our
products to customers located in the United States and abroad, both through our
direct sales force and through our channel partners. Historically, the
percentage of sales to customers located outside of the United States has varied
substantially, reflecting the early stage build-out of our international
operations. We expect this variation to continue for the foreseeable future. We
have generated most of our revenues through direct sales efforts, except in Asia
where our revenues have been principally generated through our channel partners.
We will need to expand our existing channel relationships and establish new
channel relationships worldwide to broaden our sales reach and revenue
opportunities.
Network Products revenues totaled $54.2 million in the three months
ended December 31, 2000, an increase of $32.1 million or 145% over the
comparable period in fiscal 1999 and a decrease of $2.6 million or 5% over the
preceding quarter ended September 30, 2000. The year-to-year increase was
primarily due to increased licenses of Traffic Server and Content Delivery
Suite, particularly to network service provider customers in the content
delivery, access and backbone markets. The decrease from the prior quarter was
due to lower demand for our Traffic Server, Content Delivery Suite and Media-IXT
products resulting from the slowing economy and reflecting the early stage
nature of our markets, offset partially by licenses of our other Media Products
acquired through the FastForward acquisition that closed in October 2000. In the
past, several customers purchased our products in a single transaction to
satisfy their anticipated requirements for as much as a year or more. As the
economy has slowed, many of our target customers have significantly downsized or
deferred their network build-outs and are re-evaluating their capital spending
and returns on investment. This has impacted the number and size of our sales
opportunities and we expect this environment to continue and our Network
Products revenues to be lower for the foreseeable future. During the quarter,
our Network Products revenues consisted primarily of a small number of
multi-million dollar contracts and several other smaller contracts generally
ranging between $0.1 million and $0.5 million. Up-front license revenue
generated from direct end-user customers accounted for most of total Network
Products revenues. One customer exceeded 10% of Network Products revenues in the
three months ended December 31, 2000 and a different customer exceeded 10% of
Network Products revenues in the three months ended December 31, 1999.
Portal Services revenues totaled $26.3 million in the three months ended
December 31, 2000, an increase of $12.3 million or 88% over the comparable
period in fiscal 1999 and an increase of $3.8 million or 17% over the preceding
quarter ended September 30, 2000. Most of the year-to-year and
quarter-to-quarter increases resulted mainly from an increase in sales of our
Search Solutions to the enterprise market. Of the total Portal Services revenues
for the three months ended December 31, 2000, $21.2 million were derived from
Inktomi Search Solutions, and $5.1 million were derived from the Inktomi
Commerce Engine. No customer exceeded 10% of Portal Services revenues in the
three months ended December 31, 2000 and one customer exceeded 10% of Portal
Services revenues in the three months ended December 31, 1999.
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During the three months ended December 31, 2000 and 1999, we recognized
revenues of approximately $16.2 million and nil, respectively, on contracts,
development, and licensing arrangements with customers in which we are equity
shareholders. During the three months ended December 31, 2000, we recognized
installment basis revenue from Adero on an agreement consummated in December
1999. Prices on these contracts and arrangements were comparable to those given
to other similarly situated customers.
EXPENSES
Operating expenses include cost of revenues, selling and marketing
expenses, research and development expenses, general and administrative
expenses, acquisition-related expenses, purchased in-process research and
development and amortization of intangibles and other assets. Research and
development, sales and marketing and general and administrative expenses
primarily consist of personnel and related costs. As we grow our businesses, we
expect our total costs per employee to increase, which along with increased
headcount will increase our expenses in absolute dollars.
We are subject to employer payroll taxes on gains on certain employee
stock options. At December 29, 2000, our stock price closed at $17.88 per share.
Had our employees exercised all of these options on December 29, 2000 at that
price, we would have been subject to payroll taxes on gains realized by our
employees of $0.8 million on vested options and $4.0 million on unvested
options. These amounts would be charged to operations in the period the options
are exercised. Should a significant number of our employees choose to exercise
options, or if our stock price increases significantly, our quarterly results of
operations would be adversely affected.
In connection with the completion of our public offerings, stock option
grants, and our business acquisitions, certain options granted in 2000 and 1999
have been considered to be compensatory. Compensation associated with such
options was $3.4 million and $0.8 million for the quarter ending December 31,
2000 and December 31, 1999 respectively. At December 31, 2000, a balance of
$43.0 million in deferred compensation remained and will be charged to
operations through 2004.
COST OF REVENUES
Cost of revenues consists primarily of expenses related to the operation
of our search and commerce services, primarily depreciation, network and hosting
charges, as well as royalties for our Media-IXT application. Cost of revenues
was $10.0 million in the three months ended December 31, 2000, an increase of
$4.1 million or 69% over the comparable period in fiscal 1999, but representing
a decrease from 16% to 13% of cost of revenues as a percentage of revenue over
the comparable period in fiscal 1999. The increase in absolute dollars was due
primarily to additional depreciation, network and hosting charges resulting from
expansions of our data centers in the United States and abroad during fiscal
2000 and 1999 and royalties on Media-IXT. We expect cost of revenues to remain
flat or decline slightly from the previous quarter reflecting the disposition of
our Commerce Engine division and anticipated lower revenues and corresponding
lower royalty obligations related to our Network Products business.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist of personnel and related costs for
our direct sales force and marketing staff as well as expenses related to our
marketing programs, including trade shows and advertising. Sales and marketing
expenses were $47.4 million in the three months ended December 31, 2000, an
increase of $24.2 million or 105% over the comparable period of fiscal 1999.
This increase was primarily due to an increase in the number of sales and
marketing personnel, increased sales commissions and additional marketing
programs, including the initiation of a branding campaign. We expect that sales
and marketing expenses will remain flat or decline slightly from the previous
quarter reflecting anticipated reduced sales commissions and a slowing of our
marketing and advertising expenditures in the near term.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist primarily of personnel and
related costs for our development and technical support efforts. Research and
development expenses were $22.9 million in the three months ended December 31,
2000, an increase of $11.2 million or 96% over the comparable period of fiscal
1999. The increase was primarily due to an increase in the number of research
and development personnel to support expansion of our
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Search Solutions and Network Products businesses, online commerce development,
and increases in quality assurance, technical support and technical publications
personnel. We believe significant investments in research and development is
essential to our future success and expect that research and development
expenses will increase in future periods, although they may decline slightly in
the near term reflecting the disposition of our Commerce Engine division.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including accounting, facilities,
finance, human resources and legal. General and administrative expenses totaled
$5.9 million in the three months ended December 31, 2000, an increase of $1.9
million or 48% over the comparable period of fiscal 1999. This increase was due
primarily to an increase in the number of general and administrative personnel,
increased accounting and legal costs incurred in connection with business
activities and purchases related to our corporate headquarters in Foster City,
California. We expect general and administrative expenses to remain flat or
decline slightly from the previous quarter reflecting recently initiated expense
savings programs and slowing growth in the number of general and administrative
personnel.
ACQUISITION-RELATED COSTS
As a result of our FastForward acquisition in October 2000 and our
WebSpective acquisition in October 1999, we recorded acquisition-related costs
of $19.5 million and $4.0 million in the three months ended December 31, 2000
and 1999, respectively, primarily for investment banking fees, accounting, legal
and other expenses. As of December 31, 2000, $11.6 million in accrued
liabilities related to acquisition-related costs remained outstanding.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
A portion of the purchase price we paid for various assets of Adero have
been allocated to developed technology and in-process research and development
("IPRD"). We identified and valued the developed technology and IPRD by
conducting extensive interviews, analyzing data provided by the acquired
companies concerning developmental products, considering the stage of
development of such products and the time and resources needed to complete them,
and assessing the expected income generating ability of the products, target
markets and associated risks. The income approach, which includes an analysis of
the markets, cash flows, and risks associated with achieving such cash flows,
was the primary technique utilized in valuing the developed technology and IPRD.
Based on our analysis of these variables, we recorded a one-time purchased IPRD
charge of $0.4 million in the three months ended December 31, 2000.
AMORTIZATION OF INTANGIBLES AND OTHER ASSETS
Amortization of intangibles and other assets included in operating
expenses was $16.2 million and nil in the three months ended December 31, 2000
and 1999, respectively. Amortization of intangibles and other assets primarily
relates to our purchase acquisition of Ultraseek.
OTHER INCOME, NET
Other income, net includes interest on our cash and cash equivalents,
restricted cash and short-term investments, less expenses related to our debt
and capital lease obligations and foreign exchange losses. Other income, net
totaled $4.0 million in the three months ended December 31, 2000, an increase of
$0.2 million or 5% over the comparable period of fiscal 1999. Most of this
increase was generated from $6.2 million in interest income in the three months
ended December 31, 2000, offset by a $1.6 million impairment against our
investments in equity securities, interest charges of $0.2 million and a foreign
exchange loss of $0.3 million in the three months ended December 31, 2000.
INCOME TAX PROVISION
Our income taxes for the three months ended December 31, 2000 were $0.2
million. Our effective income tax rate may change during the remainder of fiscal
2001 if operating results differ significantly from current projections.
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NET LOSS
We recorded a net loss of $38.1 million or $0.31 per share in the three
months ended December 31, 2000, compared to a net loss of $8.8 million or $0.08
per share, in the three months ended December 31, 1999. The results for the
three months ended December 31, 2000 include non-recurring acquisition-related
costs of $19.5 million incurred in connection with the acquisition of
FastForward, $0.4 million in non-recurring purchased IPRD charges from the
acquisition of various assets of Adero and $16.2 million in amortization of
intangibles and other assets related to our goodwill from the acquisition of
Ultraseek. We generated net income of $1.0 million or $0.01 per share in the
three months ended December 31, 2000, excluding amortization of deferred
compensation, acquisition-related charges, purchased IPRD and amortization of
intangibles and other assets.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, restricted cash and short-term investments
totaled $311.1 million at December 31, 2000, a decrease of $27.0 million or 8%
from $338.1 million at fiscal year-end September 30, 2000. Most of the decrease
came from cash used in investing activities, including; purchase of equipment
and goodwill associated with the acquisition of Adero, offset by proceeds from
exercises of stock options and increased accrued liabilities.
Investments in equity securities totaled $52.3 million at December 31,
2000, a decrease of $74.3 million or 59% from $126.6 million at fiscal year-end
September 30, 2000, primarily due to the decrease in value of the securities of
the Internet companies that comprise our equity investment portfolio. Our
investments that have readily determinable fair values are marked-to-market with
any change from cost or prior value as an adjustment to stockholders' equity.
Other strategic investments in equity securities are carried at cost. All of our
investments in equity securities are comprised of strategic investments in
Internet companies. Internet stock values are volatile and therefore our
investments in equity securities balance may fluctuate significantly in the
future. We expect to continue such investments during the upcoming fiscal year.
We generated $13.8 million in cash from operations in the three months
ended December 31, 2000. This compares to $0.7 million generated from operations
in the comparable period in fiscal 1999. The increase in cash from operations
was primarily due to a $38.0 million increase in our accounts payable and
accrued liabilities, a significant portion of which was related to liabilities
assumed in our acquisition of various business assets of Adero. This amount was
partially offset by decreases in deferred revenue, accounts receivable and
prepaids and other assets.
We have made significant investments in property and equipment since
inception. These investments consist largely of computer servers, workstations,
networking equipment and leasehold improvements associated with our corporate
headquarters in Foster City, California. We invested $12.4 million and $18.0
million in the three months ended December 31, 2000 and 1999, respectively,
primarily for leasehold improvements and computer equipment.
From time to time, we have used debt and leases to partially finance
capital purchases. At December 31, 2000, we had $8.5 million in total loans and
capitalized lease obligations outstanding. Our underlying assets collateralize
the loans, and the underlying equipment obtained through the lease agreements
collateralizes each capitalized lease. Approximately $3.9 million of our debt at
December 31, 2000 was in the form of bank loans. The bank loans include certain
covenants requiring minimum liquidity, tangible net worth and profitability over
time.
In April 2000, we entered into a lease commencing November 1, 2001 for
approximately 400,000 square feet of office space in two mid-rise office
buildings in Foster City, California. Aggregate payments to be made under the
lease are approximately $324.4 million over the lease term ending October 31,
2016. We expect to undertake significant capital improvements on this property.
In August 2000, we entered into a synthetic lease agreement for the land
and facilities of our corporate headquarters, including all improvements related
to this property for an aggregate purchase price of $114 million. The agreement
was assigned to a third party lessor under the terms of a lease finance
structure. This structure also required the creation and maintenance of a cash
collateral account that limits the liquidity of $119.6 million of our cash.
Our capital requirements depend on numerous factors, including market
acceptance of our products, the resources we devote to developing, marketing,
selling and supporting our products, the timing and extent of establishing
international operations, the extent and timing of investments, acquisition
costs, and other factors. We
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expect to devote capital resources to hire and expand our sales, support,
marketing and product development organizations, to expand marketing programs,
to establish additional facilities worldwide and for other general corporate
activities, all consistent with our revenue opportunities.
FACTORS AFFECTING OPERATING RESULTS
Interested persons should carefully consider the risks described below
in evaluating us. Additional risks and uncertainties not presently known to us
or that we currently consider immaterial may also impair our business
operations. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially adversely
affected. In that case, the trading price of our Common Stock could decline.
OUR BUSINESS SUBSTANTIALLY DEPENDS UPON THE SUCCESS OF OUR TRAFFIC SERVER
PRODUCT, CONTENT DELIVERY SUITE AND MEDIA PRODUCTS.
Our future growth substantially depends on the commercial success of our
Traffic Server network cache product, our Content Delivery Suite software
solution and our Media Products. We are targeting several market segments for
these products, including telecommunications and backbone carriers, Internet
access networks, Internet hosting providers, OEM customers, large enterprise
customers, wireless networks and content delivery networks. Our ability to
generate substantial and sustained revenues from these products is dependent
upon achieving sales penetration in each of these market segments and
significantly increasing the number of new and repeat customer transactions,
especially within the enterprise market. In this regard, we will need to
continue to modify and enhance our products for each of these market segments
and establish effective marketing programs (including promotion of the Content
Bridge alliance) to augment the sales process. The markets for large-scale
network caching, content delivery and streaming media are in their early stages.
Demand for these technologies can be subject to substantial quarterly
fluctuations and customers are increasingly applying stringent criteria to
purchase decisions. We are not sure our target customers will widely adopt and
deploy these technologies throughout their networks. Even if they do so, they
may not choose our products because they do not include the features they
require, they wish to outsource content delivery and streaming media services to
a third party vendor rather than directly implement enabling such technology in
their networks, or for technical, cost, support or other reasons.
DEMAND FOR OUR STREAMING MEDIA PRODUCTS IS DEPENDENT ON INCREASING AVAILABILITY
OF MEDIA CONTENT ON NETWORKS, THE BUILD OUT OF BROADBAND CAPABILITIES AND THE
ESTABLISHMENT OF PROFITABLE BUSINESS MODELS BY OUR CUSTOMERS, AMONG OTHER
FACTORS, ALL WHICH ARE OUTSIDE OF OUR CONTROL.
The streaming media market is in its early stages and the amount of
appealing streaming content currently available is relatively limited. The
amount of streaming content available over public networks and enterprise
networks must increase substantially for our potential customers to justify
their purchase of our Media Products. Our Media Products are complex which may
limit their market acceptance and deployment. Growth in sales of our Media
Products in the service provider space depends on the increased availability and
usage of broadband access to the Internet. We cannot be sure that broadband
access to the Internet will grow fast enough or be utilized by enough persons to
create a sustainable marketplace for our Media Products. In addition, successful
business models for the delivery of streaming media content must be developed in
order for there to be sufficient demand for our Media Products in the service
provider marketplace.
OUR BUSINESS WOULD BE HARMED IF CUSTOMERS CHOOSE NOT TO USE OR PROMOTE OUR
SEARCH SERVICES.
Revenues from our search services result primarily from the number of
end-user searches processed by our Search Engine. Our agreements with customers
do not require them to direct end-users to our search services or to use our
search services exclusively or at all. Accordingly, revenues from search
services are highly dependent upon the willingness of customers to promote and
use the search services we provide, the ability of our customers to attract
end-users to their online services, the volume of end-user searches that are
processed by our Search Engine, and the ability of customers to monetize traffic
from their Web site search pages. Some of our customers have selected competing
search and directory services to operate in combination with our services, which
has reduced the number of queries available for us to serve and may erode future
revenue growth opportunities. The technological barriers for customers to
implement additional services or to replace our services are not substantial.
The market for Internet search is maturing and many smaller and medium size
portals are not profitable, suffer from declining revenue growth and have
limited access to capital to fund operational needs. In order for us to continue
to increase revenues from our Search Engine business at historical rates, we
will need to continue to sign up an increasing
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number of new customers, develop and deliver new search services, products and
features to existing and future customers, and establish deeper strategic
relationships with our customers. In addition, we will need to generate revenues
from other interested parties in the search process such as content providers
and broaden our market opportunities such as through our enterprise search
software license business.
THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE AND RAPIDLY CHANGING AND
WE MAY BE UNABLE TO COMPETE SUCCESSFULLY AGAINST NEW ENTRANTS AND ESTABLISHED
COMPANIES WITH GREATER RESOURCES.
We compete in markets that are new, intensely competitive, highly
fragmented and rapidly changing. We have experienced and expect to continue to
experience increased competition from current and potential competitors in each
of our market segments, many of which are bringing new solutions to market,
establishing technology alliances and OEM relationships with larger companies,
and focusing on specific segments of our target markets. In some cases, our
competitors are implementing aggressive pricing and other strategies that are
focused in the short term on building customer bases, name recognition in the
market and capturing market share. This may cause some price pressure on our
products and services in the future.
We directly compete against several companies in the network cache,
content delivery and streaming media markets, including Akamai, CacheFlow, Cisco
Systems, InfoLibria, Microsoft, Netscape, Network Appliance, Novell,
RealNetworks, Spyglass and Volera. We are aware of numerous other major software
developers as well as smaller entrepreneurial companies that are focusing
significant resources on developing and marketing products and services that
will compete with our Network Products. We also believe that we may face
competition from other providers of competing solutions to network
infrastructure problems, including networking hardware and software
manufacturers, traditional hardware manufacturers, telecommunications providers,
cable TV/communications providers, software database companies, and large
diversified software and technology companies. Many of these companies provide
or have announced their intentions to provide a range of software and hardware
products based on Internet protocols and to compete in the broad
Internet/intranet software market as well as in specific market segments in
which we compete.
We compete with a number of companies to provide Internet search and
directory services and technology. In the services marketplace, our primary
competitors include a variety of established and newer companies, including
AltaVista, Ask Jeeves, FAST Search and Transfer, Google, Goto.com, Infoseek,
LookSmart, Netscape Open Directory and Northern Light. These companies and other
competitors have focused on search result relevance, database size metrics and
ease of use to differentiate their services. In the software market, our primary
competitors include AltaVista, Autonomy, Dataware, Excalibur, Fulcrum, Lotus,
Microsoft and Verity. We also indirectly compete in this market with Oracle and
other database vendors that offer information search and retrieval capabilities
with their core database products, and Web platform companies such as Netscape.
In addition, several large media and other Internet-based companies have made
investments in, or acquired, Internet search engine companies and may seek to
develop or customize their products and services to deliver to our target
customers.
Our competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements than we can. In addition, our
current and potential competitors may bundle their products with other software
or hardware, including operating systems and browsers, in a manner that may
discourage users from purchasing products offered by us. Also, current and
potential competitors have or may have greater name recognition, more extensive
customer bases and access to proprietary content. Increased competition could
result in price reductions, fewer customer orders, fewer search queries served,
fewer online commerce transactions and traffic, reduced gross margins and loss
of market share.
THE INTERNET INFRASTRUCTURE MARKET IS RAPIDLY CHANGING AND WE MUST DEVELOP,
ACQUIRE, AND INTRODUCE NEW PRODUCTS AND TECHNOLOGIES TO CONTINUE TO GROW OUR
REVENUES AND REMAIN COMPETITIVE.
The Internet infrastructure market is characterized by rapid
technological change, frequent new product introductions, changes in customer
requirements and evolving industry standards. The introduction of products
embodying new technologies and the emergence of new industry standards could
render our existing products obsolete. Our future success and revenue growth
will depend upon our ability to develop, acquire and introduce a variety of new
products and product enhancements to address the increasingly sophisticated
needs of our customers, particularly in the enterprise market. The increasing
scope of our business has led us to allocate additional resources to our current
business opportunities and fewer resources to longer-term projects. We have
experienced delays in releasing new products and product enhancements and may
experience similar delays in the future. Material delays
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in introducing new products and enhancements may cause customers to forego
purchases of our products or to purchase those of our competitors.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, AND THESE
FLUCTUATIONS MAY CAUSE OUR STOCK PRICE TO FALL.
We expect that a significant portion of our future revenues will come
from licenses of the Traffic Server network cache platform, Content Delivery
Suite software solution and our Media Products. We further expect that these
revenues will come from licenses to a relatively small number of customers. The
volume and timing of orders are difficult to predict because the markets for
Traffic Server, Content Delivery Suite and our Media Products are in their early
stages, the sales cycle varies substantially from customer to customer. In
addition, many customers in our target markets are scrutinizing their capital
spending budgets in light of the slowing economy, and other customers have
limited access to capital to fund operational needs. These companies are
shifting their buying patterns as a result, taking a more cautious and measured
approach to their network build-out plans. Historically, customer orders during
a quarter have consisted of a small number of multi-million dollar deals and
several other smaller orders ranging from $0.1 million to $0.5 million. The
cancellation, deferral or reduction of even a small number of licenses of
Traffic Server, Content Delivery Suite or Media Products would reduce our
expected revenues, which would adversely affect our quarterly financial
performance. To the extent significant sales occur earlier than expected,
operating results for later quarters may not compare favorably with operating
results from earlier quarters.
Our operating expenses are largely based on anticipated revenue trends
and a high percentage of our expenses are fixed in the short term. We plan to
support our entry into the Wireless market, expand our sales and marketing
operations, broaden our customer support capabilities, develop new distribution
channels, and fund greater levels of research and development. A delay in
generating or recognizing revenue for the reasons already discussed or for any
other reason could cause significant variations in our operating results from
quarter-to-quarter and could result in substantial operating losses.
Due to these factors, we believe that quarter-to-quarter comparisons of
our operating results are not a good indication of our future performance. It is
likely that in some future three months, our operating results may be below the
expectations of public market analysts or investors, and the price of our Common
Stock may fall.
OUR FUTURE REVENUE GROWTH DEPENDS ON OUR ABILITY TO EXPAND OUR SALES,
DISTRIBUTION AND SUPPORT ORGANIZATIONS.
We will need to substantially expand our direct and indirect sales
operations, both domestically and internationally, in order to increase market
awareness and sales of our products. Our products and services require
sophisticated sales efforts targeted at several people within our prospective
customers' organizations. Competition for qualified sales personnel is intense,
and we might not be able to hire the kind and number of sales personnel we are
targeting.
In addition, our future revenue growth is dependent upon establishing
and maintaining productive relationships with a variety of distribution
partners, including OEMs, resellers, systems integrators and joint marketing
partners. We seek to sign up distribution partners that have a substantial
amount of technical expertise in the computer network and telecommunications
industry. Even with this expertise, our distribution partners generally require
a significant amount of training and support from us, and we anticipate that it
will take several quarters before our distribution partners will develop the
expertise and skills necessary to effectively sell our products. We cannot be
sure that we will be successful in signing up the desired distribution partners
or that our distribution partners will devote adequate resources or have the
technical and other sales capabilities to sell our products.
Similarly, the complexity of our products and the difficulty of
installing them require highly trained customer service and support personnel.
We currently have a relatively small customer service and support organization
and will need to increase our staff to support new customers, new product lines,
the expanding needs of existing customers and the internationalization of our
business. Competition for customer service and support personnel is intense in
our industry due to the limited number of people available with the necessary
technical skills and understanding of the relevant industries including the
Internet, telecommunications and commerce.
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THE GLOBAL WIRELESS INTERNET SPACE IS A NEW MARKET AND WE CANNOT BE CERTAIN THAT
OUR ENTRY INTO THIS MARKET WILL BE SUCCESSFUL.
We have recently undertaken a broad initiative in the global wireless
Internet space. The market for new wireless Internet products and services is in
an early stage of development and is rapidly evolving. We have limited
experience in the wireless market and cannot be certain that the market will
develop in such a manner as to provide us with substantial revenue-generating
opportunities. Several companies are developing products and services targeted
to the wireless space, many of which are ahead of us in development and
implementation. We expect competition to be intense. To facilitate our entry
into the wireless space, we will need to modify our products and services,
establish and manage strategic alliances with a variety of companies including
wireless operators, content providers, hardware manufacturers and integrated
service vendors, and hire new management, technical sales and other personnel.
In this connection, we expect to incur material expenses across all expense
categories for the next several quarters. We cannot be certain that our entry
into the wireless space will be successful.
THE LOSS OF A KEY CUSTOMER COULD ADVERSELY AFFECT OUR REVENUES AND BE PERCEIVED
AS A LOSS OF MOMENTUM IN OUR BUSINESS.
We have generated a substantial portion of our historical revenues from
a limited number of customers. We expect that a small number of customers will
continue to account for a substantial portion of revenues for the foreseeable
future. As a result, if we lose a major customer for any reason, including
non-renewal of a customer contract or a failure to meet performance
requirements, or in the case of our Search Engine business if there is a decline
in usage of any customer's search service, our revenues would be adversely
affected. Our potential customers and public market analysts or investors may
perceive any such loss as a loss of momentum in our business, which may
adversely affect future opportunities to sell our products and services and
cause our stock price to decline. We cannot be sure that customers that have
accounted for significant revenues in past periods, individually or as a group,
will continue to generate revenues in any future period.
THE LEGAL ENVIRONMENT IN WHICH WE OPERATE IS UNCERTAIN AND CLAIMS AGAINST US
COULD CAUSE OUR BUSINESS TO SUFFER.
Our products and services operate in part by making copies of material
available on the Internet and other networks and making this material available
to end-users from a central location or local systems. In addition, our Portal
Services technology systems collect end-user and transaction information, which
we use to deliver services to our customers and merchant partners. This creates
the potential for claims to be made against us (either directly or through
contractual indemnification provisions with customers) for defamation,
negligence, copyright or trademark infringement, personal injury, invasion of
privacy or under other legal theories based on the nature, content, copying,
dissemination, collection or use of these materials. These claims have been
threatened against us from time to time and have been brought, and sometimes
successfully pressed, against online service providers. It is also possible that
if any information provided through any of our Portal Services or facilitated by
our Network Products contains errors, third parties could make claims against us
for losses incurred in reliance on this information. Although we carry general
liability insurance, our insurance may not cover potential claims of this type
or be adequate to protect us from all liability that may be imposed.
INTERNET-RELATED LAWS COULD ADVERSELY AFFECT OUR BUSINESS.
Laws and regulations that apply to communications and commerce over the
Internet are becoming more prevalent. The United States Congress recently
enacted Internet laws regarding children's privacy, copyrights, taxation and the
transmission of sexually explicit material. The European Union recently enacted
its own privacy regulations, and is currently considering copyright legislation
that may extend (or clarify the existence of) the right of reproduction held by
copyright holders to control the right to make temporary copies for any reason,
including caching and other copies made during the transmission process. The law
of the Internet, however, remains largely unsettled, even in areas where there
has been some legislative action. It may take years to determine whether and how
existing laws such as those governing intellectual property, privacy, libel and
taxation apply to the Internet. In addition, the growth and development of the
market for online commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business online. The adoption,
implementation or modification of laws and regulations relating to the Internet,
or interpretations of existing law, could adversely affect our business.
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IF WE ARE UNABLE TO MAINTAIN OUR RELATIONSHIPS WITH CUSTOMERS AND THE COMPANIES
THAT SUPPLY AND DISTRIBUTE OUR PRODUCTS, WE MAY HAVE DIFFICULTY SELLING OUR
PRODUCTS AND SERVICES.
We believe that our success in penetrating our target markets depends in
part on our ability to develop and maintain strategic relationships with key
hardware and software vendors, Internet technology and service providers,
distribution partners and customers. We believe these relationships are
important in order to validate our technology, facilitate broad market
acceptance of our products, enhance our product and service offering, and expand
our sales, marketing and distribution capabilities. If we are unable to develop
these key relationships or maintain and enhance existing relationships,
particularly in the area of streaming audio and video, we may have difficulty
selling our products and services.
We have from time to time licensed components from others such as
reporting functions and security features and incorporated them into our
products and services. If these licensed components are not maintained, it could
impair the functionality of our products and services and require us to obtain
alternative products from other sources or to develop this software internally.
In either case, this could involve costs and delays as well as diversion of
engineering resources.
OUR SUCCESS DEPENDS ON OUR ABILITY TO MANAGE GROWING AND CHANGING OPERATIONS.
Our ability to offer products and services and implement our business
plan in a rapidly evolving market successfully requires an effective planning
and management process. We have substantially increased the scope of our
operations in recent quarters, both domestically and internationally, and have
grown our headcount considerably. We have acquired and assimilated various
companies over the past several quarters and recently entered into an agreement
to divest our Commerce Engine business. The economy has slowed and many of our
customers are taking a more cautious and measured approach to their network
build-outs. This environment has placed, and our anticipated future operations
will continue to place, a significant strain on our management systems,
personnel and other resources. To be successful, we will need to continue to
improve our financial and managerial controls and reporting systems and
procedures, enhance our internal and external security systems, and continue to
expand, train and manage our work force worldwide.
ANY ACQUISITIONS THAT WE MAKE COULD ADVERSELY AFFECT OUR OPERATIONS OR FINANCIAL
RESULTS.
We have purchased five companies since September 1998 and intend to
continue to invest in or acquire complementary companies, products and
technologies in the future. If we buy a company, we could have difficulty in
assimilating that company's personnel and operations and maintaining acceptable
standards, controls, procedures and policies. In addition, the key personnel of
the acquired company may decide not to work for us. Also, we could have
difficulty in integrating the acquired technology or products into our
operations. There could be potential unknown liabilities associated with the
purchased company. These difficulties could disrupt our ongoing business,
distract our management and employees and increase our expenses. Furthermore, we
may have to incur debt or issue equity securities to pay for any future
acquisitions, the issuance of which could be dilutive to our stockholders.
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL WE NEED TO SUCCEED.
Our primary asset is the intellectual capabilities of our employees. We
are therefore dependent on recruiting and retaining a strong team of personnel
across all functional areas. Competition for these individuals is intense, and
we may not be able to attract or retain the highly qualified personnel necessary
for our success. Our employment relationships are generally at-will. If any of
our officers or key employees were to leave us, we could face substantial
difficulty in hiring qualified successors and could experience a loss in
productivity while any such successor obtains the necessary training and
experience. Many of our officers and key employees have reached or will soon
reach the four-year anniversary of their hiring date and will be fully vested in
their initial stock option grants. While our officers and key employees are
typically granted additional stock options to provide additional incentive to
remain with us, the initial option grant is typically the largest and an
employee may be more likely to leave us upon completion of the vesting period
for the initial option grant. We do not have key person life insurance policies
covering any of our employees other than our Chief Executive Officer.
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22
OUR EFFORTS TO INCREASE OUR PRESENCE IN MARKETS OUTSIDE OF THE UNITED STATES MAY
BE UNSUCCESSFUL AND COULD RESULT IN LOSSES.
We market and sell our products in the United States and
internationally, principally Europe and Asia. We have substantially grown our
international operations in recent quarters and intend to continue this
expansion. This expansion will require significant management attention and
financial resources, and we cannot be sure that our investments in establishing
facilities in other countries will produce desired levels of revenue.
Historically, the percentage of sales to customers located outside of the United
States has varied substantially, reflecting the early stage build-out of our
international operations. We have limited experience in developing localized
versions of our products and marketing and distributing our products
internationally. In addition, other inherent risks may apply to international
operations, including:
- the impact of recessions in economies outside the United States;
- greater difficulty in accounts receivable collection and longer
collection periods;
- unexpected changes in regulatory requirements;
- difficulties and costs of staffing and managing foreign operations;
- potentially adverse tax consequences; and
- political and economic instability.
We also have limited experience operating in foreign countries and
managing multiple offices with facilities and personnel in disparate locations.
We may not be able to manage our resources effectively, coordinate our efforts,
supervise our personnel or otherwise successfully manage our resources. The laws
and cultural requirements in foreign countries can vary significantly from those
in the United States. The inability to integrate our business in these
jurisdictions and to address cultural differences may adversely affect the
success of our international operations.
INTELLECTUAL PROPERTY CLAIMS AGAINST US COULD CAUSE OUR BUSINESS TO SUFFER.
Substantial litigation regarding intellectual property rights exists in
the software industry. We expect that software products may be increasingly
vulnerable to third party infringement claims as the number of competitors in
our industry segments grows, the functionality of products in different industry
segments overlaps, and more business method patents are submitted to and issued
by patent authorities. We believe that many companies have filed or intend to
file patent applications covering aspects of their technology that they may
claim our technology infringes. Some of these companies have sent copies of
their patents to us for informational purposes. We cannot be sure that these
parties will not make a claim of infringement against us with respect to our
products and technology. Any claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, and could cause product shipment delays or require us to
reengineer our products or enter into royalty or licensing agreements.
Reengineering a particular product, however, may not be possible or practical.
Similarly, these royalty or licensing agreements, if required, may not be
available on acceptable terms, if at all.
WE HAVE ENTERED INTO AN AGREEMENT TO SELL OUR COMMERCE ENGINE DIVISION, THE
CLOSING OF WHICH IS SUBJECT TO A NUMBER OF CONDITIONS PRECEDENT; IF THE
TRANSACTION DOES NOT CLOSE FOR ANY REASON, WE WILL INCUR SUBSTANTIAL COSTS IN
LOCATING A NEW BUYER OR WINDING DOWN THE OPERATION.
In January 2001, we signed an agreement to sell our Commerce Engine
division to e-centives in exchange for up to 19.9 percent of e-centives'
outstanding shares of Common Stock, some of which will be earned upon the
satisfaction of certain revenue and performance targets. In addition, we will
receive a warrant to purchase additional e-centives' Common Stock upon the
satisfaction of additional revenue targets. The transaction is expected to close
in the quarter ending March 31, 2001, subject to satisfaction or waiver of
various closing conditions. If the transaction fails to close for any reason, we
would need to continue to run the business while we locate a new buyer, or
alternatively wind the business down and liquidate or redeploy the assets. In
either case, we would incur substantial expenses, management would be distracted
and the terms and conditions of the disposition may be extremely unfavorable.
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ANTI-TAKEOVER PROVISIONS CONTAINED IN OUR CHARTER AND UNDER DELAWARE LAW COULD
IMPAIR A TAKEOVER ATTEMPT.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law prohibiting, under some circumstances, publicly held Delaware
corporations from engaging in business combinations with some stockholders for a
specified period of time without the approval of the holders of substantially
all of our outstanding voting stock. Such provisions could delay or impede the
removal of incumbent directors and could make more difficult a merger, tender
offer or proxy contest involving us, even if such events could be beneficial, in
the short term, to the interests of the stockholders. In addition, such
provisions could limit the price that some investors might be willing to pay in
the future for shares of our Common Stock. These provisions, in addition to
provisions contained in our charter, may have the effect of deterring hostile
takeovers or delaying changes in our control or management.
OUR STOCK PRICE IS VOLATILE.
The market price of our Common Stock has been and may continue to be
subject to wide fluctuations. Our stock price may fluctuate in response to a
number of events and factors, such as quarterly variations in operating results,
announcements of technological innovations or new products and media properties
by us or our competitors, announcements of technological alliances and
partnerships, changes in financial estimates and recommendations by securities
analysts, the operating and stock price performance of other companies that
investors may deem comparable, and news reports relating to trends in our
markets. In addition, the stock market in general, and the market prices for
Internet-related companies in particular, have experienced extreme volatility
that often has been unrelated to the operating performance of such companies.
These broad market and industry fluctuations may adversely affect the price of
our stock, regardless of our operating performance. In the past, companies that
have experienced volatility in the market price of their stock have been the
subjects of securities class action litigation. If we were the subject of
securities class action litigation, it could result in substantial costs and a
diversion of management's attention and resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not use derivative financial instruments to hedge interest rate
and foreign currency exposure. We limit our interest rate risks by placing our
marketable securities investments with high quality issuers principally in
United States government and corporate debt securities with terms of less than
two years. We do not expect any material losses from our marketable securities
investments and believe that our interest rate exposure is modest. We sell our
products and services in the United States and abroad. Historically, the
percentage of sales to customers located outside the United States has varied
substantially. We currently transact substantially all of our revenues, whether
domestic or abroad, in United States currency. Our expenditures and consolidated
financial results could be affected by a change in the exchange rate of the U.S.
Dollar versus a foreign currency.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In October 2000, we acquired FastForward through the issuance of
approximately 12.0 million shares of our Common Stock in exchange for all its
equity interests. The shares were issued pursuant to an exemption under Section
3(a)(10) of the Securities Act of 1933, as amended. The terms and conditions of
such issuances were approved after a hearing upon the fairness of such terms and
conditions by a government authority expressly authorized by law to grant such
approval.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
--------- --------
2.1 (2) Agreement and Plan of Reorganization dated August 31, 1998 by and among Inktomi, IC Merger Corp. and C2B Technologies
Inc.
2.2 (5) Agreement and Plan of Reorganization dated April 21, 1999 by and among Inktomi, IC Acquisition Corp. and Impulse! Buy
Network, Inc.
2.3 (7) Agreement and Plan of Reorganization dated September 15, 1999 by and among Inktomi, WS Acquisition Corp. and
WebSpective Software, Inc.
2.4 (12)* Stock Purchase Agreement dated June 7, 2000 by and between Infoseek Corporation and Inktomi.
2.5 (16) Agreement and Plan of Reorganization dated September 12, 2000 by and among Inktomi, FastForward Networks, Inc. and
River Kwai Acquisition Corporation.
3.2 (3) Amended and Restated Certificate of Incorporation of Inktomi.
3.2a (6) Amendment to Amended and Restated Certificate of Incorporation of Inktomi.
3.2b (13) Amendment to Amended and Restated Certificate of Incorporation of Inktomi.
3.4 (3) Bylaws of Inktomi.
4.1 (3) Specimen Common Stock Certificate.
10.1 (3) Form of Indemnification Agreement between Inktomi and each of its directors and officers.
10.2 (17) 1998 Stock Plan and form of agreement thereunder.
10.3 (3) 1998 Employee Stock Purchase Plan and form of agreements thereunder.
10.4 (3) 1996 Equity Incentive Plan and form of agreement thereunder.
10.5 (3) Fifth Amended and Restated Investors' Rights Agreement dated as February 13, 1998 among Inktomi and certain of its
security holders named therein.
10.6 (3) Executive Employment Agreement dated as of July 1, 1996 between Inktomi and David C. Peterschmidt.
10.7 (10) Agreement of Sublease dated July 1, 1998 by and between Designs, Inc. and Atreve Software, Inc.
10.8 (11) First Amended and Restated Lease Agreement between Parkside Towers Co-Tenancy and Inktomi.
10.9 (11) Employee Loan Agreement dated March 2, 2000 between Kirk D. Bowman and Inktomi.
10.10 (14) Ultraseek Stock Option Plan and form of agreement thereunder.
10.11 (15) Purchase and Sale Agreement dated June 30, 2000 by and between WHFST Real Estate Limited Partnership and Inktomi.
10.12 (15) First Amendment to Purchase and Sale Agreement dated as of July 14, 2000 by and between WHFST Real Estate Limited
Partnership and Inktomi.
10.13 (13) Preferred Stock Rights Agreement dated as of August 10, 2000 between Inktomi and Wells Fargo Shareowners Services.
10.14 Reserved for future use.
10.15 Reserved for future use.
10.16 (1) Office Lease dated October 9, 1998 between Inktomi and WHFST Real Estate Limited Partnership, a Delaware limited
partnership.
10.17 (4) C2B Technologies Inc. (formerly BeyondNews, Inc.) 1997 Stock Plan and form of agreement thereunder.
10.18 (2) Registration Rights Agreement dated September 25, 1998 between Inktomi and former stockholders of C2B Technologies
Inc. (included in Exhibit 2.1).
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EXHIBIT
NUMBER DESCRIPTION
--------- --------
10.19 (17) 1998 Nonstatutory Stock Option Plan and form of agreement thereunder.
10.20 (5) Declaration of Registration Rights dated April 30, 1999 for the benefit of former Impulse! Buy Network, Inc.
stockholders (included in Exhibit 2.2).
10.21 (1) Amended and Restated Loan and Security agreement dated as of September 2, 1998 between Inktomi and Silicon Valley
Bank.
10.22 (6) Amendment dated January 28, 1999 to Amended and Restated Loan and Security Agreement dated as of September 2, 1998
between Inktomi and Silicon Valley Bank.
10.23 (8) Impulse! Buy Network, Inc. 1997 Stock Plan and form of agreement thereunder.
10.24 (9) WebSpective Software, Inc. (formerly Atreve Software, Inc.) 1997 Stock Option Plan and form of agreement thereunder.
10.25 (7) Declaration of Registration Rights dated October 1, 1999 for the benefit of former WebSpective Software, Inc.
stockholders (included in Exhibit 2.3).
10.26 (17) Amendment to 1996 Equity Incentive Plan.
10.27 (17) Amendment to C2B Technologies 1997 Stock Plan
10.28 (17) Amendment to Impulse! Buy Network, Inc. 1997 Stock Plan.
10.29 (17) Amendment to WebSpective Software, Inc. 1997 Stock Plan.
10.30 (16) FastForward Networks, Inc. 1998 Stock Plan and form of agreement thereunder.
10.31 Amendment to the Ultraseek Stock Option Plan.
10.32 Amendment to the FastForward Networks, Inc. 1998 Stock Plan.
---------------
(1) Incorporated by reference from Inktomi's Registration Statement on Form
S-1 (Reg. No. 333-66661), as amended.
(2) Incorporated by reference from Inktomi's Current Report on Form 8-K filed
with the Commission on October 9, 1998, as amended November 2, 1998.
(3) Incorporated by reference from Inktomi's Registration Statement on Form
S-1 (Reg. No. 333-50247), as amended.
(4) Incorporated by reference from Inktomi's Registration Statement on Form
S-8 (Reg. No. 333-71037).
(5) Incorporated by reference from Inktomi's Current Report on Form 8-K filed
with the Commission on May 13, 1999.
(6) Incorporated by reference from Inktomi's Quarterly Report on Form 10-Q
filed with the Commission on May 17, 1999.
(7) Incorporated by reference from Inktomi's Current Report on Form 8-K filed
with the Commission on October 15, 1999, as amended November 5, 1999.
(8) Incorporated by reference from Inktomi's Registration Statement on Form
S-8 (Reg. No. 333-80195).
(9) Incorporated by reference from Inktomi's Registration Statement on Form
S-8 (Reg. No. 333-89581).
(10) Incorporated by reference from Inktomi's Quarterly Report on Form 10-Q
filed with the Commission on February 14, 2000.
(11) Incorporated by reference from Inktomi's Quarterly Report on Form 10-Q
filed with the Commission on May 15, 2000.
(12) Incorporated by reference from Inktomi's Current Report on Form 8-K filed
with the Commission on August 1, 2000.
(13) Incorporated by reference from Inktomi's Current Report on Form 8-A filed
with the Commission on August 11, 2000.
(14) Incorporated by reference from Inktomi's Registration Statement on Form
S-8 (Reg. No. 333-42102).
(15) Incorporated by reference from Inktomi's Quarterly Report on Form 10-Q
filed with the Commission on August 14, 2000.
(16) Incorporated by reference from Inktomi's Registration Statement on Form
S-8 (Reg. No. 333-49874).
(17) Incorporated by reference from Inktomi's Annual Report on Form 10-K/A
filed with the Commission on January 2, 2001.
* Treatment has been requested for certain portions omitted from this
Exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
as amended. Confidential portions of this Exhibit have been separately
filed with the Securities and Exchange Commission.
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(b) REPORTS ON FORM 8-K
On January 8, 2001, the Company filed a report on Form 8-K/A, which
amends the Form 8-K previously filed on November 8, 2000. The original Form 8-K
announced the completion of our acquisition of FastForward and included its
press release regarding such transaction therein. The Form 8-K/A included
supplementary consolidated financial statements for the fiscal years ended
September 30, 2000 and 1999 and the three years ended September 30, 2000 and the
accompanying supplementary notes which reflect our financial position and the
results of operations as if FastForward, which was accounted for as pooling of
interests, as if it was our wholly-owned subsidiary since inception.
We filed a Current Report on Form 8-K dated August 1, 2000 to report
under Item 2 thereof the acquisition of Ultraseek, Inc. We filed an amendment
dated, September 29, 2000 to this Current Report on Form 8-K to include the
required Supplementary Consolidated Financial Statements required under the
report.
SIGNATURE
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
undersigned, thereunto duly authorized.
Inktomi Corporation
Date: February 14, 2001 By: /s/ JERRY M. KENNELLY
------------------------------------
Jerry M. Kennelly,
Executive Vice President and Chief
Financial Officer (duly authorized
officer and principal financial
officer)
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INDEX TO EXHIBITS
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
--------- --------
2.1 (2) Agreement and Plan of Reorganization dated August 31, 1998 by and among Inktomi, IC Merger Corp. and C2B Technologies
Inc.
2.2 (5) Agreement and Plan of Reorganization dated April 21, 1999 by and among Inktomi, IC Acquisition Corp. and Impulse! Buy
Network, Inc.
2.3 (7) Agreement and Plan of Reorganization dated September 15, 1999 by and among Inktomi, WS Acquisition Corp. and
WebSpective Software, Inc.
2.4 (12)* Stock Purchase Agreement dated June 7, 2000 by and between Infoseek Corporation and Inktomi.
2.5 (16) Agreement and Plan of Reorganization dated September 12, 2000 by and among Inktomi, FastForward Networks, Inc. and
River Kwai Acquisition Corporation.
3.2 (3) Amended and Restated Certificate of Incorporation of Inktomi.
3.2a (6) Amendment to Amended and Restated Certificate of Incorporation of Inktomi.
3.2b (13) Amendment to Amended and Restated Certificate of Incorporation of Inktomi.
3.4 (3) Bylaws of Inktomi.
4.1 (3) Specimen Common Stock Certificate.
10.1 (3) Form of Indemnification Agreement between Inktomi and each of its directors and officers.
10.2 (17) 1998 Stock Plan and form of agreement thereunder.
10.3 (3) 1998 Employee Stock Purchase Plan and form of agreements thereunder.
10.4 (3) 1996 Equity Incentive Plan and form of agreement thereunder.
10.5 (3) Fifth Amended and Restated Investors' Rights Agreement dated as February 13, 1998 among Inktomi and certain of its
security holders named therein.
10.6 (3) Executive Employment Agreement dated as of July 1, 1996 between Inktomi and David C. Peterschmidt.
10.7 (10) Agreement of Sublease dated July 1, 1998 by and between Designs, Inc. and Atreve Software, Inc.
10.8 (11) First Amended and Restated Lease Agreement between Parkside Towers Co-Tenancy and Inktomi.
10.9 (11) Employee Loan Agreement dated March 2, 2000 between Kirk D. Bowman and Inktomi.
10.10 (14) Ultraseek Stock Option Plan and form of agreement thereunder.
10.11 (15) Purchase and Sale Agreement dated June 30, 2000 by and between WHFST Real Estate Limited Partnership and Inktomi.
10.12 (15) First Amendment to Purchase and Sale Agreement dated as of July 14, 2000 by and between WHFST Real Estate Limited
Partnership and Inktomi.
10.13 (13) Preferred Stock Rights Agreement dated as of August 10, 2000 between Inktomi and Wells Fargo Shareowners Services.
10.14 Reserved for future use.
10.15 Reserved for future use.
10.16 (1) Office Lease dated October 9, 1998 between Inktomi and WHFST Real Estate Limited Partnership, a Delaware limited
partnership.
10.17 (4) C2B Technologies Inc. (formerly BeyondNews, Inc.) 1997 Stock Plan and form of agreement thereunder.
10.18 (2) Registration Rights Agreement dated September 25, 1998 between Inktomi and former stockholders of C2B Technologies
Inc. (included in Exhibit 2.1).
10.19 (17) 1998 Nonstatutory Stock Option Plan and form of agreement thereunder.
10.20 (5) Declaration of Registration Rights dated April 30, 1999 for the benefit of former Impulse! Buy Network, Inc.
stockholders (included in Exhibit 2.2).
10.21 (1) Amended and Restated Loan and Security agreement dated as of September 2, 1998 between Inktomi and Silicon Valley
Bank.
10.22 (6) Amendment dated January 28, 1999 to Amended and Restated Loan and Security Agreement dated as of September 2, 1998
between Inktomi and Silicon Valley Bank.
10.23 (8) Impulse! Buy Network, Inc. 1997 Stock Plan and form of agreement thereunder.
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28
EXHIBIT
NUMBER DESCRIPTION
--------- --------
10.24 (9) WebSpective Software, Inc. (formerly Atreve Software, Inc.) 1997 Stock Option Plan and form of agreement thereunder.
10.25 (7) Declaration of Registration Rights dated October 1, 1999 for the benefit of former WebSpective Software, Inc.
stockholders (included in Exhibit 2.3).
10.26 (17) Amendment to 1996 Equity Incentive Plan. 10.27-(17) Amendment to C2B Technologies 1997 Stock Plan
10.28 (17) Amendment to Impulse! Buy Network, Inc. 1997 Stock Plan.
10.29 (17) Amendment to WebSpective Software, Inc. 1997 Stock Plan.
10.30 (16) FastForward Networks, Inc. 1998 Stock Plan and form of agreement thereunder.
10.31 Amendment to the Ultraseek Stock Option Plan.
10.32 Amendment to the FastForward Networks, Inc. 1998 Stock Plan.
---------------
(1) Incorporated by reference from Inktomi's Registration Statement on Form
S-1 (Reg. No. 333-66661), as amended.
(2) Incorporated by reference from Inktomi's Current Report on Form 8-K filed
with the Commission on October 9, 1998, as amended November 2, 1998.
(3) Incorporated by reference from Inktomi's Registration Statement on Form
S-1 (Reg. No. 333-50247), as amended.
(4) Incorporated by reference from Inktomi's Registration Statement on Form
S-8 (Reg. No. 333-71037).
(5) Incorporated by reference from Inktomi's Current Report on Form 8-K filed
with the Commission on May 13, 1999.
(6) Incorporated by reference from Inktomi's Quarterly Report on Form 10-Q
filed with the Commission on May 17, 1999. (7) Incorporated by reference
from Inktomi's Current Report on Form 8-K filed with the Commission on
October 15, 1999, as amended November 5, 1999.
(8) Incorporated by reference from Inktomi's Registration Statement on Form
S-8 (Reg. No. 333-80195).
(9) Incorporated by reference from Inktomi's Registration Statement on Form
S-8 (Reg. No. 333-89581).
(10) Incorporated by reference from Inktomi's Quarterly Report on Form 10-Q
filed with the Commission on February 14, 2000.
(11) Incorporated by reference from Inktomi's Quarterly Report on Form 10-Q
filed with the Commission on May 15, 2000.
(12) Incorporated by reference from Inktomi's Current Report on Form 8-K filed
with the Commission on August 1, 2000.
(13) Incorporated by reference from Inktomi's Current Report on Form 8-A filed
with the Commission on August 11, 2000.
(14) Incorporated by reference from Inktomi's Registration Statement on Form
S-8 (Reg. No. 333-42102).
(15) Incorporated by reference from Inktomi's Quarterly Report on Form 10-Q
filed with the Commission on August 14, 2000.
(16) Incorporated by reference from Inktomi's Registration Statement on Form
S-8 (Reg. No. 333-49874).
(17) Incorporated by reference from Inktomi's Annual Report on Form 10-K/A
filed with the Commission on January 2, 2001.
* Treatment has been requested for certain portions omitted from this
Exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
as amended. Confidential portions of this Exhibit have been separately
filed with the Securities and Exchange Commission.
27