SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2002
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 000-27241
Keynote Systems, Inc.
(Exact name of registrant as specified in its charter)
| DELAWARE |
94-3226488 | |
| (State or other jurisdiction of |
(I.R.S. Employer | |
| incorporation or organization) |
Identification No.) |
| 777 Mariners Island Blvd., San Mateo, CA |
94404 | |
| (Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (650) 403-2400
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES x NO ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| Class |
Shares outstanding at January 31, 2003 | |
| Common Stock, $.001 par value |
22,981,222 |
TABLE OF CONTENTS
| Page | ||||
| PART I—FINANCIAL INFORMATION |
||||
| Item 1. |
3 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 | ||
| Item 3. |
28 | |||
| Item 4. |
28 | |||
| PART II—OTHER INFORMATION |
||||
| Item 1. |
28 | |||
| Item 2. |
29 | |||
| Item 3. |
29 | |||
| Item 4. |
29 | |||
| Item 5. |
29 | |||
| Item 6. |
29 | |||
| 30 | ||||
| 31 | ||||
2
Item 1. Financial Statements
KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
Index to Unaudited Condensed Consolidated Financial Statements
| Page | ||
| Condensed Consolidated Balance Sheets as of December 31, 2002 and September 30, 2002 |
4 | |
| 5 | ||
| 6 | ||
| 7 |
3
KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| December 31, 2002 |
September 30, 2002 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ |
18,194 |
|
$ |
20,874 |
| ||
| Short-term investments |
|
185,210 |
|
|
218,413 |
| ||
| Total cash, cash equivalents, and short-term investments |
|
203,404 |
|
|
239,287 |
| ||
| Accounts receivable, less allowance for doubtful accounts of $1,185 and $1,238 as of December 31, 2002 and September 30, 2002 |
|
5,445 |
|
|
4,820 |
| ||
| Prepaid and other current assets |
|
1,294 |
|
|
1,347 |
| ||
| Total current assets |
|
210,143 |
|
|
245,454 |
| ||
| Property and equipment, net |
|
36,787 |
|
|
37,468 |
| ||
| Identifiable intangible assets, net |
|
3,180 |
|
|
2,859 |
| ||
| Total assets |
$ |
250,110 |
|
$ |
285,781 |
| ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
|
977 |
|
|
1,014 |
| ||
| Accrued expenses |
|
7,942 |
|
|
8,191 |
| ||
| Deferred revenue |
|
5,724 |
|
|
5,121 |
| ||
| Total current liabilities |
|
14,643 |
|
|
14,326 |
| ||
| Total liabilities |
|
14,643 |
|
|
14,326 |
| ||
| Stockholders’ equity: |
||||||||
| Common stock |
|
28 |
|
|
28 |
| ||
| Treasury stock |
|
(40,853 |
) |
|
(6,990 |
) | ||
| Additional paid-in capital |
|
414,168 |
|
|
413,684 |
| ||
| Deferred compensation |
|
(7 |
) |
|
(31 |
) | ||
| Accumulated deficit |
|
(139,328 |
) |
|
(137,331 |
) | ||
| Accumulated other comprehensive income |
|
1,459 |
|
|
2,095 |
| ||
| Total stockholders’ equity |
|
235,467 |
|
|
271,455 |
| ||
| Total liabilities and stockholders’ equity |
$ |
250,110 |
|
$ |
285,781 |
| ||
See accompanying notes to the condensed consolidated financial statements
4
KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| Three months ended December 31, |
||||||||
| 2002 |
2001 |
|||||||
| Revenue: |
||||||||
| Subscription services |
$ |
8,525 |
|
$ |
8,796 |
| ||
| Consulting and support services |
|
1,233 |
|
|
793 |
| ||
| Total revenue |
|
9,758 |
|
|
9,589 |
| ||
| Operating expenses: |
||||||||
| Costs of subscription services |
|
2,483 |
|
|
3,392 |
| ||
| Costs of consulting and support services |
|
925 |
|
|
952 |
| ||
| Research and development |
|
2,247 |
|
|
2,313 |
| ||
| Sales and marketing |
|
4,539 |
|
|
5,098 |
| ||
| Operations |
|
1,779 |
|
|
2,008 |
| ||
| General and administrative |
|
1,543 |
|
|
1,833 |
| ||
| Amortization of identifiable intangible assets and stock-based compensation |
|
403 |
|
|
299 |
| ||
| Total operating expenses |
|
13,919 |
|
|
15,895 |
| ||
| Loss from operations |
|
(4,161 |
) |
|
(6,306 |
) | ||
| Interest income, net |
|
2,164 |
|
|
3,303 |
| ||
| Loss before provision for income taxes and the cumulative effect of a change in accounting principle |
|
(1,997 |
) |
|
(3,003 |
) | ||
| Provision for income taxes |
|
— |
|
|
— |
| ||
| Net loss before cumulative effect of a change in accounting principle |
|
(1,997 |
) |
|
(3,003 |
) | ||
| Cumulative effect of a change in accounting principle |
|
— |
|
|
(3,160 |
) | ||
| Net loss |
$ |
(1,997 |
) |
$ |
(6,163 |
) | ||
| Net loss per share: |
||||||||
| Basic and diluted net loss per share before the cumulative effect of a change in accounting principle |
$ |
(0.08 |
) |
$ |
(0.11 |
) | ||
| Basic and diluted cumulative effect per share of a change in accounting principle |
$ |
— |
|
$ |
(0.11 |
) | ||
| Basic and diluted net loss per share |
$ |
(0.08 |
) |
$ |
(0.22 |
) | ||
| Shares used in computing basic and diluted net loss per share |
|
25,885 |
|
|
27,820 |
| ||
See accompanying notes to the condensed consolidated financial statements
5
KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three months ended December 31, |
||||||||
| 2002 |
2001 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ |
(1,997 |
) |
$ |
(6,163 |
) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
|
1,707 |
|
|
1,845 |
| ||
| Amortization of identifiable intangible assets |
|
379 |
|
|
214 |
| ||
| Amortization of debt investment premium |
|
754 |
|
|
525 |
| ||
| Amortization of deferred compensation |
|
24 |
|
|
85 |
| ||
| Cumulative effect of a change in accounting principle |
|
— |
|
|
3,160 |
| ||
| Changes in operating assets and liabilities, net of acquired assets and liabilities: |
||||||||
| Accounts receivable |
|
(625 |
) |
|
1,860 |
| ||
| Prepaids and other assets |
|
109 |
|
|
2,355 |
| ||
| Accounts payable and accrued expenses |
|
(337 |
) |
|
(5,203 |
) | ||
| Deferred revenue |
|
588 |
|
|
(558 |
) | ||
| Net cash provided by (used in) operating activities |
|
602 |
|
|
(1,880 |
) | ||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
|
(997 |
) |
|
||||