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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 0-28900
ROGUE WAVE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 93-1064214
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5500 Flatiron Parkway, Boulder, Colorado 80301
(Address of principal executive offices) (Zip code)
(303) 473-9118
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
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 periods as the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ____
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of October 31, 2001, there were 11,090,239 shares of Common Stock
outstanding, of which the Company holds 117,950 shares as Treasury Stock. The
aggregate market value of voting stock held by non-affiliates of the Registrant
was approximately $28,919,730 based upon the closing price of the Common Stock
on October 31, 2001 on the NASDAQ National Market System. Shares of Common Stock
held by each officer, director and holder of five percent or more of the Common
Stock outstanding as of October 31, 2001 have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily conclusive.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Registrant's 2001 Annual
Meeting of Stockholders to be held on January 17, 2002, are incorporated by
reference in Part III of this Form 10-K.
FORM 10-K
INDEX
PART I................................................................. Page 2
Item 1. Business.................................................... Page 2
Item 2. Properties.................................................. Page 13
Item 3. Legal Proceedings........................................... Page 13
Item 4. Submission of Matters to a Vote of Security Holders......... Page 14
PART II................................................................ Page 15
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters......................................... Page 15
Item 6. Selected Consolidated Financial Data........................ Page 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... Page 18
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ Page 23
Item 8. Consolidated Financial Statements and Supplementary
Data........................................................ Page 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... Page 24
PART III............................................................... Page 25
Item 10. Directors and Executive Officers of the Registrant.......... Page 25
Item 11. Executive Compensation...................................... Page 25
Item 12. Security Ownership of Certain Beneficial Owners
and Management.............................................. Page 25
Item 13. Certain Relationships and Related Transactions.............. Page 25
PART IV................................................................ Page 26
Item 14. Exhibits, Consolidated Financial Statements, Schedules
and Reports on Form 8-K..................................... Page 26
SIGNATURES............................................................. Page 27
1
PART I
ITEM 1. BUSINESS
The following discussion contains forward-looking statements regarding
the Company, its business, prospects and results of operations that are subject
to risks and uncertainties posed by many factors and events that could cause the
Company's actual business, prospects and results of operations to differ
materially from those that may be anticipated by such forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed herein as well as those discussed under the captions
"risk factors" and "management's discussion and analysis of financial condition
and results of operations" as well as those discussed elsewhere in this Form
10-K. Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. The Company
undertakes no obligation to revise any forward-looking statements in order to
reflect events or circumstances that may subsequently arise. Readers are urged
to carefully review and consider the various disclosures made by the Company in
this report and in the Company's other reports filed with the Securities and
Exchange Commission that attempt to advise interested parties of the risks and
factors that may affect the Company's business.
Overview
Rogue Wave Software Inc. ("Rogue Wave" or the "Company") was founded in
1989, and is a leading provider of object-oriented software technology.
Customers around the world rely on Rogue Wave products to build comprehensive
application solutions. Rogue Wave believes that application development efforts
are most effective when businesses are able to concentrate on the domain
specific application capabilities that enables them to differentiate themselves
from their competitors. Rogue Wave offers proven software components and
frameworks that enhance developer productivity for implementing common
application functionality. The Company's software also handles the complex
architectural issues key to successful application implementation, but which
most often fall outside a company's in-house development expertise. Rogue Wave
is committed to providing products and services that reduce the effort, time to
market, and overall project risk associated with the development of
comprehensive application solutions.
The Company's products are marketed to information technology ("IT")
development managers, independent software vendors ("ISV"), value-added
resellers ("VAR"), original equipment manufacturers ("OEM") and professional
programmers in all industry and geography segments. The Company's products are
designed to enable customers to construct robust applications faster, with
higher quality, and lower risk, resulting in significant cost savings. These
products provide customers with greater independence from hardware platforms,
operating systems and other vendor-specific dependencies.
During fiscal 2001, Rogue Wave continued to solidify its worldwide
presence. Since 1996, when the Company initially established a wholly-owned
subsidiary in Germany, it has expanded its European operations with additional
distribution channels in the United Kingdom, France, Italy and the Benelux
Countries. Furthermore, during fiscal 2000, the Company established offices in
Japan and Hong Kong. Rogue Wave has committed and continues to commit
significant management time and financial resources to developing direct and
indirect international sales and support channels.
The Rogue Wave Premise
Rogue Wave believes the pervasive problems faced by today's application
development efforts include:
. Rapid and frequent changing business requirements.
. Difficulty in integrating new applications with numerous heterogeneous
environments and technologies.
. The large expense and challenge of maintaining the developer
resources, necessary to keep pace with changing technology.
. Development of complex architecture-level software in all its stages.
. Technology driving business functionality, instead of the other way
around, due to the high cost of changes to application logic, data
schemas, and application programming interfaces ("API") in an
inadequately designed or implemented application.
It is this set of pervasive issues that Rogue Wave seeks to address.
2
The Rogue Wave Strategy
The Company's strategic objective is to provide technology and services
that allow businesses to be as productive as possible when building software
solutions to address their business objectives. Rogue Wave products provide the
core integration and platform technology critical for customers to concentrate
efforts on their business domain, with the security of knowing that critical
underlying technology is safely handled. Using Rogue Wave products results in
flexible solutions that are maintainable over time, and are extensible to meet
new business needs.
Rogue Wave believes the productivity and flexibility realized with
skillfully designed and implemented object oriented software is at the core of
achieving cost effective, large-scale application development. With Rogue Wave
products and services, businesses can maintain their significant investments in
existing technology, while taking advantage of the many benefits of object
oriented design and development for new initiatives.
The Company's history is rich in object oriented C++, the language of
choice for the foundation of business critical applications. As the market
leader, Rogue Wave will continue to develop new and compelling features for
their products, reaffirming customer investment while developing successful
partnerships in the process.
Rogue Wave strives to create products that best match customer
applications and underlying technologies. As a result, in addition to the
Company's investment in C++, Rogue Wave has also made significant investments in
Java and XML initiatives. The Company is committed to working with the early
adopters of new technology, ensuring that the needs of customers drive product
innovation, and has begun to make significant changes to improve the way
internal development expertise is harnessed and directed at addressing high
value customer needs. The Company launched a Technology Access Center ("TAC") on
www.roguewave.com, enabling customers and prospects to view, test and provide
- -----------------
feedback on new technologies that Rogue Wave has developed.
In conjunction with developing and marketing object technology to its
customers, Rogue Wave provides comprehensive consulting, educational, and
support services to minimize the learning curve and provide expert assistance.
Superior technology, coupled with Rogue Wave expertise, provide the mutual
successes that are the foundation for lasting partnerships.
The Rogue Wave Business Model
Dynamic business drivers, combined with evolving technology, have
changed the buying practices of Rogue Wave customers. Historically, Rogue Wave
sold its products directly to individual developers. Revenue was recognized
through new developers who purchased Rogue Wave technology and were free to use
that technology in multiple application initiatives.
Changes in the marketplace have resulted in requirements for higher-
order solutions. Customers are less interested in atomic components and more
interested in technology suites and frameworks that handle a larger portion of
their problem. Buying decisions have moved away from the individual developer
and are now handled at the project, division, and enterprise levels. As such,
Rogue Wave has changed how we offer our products, including how they are
licensed.
During fiscal 2000, Rogue Wave began migrating from concentrating on
individual developer licenses to a business model centered on deployment of
finished applications. In fiscal 2001, the Company moved to minimize the impact
on long-term customers by maintaining existing licensing models for historical
products while introducing the new license model for new customer contracts.
This transition is expected to be complete in fiscal 2002.
The Company's new business model has shifted from that of a sole
technology supplier to one of a true partner with its customers, linking Rogue
Wave success to its customers' success. Businesses have the ability to fully
empower a project team with Rogue Wave technology, enhancing development
initiatives with the services and support required to ensure success. In
addition, customers can make clearer buying decisions when benefits are directly
measurable against and favorable to project costs.
Markets that were once limited by declining numbers of new-name
developers are now expanding with new C++ application initiatives, increasing
the number of C++ application deployments. Moreover, this business model
promotes partnerships that foster mutual success and overall customer
satisfaction, providing higher order solutions in anticipation of revenue more
closely matching the value Rogue Wave delivers to its customers.
3
Products
Rogue Wave products and services give development teams a head start on
building applications that solve business problems, increasing their
productivity and ability to deliver projects on schedule. The Company's products
and services provide customers with the following benefits.
Distributed Applications. Programmers that develop complicated large
and distributed applications can use the Company's products to make their
application work in concert, across systems and interfacing seamlessly.
Scale to the Enterprise. Scalability and performance are great
strengths of C++. The use of the Company's products helps programmers develop
flexible, modular applications that can be more easily modified and refined.
Honor Legacy Investments. The Company's components easily work with
legacy systems, being either all or part of the solution. Rogue Wave honors
legacy investments by recognizing that part of a customer's legacy investment is
the training and skills it has invested in its employees. Rogue Wave leverages
that investment by using standard languages such as C++ as well as the
consistent use of design patterns and interfaces across its products.
Highly Customizable. Rogue Wave products are written to provide
developers with a high degree of flexibility, offering the ability to freely
customize the components in their own specialized applications. Developers can
select to use the standard API and avoid granular programming details, or can
drill down to the native code if necessary.
Multi-platform Support. Most of the Company's products are
cross-platform and the database products can be used with a wide variety of
databases. This flexibility allows programmers to develop applications with
minimal regard to the environments in which they will be deployed. Businesses
gain the ability to deploy software systems in a wide variety of environments
with minimal modification required. Rogue Wave products encapsulate fundamental
operations, allowing developers to focus on creating business logic rather than
the low-level details of their development environments.
By investing in Rogue Wave products and services, companies receive
flexible, reusable components and the security of world-class support and
services, helping protect their investments by easily supporting changing
business needs.
Rogue Wave(R)SourcePro(TM)C++
Rogue Wave SourcePro C++ gives development teams a head start on
building applications that solve business problems, increasing their
productivity and ability to deliver projects on schedule. Higher-level,
object-oriented interfaces to complex underlying APIs and consistency across
platforms shorten the learning curve and help developers be productive quickly.
SourcePro C++ components provide the flexibility to deploy applications on a
variety of leading hardware platforms and databases, allowing development teams
to easily support changing business needs.
Rogue Wave SourcePro C++ consists of four products, each tailored for a
specific area of C++ application development:
. SourcePro(TM) Core
Rogue Wave SourcePro Core contains an extensive set of fundamental C++
components that handle many of the low-level intricacies of the C++
language, shortening the learning curve and helping developers be
productive quickly. In addition, by simplifying the complexities of working
with XML, SourcePro Core allows developers to create C++ applications that
share data with diverse systems.
. SourcePro(TM) DB
Rogue Wave SourcePro DB is a complete solution for object-oriented
relational database access in C++, with a layered architecture that
abstracts away the complexity of writing database applications, yet allows
developers to drill down to the native database client libraries if needed.
SourcePro DB encapsulates ANSI SQL 92 and supplies a consistent, high-level
C++ interface to relational databases, speeding development and reducing
complexity.
. SourcePro(TM) Net
Rogue Wave SourcePro Net lets developers create secure or non-secure
networked and Internet-enabled applications, handling the granular details
of socket programming and Internet protocols to help developers deliver
quality applications on schedule. SourcePro Net lets developers use their
existing C++ knowledge to implement standard SOAP concepts, in order to
create Web Services and extend their existing investments in C++ through
XML.
4
. SourcePro(TM) Analysis
Rogue Wave SourcePro Analysis is our solution for object-oriented business
and scientific analysis, containing a wide range of C++ components for
solving mathematical problems in business and research. Developers can
count on the algorithms in SourcePro Analysis for accurate, precise
calculations, allowing them to focus on building appropriate business
solutions.
Rogue Wave Stingray Studio
Rogue Wave Stingray Studio offers higher-level GUI components for
Microsoft(R) Windows(R) platforms providing ease of use, shortening development
time and making it easier to maintain GUI applications over time. Rogue Wave
Stingray Studio provides the graphical components needed to mimic the look and
feel of Microsoft applications, facilitating the creation of custom GUI
applications whose look and functionality are consistent with a Microsoft
standard, thereby increasing end user acceptance and use. Stingray Studio lets
developers rapidly build scalable, distributed GUI applications easily
integrated with current enterprise systems and applications.
Customers
While the Company's customer base is broad and diverse, over 80% of it
is represented by software and information systems, telecommunications, defense
and financial services industries, with the top 100 customers being Fortune 500
institutions. To date, the Company has sold over 300,000 end-user licenses, both
to individual programmers as well as enterprises. No single customer accounted
for 10% or more of revenues in fiscal 2001. Rogue Wave products and services are
often utilized in large-scale, business critical applications, central to our
customers' competitive positions.
Sales and Marketing
Transitioning the Company's sales model from a development to a
deployment-based model required a significant realignment in marketing efforts.
The target audience evolved from the developer level to higher-level buyers,
including development managers and chief information and technology officers.
Our current marketing messages speak directly to each individual audience in a
way that resonates with the specific problems faced in application development
and maintenance.
In support of its sales efforts, the Company's marketing department
conducts comprehensive programs that include advertising, direct mail, public
relations, trade shows, seminars, a quarterly newsletter, and other ongoing
customer communications programs. The Company also keeps its customers informed
of advances in the field through technical papers and bylined articles that are
frequently published in relevant industry publications. The Company's Web site
(www.roguewave.com) is the primary vehicle for communicating relevant messages
-----------------
to the appropriate target audiences.
The Company's products provide developers with components that offer
intuitive, standard higher-level APIs for ease of use, shortening their learning
curve and making it easier to maintain applications over time. Messages to
developers are primarily communicated through the Developers Corner of the
Company's Web site, the quarterly newsletter Rogue Wave Interface, and various
web-cast technology sessions. Development managers require Rogue Wave products
because they give development teams a head start on building high-performance
applications that solve business problems, while increasing productivity and the
ability to deliver projects on schedule. The executive-level audience looks to
Rogue Wave products and services because the Company is a proven leader in the
software components market and because many Fortune 1000 companies have trusted
Rogue Wave C++ technology as the foundation for their mission-critical
applications. Messages to these higher-level audiences are communicated
primarily through the Company's Web site, executive breakfast meetings, print
advertising and direct mail campaigns.
Rogue Wave sells development and deployment rights based on an
operating system and compiler combination.
As of September 30, 2001, the Company's sales and marketing
organization consisted of 102 individuals. Sales efforts are split between
telesales and field sales operations:
Telesales. As of September 30, 2001, the Company employed 20 domestic
telesales representatives. The Company's telesales force targets individuals and
small-to-medium-sized groups of programmers. Sales through this channel are
typically less than $50,000 per order and the sales cycle is generally less than
two months. The Company maintains a telesales operation at its headquarters in
Boulder, Colorado.
Direct Field Sales. As of September 30, 2001, the Company employed 13
domestic direct field sales representatives, supported by 12 technical sales
representatives. The Company's domestic field sales force targets Fortune
5
1000 customers. The field sales force typically focuses on enterprise-wide
technology customers. The sales cycle for this "top down" approach typically
ranges from two to six months. The Company maintains domestic direct sales
offices in California, Colorado, Illinois, New York, and Texas.
The Company's international sales channel development efforts are focused on two
regions:
. Europe. As of September 30, 2001, the Company's European sales, support and
consulting organization consisted of 27 individuals. The Company maintains
European sales and support offices in France, Germany, Italy, the Netherlands
and the United Kingdom.
. Asia. In 2000, Rogue Wave opened an office in Tokyo and Hong Kong, and began
to deliver localized products and services to these markets. As of September 30,
2001, the Company's Asian operation consisted of 4 individuals.
. Canada. In 2001, Rogue Wave opened a sales office in Ontario Canada, which
consists of 2 individuals.
Strategic Alliances and Business Partnerships
The world's leading hardware and software vendors, system integrators,
software developers and distributors have chosen Rogue Wave Software as a
strategic partner because Rogue Wave offers the products to build and develop
critical applications for the future. Rogue Wave Software partners with vendors
such as Microsoft, IBM, Sun Microsystems, Intel, Oracle, Hewlett-Packard, SGI,
BEA Systems and Sybase. These relationships may include technology licensing
agreements and cooperative marketing relationships, as well as exchange of
development plans and strategic direction. As new markets open, Rogue Wave will
partner with leading vendors to offer solutions to the marketplace.
Product Support
The Company believes that a high level of customer support is important
to the successful marketing and sale of its products. Mission-critical
applications require rapid support response and problem resolution. The
Company's worldwide sales and support presence allows quick response and support
in local languages. The Company delivers support services through various
channels such as telephone, electronic mail and on-line support via the Web. By
directly submitting a support incident into our call database, support via the
Web provides a quick response and resolution. Online support via the Web allows
customers to report an incident and see a history of all Rogue Wave support
incidents. Telephone hot line support is offered worldwide at either a standard
or around-the-clock level, depending on customer requirements. The Company's
support offerings are as follows:
. Basic - Web-based support limited to 25 support incidents and 6
day response time.
. Premium - Web, e-mail and phone delivered services limited to 100
support incidents and a 24 hour response time.
. Enterprise - 24x7 Web, e-mail and phone services limited to 100
support incidents and response times of 4 to 48 hours depending
on the incident severity; dedicated technical account managers
available.
. Extended Lifeycle Product Support - Specialized support for
customers with applications running on multiple, possibly
obsolete versions of Rogue Wave products.
The Company maintains product and technology experts on call at all
times worldwide and has support call centers located in Boulder, Colorado;
Corvallis, Oregon; Amsterdam, Netherlands, and Tokyo, Japan. As of September 30,
2001, there were 36 employees in the Company's product support group.
Solution Services
The Company believes that its services organization plays an important
role in facilitating initial license sales by enabling customers to successfully
design, develop, deploy and manage systems and applications. Fees for services
are generally charged on a time and materials basis and vary depending upon the
nature and extent of services to be performed. A sample of the services offered
through Solution Services is listed below:
. Assessment Service - Helping companies manage and understand their
technology initiatives more effectively.
. Consulting Services - These services include intervention at critical
phases of development or full lifecycle management of customer
projects.
. Education Services - Training development teams on the full power of
Rogue Wave products.
. Project Success Services - Allowing companies to proactively schedule a
consultant, in advance, for key
6
development stages.
. Upgrade Service - Offering companies a way to smoothly transition to
new versions of Rogue Wave products.
As of September 30, 2001, there were 25 employees in the professional
services group helping development teams implement stable, flexible and reliable
applications.
Product Development
The Company's future success will depend on its ability to satisfy
diverse and evolving customer requirements and otherwise achieve market
acceptance. The Company will strive to continue to enhance its current product
line and develop and introduce new products that keep pace with competitive
product introductions and technological developments.
The Company launched a Technology Access Center ("TAC"), in an effort
to provide new technologies to customers and prospects early on in the
development cycle. Interested parties are given the opportunity to view, test
and provide feedback on these technologies. The feedback received via the TAC is
intended to aid in decision making process regarding how or if a product will be
developed for the marketplace. The first two technologies introduced to the TAC
were "Bobcat" and "Ruple".
"Bobcat" is a C++ implementation of the Java Servlet API, which is an
answer to the Web integration needs of the C++ developer. Bobcat offers a
solution that allows a developer to create a high performance Web application
and a simple way to integrate with legacy systems.
"Ruple", is an Internet shared memory space for transparent
collaborative applications, and provides an area on the Internet where XML
documents can be written or read, subject to appropriate security constraints.
Ruple uses existing Internet infrastructure and standards such as DNS, HTTP, and
SOAP. It is well suited for serving occasionally connected devices such as cell
phones and PDAs. It is also well suited for high availability situations where
replication must be accomplished over the Internet.
The Company's product development activities are conducted in various
sites throughout the United States including Corvallis, Oregon; Boulder,
Colorado, and Southboro, Massachusetts. As of September 30, 2001, there were 81
employees on the Company's product development staff. The Company's product
development expenditures in fiscal, 2001, 2000, and 1999 were $13.8 million,
$14.1 million and $11.5 million, respectively, and represented 23.9%, 25.9%, and
21.7% of total revenue, respectively. The Company expects that it will continue
to commit substantial resources to product development in the future. Although
Rogue Wave has primarily developed products internally, it may, based on timing
and cost considerations, acquire technologies or products from third parties.
Developing software is inherently complex and involves numerous
uncertainties. There can be no assurance that the Company will be successful in
continuing to develop and market on a timely and cost-effective basis fully
functional product enhancements or new products that respond to technological
advances by others, or that its enhanced and new products will achieve market
acceptance. In addition, the Company has in the past experienced delays in the
development, introduction and marketing of new or enhanced products, and there
can be no assurance the Company will not experience similar delays in the
future. Any failure by the Company to anticipate or respond adequately to
changes in technology and customer preferences, or any significant delays in
product development or introduction, would have a material adverse effect on the
Company's business, financial condition and results of operations.
Competition
The Company's generally available products and professional services
contend with direct and indirect competition ranging from the internal
development operations of our target customers, to similar product offerings and
alternative technologies designed to address the same business problems.
Rogue Wave Stingray Studio targets developers using Visual C++/MFC
(Microsoft Foundation Classes), and Visual Basic/ActiveX software components for
graphical user interface ("GUI") development on Windows platforms. Microsoft is
a particularly strong competitor due to its large installed base and the fact
that it bundles its MFC library with its own and other C++ compilers. Microsoft
may decide in the future to abandon MFC in order to facilitate the shift to
other technologies which may result in a long-term shift away from the MFC
components across the software industry, possibly making the Rogue Wave Stingray
Studio GUI business line obsolete. Microsoft is taking a tangible step in this
direction with the introduction of the .NET development environment and
Winforms. Winforms is positioned as Microsoft's preferred method of performing
GUI development in the future and represents a divergence from MFC, the
technologies on which Stingray
7
Studio is based.
The Company's SourcePro C++ products drive the majority of Company
revenue and target the maturing market for C++ development components. Direct
competitors in the C++ market include Microsoft (with its MFC), ILOG, several
privately held companies, and the open source development community.
The most significant threat to revenue for the cross-platform
foundation C++ components comes from internal development operations within the
Company's customer and prospect base. Additional threats come from specialized
C++ component vendors and, increasingly, open source projects that produce
freely available source code upon which companies can build enterprise software.
Products and services that are indirectly competitive include
components from Microsoft, Powersoft, Oracle, and Borland. Each of these
companies provides or may provide in the future solutions that may compete with
Rogue Wave Software's object-oriented, distributed computing and database access
products.
Additional indirect competition comes from the emergence of Java as a
viable object-oriented cross-platform enterprise development language. The Java
Development Kit is freely distributed by Sun Microsystems and contains a
comprehensive set of foundation and GUI components upon which a developer may
begin development. Higher level Java-centric products, such as application
servers provided by Sun Microsystems (Iplanet), IBM (Websphere) and BEA (Web
Logic), also represent alternative technologies that can compete with the
Company's SourcePro C++ components.
Many of these possible competitors have well-established relationships
with current and potential customers and have the resources to more easily offer
a single vendor solution. Like our current competitors, many of these companies
have longer operating histories, significantly greater resources and name
recognition and larger installed bases of customers than Rogue Wave. As a
result, these potential competitors may be able to respond more quickly to new
or emerging technologies and changes in customer requirements, or can devote
greater resources to the development, promotion and sale of their products.
Systems integrators do compete with Rogue Wave consulting offerings,
although they tend to bring industry-specific expertise rather than
architectural level expertise to software development projects. Many systems
integrators possess industry specific expertise that may enable them to offer a
single vendor solution more easily, and already have a reputation among
potential customers for offering enterprise-wide solutions to software
programming needs. Systems integrators may market competitive software products
in the future.
There are many factors that may increase competition in the market for
object-oriented software components, programming tools and distributed
application development products, including (1) entry of new competitors, (2)
alliances among existing competitors and (3) consolidation in the software
industry. Increased competition may result in price reductions, reduced gross
margins or loss of market share, any of which could materially adversely affect
the Company's business, operating results and financial condition. If Rogue Wave
cannot compete successfully against current and future competitors or overcome
competitive pressures, the Company's business, operating results and financial
condition may be adversely affected.
Employees
As of September 30, 2001, the Company had a total of 307 employees, of
which 257 were based in the United States, 44 were based in Europe, 2 were based
in Canada and 4 were based in Japan and Hong Kong. Of the total, 102 were in
sales and marketing, 81 were in product development, 36 were in customer
support, 25 were in consulting services and 63 were in finance, administration
and operations. The Company's future performance depends, in significant part,
upon the continued service of its key technical, sales and senior management
personnel, none of whom is bound by an employment agreement. The loss of the
services of one or more of the Company's key employees could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's future success also depends on its continuing ability
to attract, train and retain highly qualified technical, sales and managerial
personnel. Competition for such personnel is intense and there will be no
assurance that the Company can retain its key technical, sales and managerial
personnel in the future. The Company has not experienced any work stoppages and
considers relations with its employees to be good.
8
Factors That May Affect Future Results
In evaluating the Company's business, investors should carefully
consider the following factors in addition to the other information presented in
this report.
Our future operating results are difficult to predict and actual financial
results may vary from our expectations, which could have an adverse effect on
our stock price.
Our future operating results are difficult to predict due to a variety
of factors, many of which are outside of our control. These factors include:
. overall economic conditions of the US and the rest of the world;
. the demand for our products and services;
. the level of product and price competition;
. the size, type and timing of individual license transactions;
. the delay or deferral of customer implementations;
. our success in expanding our direct sales force and indirect distribution
channels;
. the timing of new product introductions and product enhancements;
. levels of international sales;
. changes in our pricing policy or that of our competitors;
. publication of opinions about us, our products and object-oriented, component
technology by industry analysts;
. our ability to retain key employees and hire new employees;
. our ability to develop and market new products and control costs; and
. our ability to effectively deploy our new strategy including our new business
model.
One or more of the foregoing factors may cause our operating expenses
to be disproportionately high during any given period or may cause our net
revenue and operating results to fluctuate significantly. Based on the preceding
factors, we may experience a shortfall in revenue or earnings or otherwise fail
to meet public market expectations, which could materially adversely affect our
business, financial condition and the market price of our common stock.
Our operating results in one or more future periods may fluctuate significantly
and could cause our stock price to be volatile.
We generally ship orders as received, which means that quarterly revenue
and operating results depend substantially on the volume and timing of orders we
receive during the quarter. Sales volume is difficult to forecast due to a
number of reasons, many of which are outside our control. Such reasons include:
. lack of a reliable means to assess overall customer demand;
. historically we have earned a substantial portion of our revenue in the last
weeks, or even days, of each quarter;
. larger customer orders are subject to long sales cycles and are frequently
delayed; and
. our service and maintenance revenue tends to fluctuate as consulting
contracts are undertaken, renewed, completed or terminated.
We base operating expenses on anticipated revenue trends and a high
percentage of these expenses are relatively fixed. As a result, a delay in the
recognition of revenue from a limited number of transactions could cause
significant variations in operating results from quarter to quarter and could
lead to significant losses. Accordingly, operating results and growth rates for
any particular quarter or other fiscal period may not be indicative of future
operating results. Furthermore, fluctuations in our quarterly operating results
may result in volatility in the price of our common stock in the future.
Our failure to manage planned growth could adversely affect our ability to
increase revenue.
Our business has evolved significantly in recent years, placing a
strain on our management systems and resources. To manage future growth, we must
continue to improve our financial and management controls, reporting systems and
procedures on a timely basis and expand, train and manage our employee work
force. If we fail to manage our growth effectively, our business, financial
condition and results of operations could be materially and adversely affected.
9
Failure to attract and retain key employees will adversely affect our business.
Our future performance depends significantly upon the continued service
of our key technical, sales and senior management personnel, none of whom is
bound by an employment agreement. We believe that the technological and creative
skills of our personnel are essential to establishing and maintaining a
leadership position, particularly in light of the fact that our intellectual
property, once sold to the public market, is easily replicated. The loss of the
services of one or more of our executive officers or key technical personnel may
have a material adverse effect on our business.
Our future success also depends on our continuing ability to attract
and retain highly qualified technical, sales and managerial personnel. In the
past, we have experienced some difficulty in attracting key personnel.
Competition for such personnel is intense and there can be no assurance that we
can retain key employees or that we can attract, assimilate or retain other
highly qualified personnel in the future.
Variability of our sales cycles make it difficult to forecast quarterly revenue
and operating results, making it likely that period-to-period comparisons are
not necessarily meaningful as an indicator of future results.
We distribute our products primarily through two different direct sales
channels, a telesales force and a field sales force, each of which is subject to
a variable sales cycle. Products sold by our telesales force may be sold after a
single phone call or may require several weeks of education and negotiation
before a sale is made. As such, the sales cycle associated with telesales
typically ranges from a few days to two months. On the other hand, the purchase
of products from our field sales force is often an enterprise-wide decision and
may require the sales person to provide a significant level of education to
prospective customers regarding the use and benefits of our products. For these
and other reasons, the sales cycle associated with the sale of our products
through our field sales force typically ranges from two to six months and is
subject to a number of significant delays over which we have little or no
control. As a result, quarterly revenue and operating results are variable and
are difficult to forecast, and we believe that period-to-period comparisons of
quarterly revenue are not necessarily meaningful and should not be relied upon
as an indicator of future revenue.
We face risks involving future business acquisitions.
We frequently evaluate strategic opportunities available to us and may
in the future pursue additional acquisitions of complementary technologies,
products or businesses. Future acquisitions of complementary technologies,
products or businesses will result in the diversion of management's attention
from the day-to-day operations of our business and may include numerous other
risks, including difficulties in the integration of the operations, products and
personnel of the acquired companies. Future acquisitions may also result in a
dilutive issuance of equity securities, the incurrence of debt, and amortization
expenses related to intangible assets. Our failure to successfully manage future
acquisitions may have a material adverse effect on our business and financial
results.
Doing business outside the United States involves numerous factors that could
negatively affect our financial results.
A significant portion of our revenue is derived from international
sources. To service the needs of these customers, we must provide worldwide
product support services. We have expanded, and intend to continue expanding,
our international operations and plan to enter additional international markets.
This will require significant management attention and financial resources that
could adversely affect our operating margins and earnings. We may not be able to
maintain or increase international market demand for our products. If we do not,
our international sales will be limited, and our business, operating results and
financial condition could be materially and adversely affected.
Our international operations are subject to a variety of risks,
including (1) foreign currency fluctuations, (2) economic or political
instability, (3) shipping delays and (4) various trade restrictions. Any of
these risks could have a significant impact on our ability to deliver products
on a competitive and timely basis. Significant increases in the level of customs
duties, export quotas or other trade restrictions could also have an adverse
effect on our business, financial condition and results of operations. In
situations where direct sales are denominated in a foreign currency, any
fluctuation in foreign currency or the exchange rate may adversely affect our
business, financial condition and results of operations.
We may not be able to adequately protect our intellectual property or operate
our business without infringing on the intellectual property rights of others.
We rely primarily on a combination of copyright, trademark and trade
secret laws, confidentiality procedures and
10
contractual provisions to protect our proprietary rights. We also believe that
factors such as the technological and creative skills of our personnel, new
product developments, frequent product enhancements, name recognition and
reliable product maintenance are essential to establishing and maintaining a
technological leadership position. We seek to protect our software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as proprietary. The
nature of many of our products requires the release of the source code to
customers. As such, policing unauthorized use of our products is difficult, and
while we are unable to determine the extent to which piracy of our products
exists, software piracy can be expected to be a persistent problem. In addition,
the laws of some foreign countries do not protect our proprietary rights as
fully as do the laws of the United States. There can be no assurance that our
means of protecting our proprietary rights in the United States or abroad will
be adequate or that competition will not independently develop similar
technology.
Although we do not believe that we are infringing any proprietary rights of
others, third parties may claim that we have infringed their intellectual
property rights. Furthermore, former employers of our former, current or future
employees may assert claims that such employees have improperly disclosed to us
the confidential or proprietary information of such former employers. Any such
claims, with or without merit, could (1) be time consuming to defend, (2) result
in costly litigation, (3) divert management's attention and resources, (4) cause
product shipment delays or (5) require us to pay money damages or enter into
royalty or licensing agreements. A successful claim of intellectual property
infringement against us and our failure or inability to license or create a
workaround for such infringed or similar technology may materially and adversely
affect our business, operating results and financial condition.
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. It is
possible, however, that the limitation of liability provisions contained in our
license agreements may not be effective under the laws of certain jurisdictions.
A successful product liability claim brought against us could have a material
adverse effect upon our business, operating results and financial condition.
Our business will suffer if our products contain defects or do not function as
intended, which would cause our revenue to decline.
Software products frequently contain errors or failures, especially when
first introduced or when new versions are released. Also, new products or
enhancements may contain undetected errors, or "bugs," or performance problems
that, despite testing, are discovered only after a product has been installed
and used by customers. Errors or performance problems could cause delays in
product introduction and shipments or require design modifications, either of
which could lead to a loss in revenue. Our products are typically intended for
use in applications that may be critical to a customer's business. As a result,
we expect that our customers and potential customers have a greater sensitivity
to product defects than the market for software products generally. Despite
extensive testing by us and by current and potential customers, errors may be
found in new products or releases after commencement of commercial shipments,
resulting in loss of revenue or delay in market acceptance, diversion of
development resources, the payment of monetary damages, damage to our
reputation, or increased service and warranty costs, any of which could have a
material adverse effect on our business and results of operations.
We cannot predict whether the market acceptance for C++ and Visual C++/MFC will
continue to grow.
Our product lines are designed for use in object-oriented software
application development. To date, a substantial majority of our revenue has been
attributable to sales of products and related maintenance and consulting
services associated with C++ programming and development. We believe that, while
the market for object-oriented technology is maturing, optimization of the C++
solutions through realignment of products and services coupled with the pursuit
of unsaturated markets in Asia, Europe and Latin America, will serve to enhance
future revenue. However, object-oriented programming languages are very complex
and the number of software developers using them is relatively small compared to
the number of developers using other software development technology. Our
financial performance will depend in part upon continued growth in object-
oriented technology and markets and the development of standards that our
products address. There can be no assurance that the market will continue to
grow or that we will be able to respond effectively to the evolving requirements
of the market.
Our market is highly competitive and, if we are unable to compete successfully,
our ability to grow our business or even maintain revenue and earnings at
current levels will be impaired.
Our products target the markets for Visual C++/MFC and Visual Basic/ActiveX
software parts and programming tools. Direct competitors in the C++ market
include Microsoft (with its MFC), ILOG and several privately held companies.
11
Microsoft is a particularly strong competitor due to its large installed base
and the fact that it bundles its MFC library with its own and other C++
compilers. Microsoft may decide in the future to devote more resources to or
broaden the functions of MFC in order to address and more effectively compete
with the functionality of our products.
Software applications can also be developed using software parts and
programming tools in environments other than C++. Indirect competitors with such
offerings include Microsoft, Borland, Oracle and Powersoft. Many of these
competitors have significantly greater resources, name recognition and larger
installed bases of customers than we do. These potential competitors have well-
established relationships with current and potential customers and have the
resources to enable them to more easily offer a single vendor solution. Like our
current competitors, many of these companies have longer operating histories,
significantly greater resources and name recognition and larger installed bases
of customers than we do. As a result, these potential competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of their products than us.
We also face competition from systems integrators and our customers'
internal information technology departments. Many systems integrators possess
industry specific expertise that may enable them to offer a single vendor
solution more easily, and already have a reputation among potential customers
for offering enterprise-wide solutions to software programming needs. Systems
integrators may market competitive software products in the future.
There are many factors that may increase competition in the market for
object-oriented software parts and programming tools, including (1) entry of new
competitors, (2) alliances among existing competitors and (3) consolidation in
the software industry. Increased competition may result in price reductions,
reduced gross margins or loss of market share, any of which could materially
adversely affect our business, operating results and financial condition. If we
cannot compete successfully against current and future competitors or overcome
competitive pressures, our business, operating results and financial condition
may be adversely affected.
We operate in an industry with rapidly changing technology and, if we do not
successfully modify our products to incorporate new technologies, they may
become obsolete and sales will suffer.
The software market in which we compete is characterized by (1) rapid
technological change, (2) frequent introductions of new products, (3) changing
customer needs and (4) evolving industry standards. To keep pace with
technological developments, evolving industry standards and changing customer
needs, we must support existing products and develop new products. We may not be
successful in developing, marketing and releasing new products or new versions
of our products that respond to technological developments, evolving industry
standards or changing customer requirements. We may also experience difficulties
that could delay or prevent the successful development, introduction and sale of
these enhancements. In addition, these enhancements may not adequately meet the
requirements of the marketplace and may not achieve any significant degree of
market acceptance. If release dates of any future products or enhancements are
delayed, or if these products or enhancements fail to achieve market acceptance
when released, our business, operating results and financial condition could be
materially adversely affected. In addition, new products or enhancements by our
competitors may cause customers to defer or forgo purchases of our products,
which could have a material adverse effect on our business, financial condition
and results of operations.
Executive Officers of the Registrant
The executive officers of the Company and their ages and positions as of
November 29, 2001, are as follows:
Name Age Position
---- --- --------
John Floisand...................... 57 Interim Chief Executive Officer and Director
Merle A. Waterman.................. 38 Vice President, Chief Financial Officer and Secretary
James M. Smith..................... 58 Executive Vice President, Worldwide Sales
Charles M. O'Neill................. 50 Vice President, Professional Services
David A. Rice...................... 37 Vice President, Marketing and Business Development
Marc A. Manley..................... 42 Vice President, Research and Development
John Floisand, Interim Chief Executive Officer and Director, has been a
Director of the Company since March 2000. In October 2001, Mr. Floisand was
appointed the interim Chief Executive Officer. Mr. Floisand served as President
and Chief Executive Officer of Personic, Inc., from September 1999 to October
2000, at which time he retired. From 1995 to August 1999, Mr. Floisand was
employed by Borland Corporation where he served as Senior Vice President of
Worldwide
12
Sales. Mr. Floisand was employed by Apple Computer between 1983 to 1995, where
he last served as President of Apple Pacific and Senior Vice President of Apple
Computer. Prior to joining Apple Computer, Mr. Floisand was the Managing
Director and Chairman of Base2. Mr. Floisand also serves as a director and
member of the compensation committee of Cidco Inc., a telephony and e-mail
messaging products and services provider. Mr. Floisand received his B.S. from
Columbia University.
Merle A. Waterman, Vice President, Chief Financial Officer and Secretary of
the Company, has been with the Company since January 1996. Between January 1996
and December 1999, he served as the Corporate Controller of the Company. Prior
to joining Rogue Wave, Mr. Waterman was employed for nine years as a Certified
Public Accountant with KPMG LLP. Mr. Waterman received his B.S. from Oregon
State University.
James M. Smith, Executive Vice President, Worldwide Sales, has been with
the Company since July 2000. From July 2000 through March 2001, Mr. Smith served
as the Company's Vice President, Marketing and Business Development. Prior to
joining Rogue Wave, Mr. Smith served as Vice President and co-founder of
Electran Corporation from 1998 to 2000. Between 1997 and 1998, he was employed
as Vice President of Nexgen Software Technologies. From 1993 to 1997, he served
as President of the YCHANGE Group. Prior to joining YCHANGE, Mr. Smith was
employed by Synon Corporation between 1989 and 1993, and was employed for 16
years at IBM in various sales and marketing positions. Mr. Smith also serves as
a director of Line 4 Inc., a computer telephony integration company. Mr. Smith
received a M.S. degree from the University of Miami and his B.S. from the Hebrew
University of Jerusalem.
Charles M. O'Neill, Vice President, Professional Services, has been with
the Company since March 1999 and has served in such capacity since that date.
Prior to joining Rogue Wave, Mr. O'Neill served as Vice President for Vality
Technology, Inc. from 1997 to 1998. Prior to joining Vality Technology, he was
employed by VMARK Software, Inc. from 1993 to 1997 where he held the position of
Vice President of Professional Services. Prior to joining VMARK, he was employed
for 6 years at Prime Computer, Inc., where he last served as Director of
Consulting Services. Mr. O'Neill also worked for the Boston Globe Newspaper. Mr.
O'Neill received his B.A. from the College of the Holy Cross.
David A. Rice, Vice President, Marketing and Business Development, has been
with the Company since May 1995. Between May 1995 and March 2001, Mr. Rice
served as the Company's Division General Manager of Infrastructure Products. In
March 2001, Mr. Rice was promoted to Vice President, Marketing and Business
Development. Between August 1993 and April 1995, he served as Brand Manager of
Sierra On-Line. Prior to joining Sierra On-Line, he was employed from December
1989 to March 1991 at Relevant Business Systems where he held the position of
Account Manager. Prior to joining Relevant Business Systems, he was
Buyer/Planner of Unisys/Convergent Technologies, and was employed from 1986 to
1988 at Pacific Consulting Group, where he served as Research Analyst. Mr. Rice
holds a M.B.A from the University of Oregon and a B.A. from Stanford University.
Marc A. Manley, Vice President, Research and Development, has been with the
Company since June 2001. Between 1997 and 2001, Mr. Manley was employed by
Lehman Brothers in various technology management positions. Prior to joining
Lehman Brothers, he founded and managed Benchmark Systems where he was employed
from 1985 to 1996. Mr. Manley received his B.S. from Columbia University.
ITEM 2. PROPERTIES
The Company's principal domestic administrative, sales, marketing, support,
consulting and product development offices are located in facilities consisting
of approximately 37,000 square feet in Boulder, Colorado; 30,000 square feet in
Corvallis, Oregon; 16,000 square feet in Raleigh, North Carolina, and 12,000
square feet in Southboro, Massachusetts. The leases on the Boulder, Corvallis,
Raleigh and Southboro facilities expire on various dates from 2003 through 2006.
As a result of the restructuring of the operations located in Raleigh, North
Carolina, such facility is no longer being utilized and the Company is pursuing
sub-lease of the property (see Note 3 of Notes to Consolidated Financial
Statements). The Company currently leases other domestic sales, development and
support offices in California, New York, Texas, Illinois, and Ontario. The
Company also rents space for its international offices in Europe, Japan and Hong
Kong. Note 6 of Notes to Consolidated Financial Statements describes the amount
of the Company's lease obligations. The Company believes that these facilities
are adequate for its current needs and that suitable additional or alternative
space will be available in the future on commercially reasonable terms as
needed.
ITEM 3. LEGAL PROCEEDINGS
None.
13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2001.
14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Market Information
The Company's common stock trades on the NASDAQ National Market ("NASDAQ")
under the symbol "RWAV". The following table sets forth the high and low closing
sales prices for the Company's Common Stock for the quarters ended in fiscal
years 2001 and 2000, as furnished by NASDAQ. These prices reflect prices between
dealers, without retail markups, markdowns or commissions, and may not represent
actual transactions.
High Low
---- ---
Year ended September 30, 2001
1st Quarter................................................... $ 5.50 $ 2.94
2nd Quarter................................................... 6.00 3.13
3rd Quarter................................................... 4.76 3.00
4th Quarter................................................... 4.38 1.91
Year ended September 30, 2000
1st Quarter................................................... $ 9.88 $ 4.44
2nd Quarter................................................... 12.00 7.63
3rd Quarter................................................... 7.63 4.17
4th Quarter................................................... 7.13 4.67
As of October 31, 2001, there were approximately 136 stockholders of record
of the Company's Common Stock (which number does not include the number of
stockholders whose shares are held of record by a brokerage house or clearing
agency but does include such brokerage house or clearing agency as one record
holder). The Company believes it has in excess of 6,000 beneficial holders of
the Company's Common Stock.
Dividend Policy
The Company has not historically paid cash dividends and currently intends
to retain any future earnings for use in its business for the foreseeable
future.
In September 2001, the Board of Directors authorized the Company to
repurchase up to an aggregate of $5 million or 2.5 million shares of its Common
Stock. At October 31, 2001, the Company had repurchased 117,950 shares at prices
ranging from $2.50 - $3.14 per share.
15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data should be
read in conjunction with our consolidated financial statements and the notes to
such statements and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Annual Report on Form 10-
K. The consolidated statement of operations data for each of the years in the
five year period ended September 30, 2001, and the balance sheet data for each
of the years in the five year period ended September 30, 2001, are derived from
our financial statements, which have been audited by KPMG LLP, independent
auditors. Historical results are not necessarily indicative of the results to be
expected in the future.
Year Ended September 30,
------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Revenue:
License revenue............................................. $ 30,549 $ 30,724 $ 32,394 $ 28,663 $ 24,096
Service and maintenance revenue............................. 27,104 23,718 20,710 15,776 9,313
-------- --------- -------- -------- ---------
Total revenue............................................. 57,653 54,442 53,104 44,439 33,409
-------- ---------- --------- --------- ---------
Cost of revenue:
Cost of license revenue..................................... 788 1,710 2,149 2,377 1,973
Cost of service and maintenance revenue..................... 11,781 7,981 7,306 4,920 2,963
-------- ---------- --------- --------- ---------
Total cost of revenue..................................... 12,569 9,691 9,455 7,297 4,936
-------- ---------- --------- --------- ---------
Gross profit.............................................. 45,084 44,751 43,649 37,142 28,473
-------- ---------- --------- --------- ---------
Operating expenses:
Product development......................................... 13,759 14,072 11,512 9,532 7,619
Sales and marketing......................................... 25,140 24,668 23,510 19,313 14,338
General and administrative.................................. 5,908 5,491 5,354 4,164 3,620
Restructuring, severance, acquisition and goodwill
amortization.............................................. 2,192 1,661 1,170 1,789 --
Goodwill impairment charge/(1)/............................. -- 10,493 -- -- --
-------- --------- --------- --------- ---------
Total operating expenses.................................. 46,999 56,385 41,546 34,798 25,577
-------- --------- --------- --------- ---------
Income (loss) from operations............................. (1,915) (11,634) 2,103 2,344 2,896
Other income, net.............................................. 1,085 1,877 1,182 794 1,396
-------- ---------- --------- --------- ---------
Income (loss) before income taxes......................... (830) (9,757) 3,285 3,138 4,292
Income tax expense (benefit)................................... (219) 746 1,274 961 1,459
-------- ---------- --------- --------- ---------
Net income (loss)......................................... $ (611) $ (10,503)$ 2,011 $ 2,177 $ 2,833
-------- ---------- --------- --------- ---------
Pro forma net income data/(2)/:
Income before income taxes.................................. $ 3,138 $ 4,292
Pro forma income tax expense................................ 1,098 1,471
--------- ---------
Pro forma net income...................................... $ 2,040 $ 2,821
========= =========
Pro forma basic earnings per share.......................... $ 0.20 $ 0.32
========= =========
Pro forma diluted earnings per share........................ $ 0.19 $ 0.27
========= =========
Basic earnings (loss) per share................................ $ (0.06) $ (1.00)$ 0.19 $ 0.21 $ 0.32
======== ========== ========= ========== =========
Diluted earnings (loss) per share.............................. $ (0.06) $ (1.00)$ 0.19 $ 0.20 $ 0.27
======== ========== ========= ========== =========
Basic shares outstanding....................................... 10,983 10,512 10,383 10,209 8,807
Diluted shares outstanding..................................... 10,983 10,512 10,860 10,670 10,419
September 30,
-------------
2001 2000 1999 1998 1997
---- ---- ---- ----- ----
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments............. $34,197 $33,526 $27,664 $35,264 $35,737
Total assets.................................................. 56,837 55,619 59,470 54,527 50,018
Long-term obligations, less current portion................... -- -- -- -- 351
Total stockholders' equity.................................... 37,288 37,293 42,342 42,905 39,920
- --------------------------------------------------------------------------------
16
(1) Represents the impairment of goodwill associated with the NobleNet
acquisition, following the decision by the Company to discontinue the
Nouveau product line.
(2) Stingray, which was acquired utilizing the pooling of interests accounting
method, was a Subchapter S corporation since inception (July 10, 1995) until
December 31, 1997 and, accordingly, not subject to federal and state income
taxes during the year 1997 and a portion of fiscal 1998. Pro forma net
income reflects federal and state income taxes as if the Company and
Stingray had been a C corporation, based on effective tax rates during the
periods indicated.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements regarding the
Company, its business, prospects and results of operations that are subject to
risks and uncertainties posed by many factors and events that could cause the
Company's actual business, prospects and results of operations to differ
materially from those that may be anticipated by such forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed herein as well as those discussed under the captions
"risk factors" and "business" as well as those discussed elsewhere in this 10-K.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. The Company
undertakes no obligation to revise any forward-looking statements in order to
reflect events or circumstances that may subsequently arise. Readers are urged
to carefully review and consider the various disclosures made by the Company in
this report and in the Company's other reports filed with the Securities and
Exchange Commission that attempt to advise interested parties of the risks and
factors that may affect the Company's business.
Overview
Rogue Wave Software, Inc. was founded in 1989 to provide reusable software
components for the development of object-oriented software applications. The
Company operated as a Subchapter S Corporation until June 1994. In October 1995,
Rogue Wave merged with Inmark development Corporation, a privately held
corporation specializing in the development, distribution and support of an
object-oriented graphical user interface library written in the C++ programming
language. In February 1998, the Company merged with Stingray Software, Inc., a
privately held corporation specializing in the development and distribution of
object-oriented development tools for Windows programmers and is a leading
provider of Visual C++ class libraries. Both transactions were accounted for
using the pooling-of-interests method of accounting. In March 1999, the Company
merged with Noblenet, Inc., in a transaction utilizing the purchase method of
accounting. Noblenet specialized in building and marketing software products
that allow existing information technology systems to communicate and
interoperate across corporate networks and the Internet. Following the fourth
quarter 2000 decision to discontinue marketing of the Noveau product line, the
investment in Noblenet, which consisted primarily of goodwill, was written off
in fiscal 2000. See Note 2 of Notes to Consolidated Financial Statements. In
addition, during fiscal 2001, as a part of an ongoing effort to optimize its
corporate organizational structure and in conjunction with continuing cost
containment programs, the Company restructured its Stingray business unit and
discontinued the Fornova project, as discussed below. The Stingray products,
which primarily consist of development tools for Windows Programmers, will
continue to be sold by the Company. As a result of these decisions, the Company
recognized a restructuring charge as well as various other one-time costs in
fiscal 2001. See Note 3 of Notes to Consolidated Financial Statements.
To date, the Company's revenue has been derived from licenses of its
software products and related maintenance, training and consulting services.
License revenue is recognized upon execution of a license agreement or signed
written contract with fixed or determinable fees, shipment or electronic
delivery of the product, and when collection of the resulting receivable is
probable. Allowances for credit risk and for estimated future returns are
provided upon shipment. Returns to date have not been material. Service and
maintenance revenue consists of fees that are charged separately from the
product licenses. Maintenance revenue consists of fees for ongoing support and
product updates and is recognized ratably over the term of the contract, which
is one to three years. Service revenue consists of training and consulting
services and, when appropriate, is recognized utilizing the percentage of
completion revenue recognition method. The Company's revenue recognition
policies are in compliance with the American Institute of Certified Public
Accountants Statements of Position 97-2, as amended, and 98-9, relating to
Software Revenue Recognition.
Historically, the Company has marketed its products primarily through its
direct sales force and, to a lesser extent, through the Internet and an indirect
channel consisting of original-equipment-manufacturers, value added resellers,
dealers and distributors. The Company's direct sales force consists of an inside
telesales group that focuses on smaller orders ($50,000 or less), and an outside
sales force that focuses on larger site licenses. The Company makes all of its
products available for sale and distribution over the Internet. Revenue through
this channel has not been significant to date, and there can be no assurance
that the Company will be successful in marketing its products through this
channel.
The Rogue Wave Strategy and Business Model
Rogue Wave's strategic objective is to provide technology and services that
allow customers to optimize productivity when building software solutions to
address their business requirements. Simply, the Company strives to create
products that efficiently and effectively align underlying information
technology with a customers' application of that technology.
18
The Company's history is rich in object oriented C++, the language of
choice for large scale, business critical applications. As described below,
during fiscal 2001, Rogue Wave announced the launch of the SourcePro C++ product
line, reflecting a substantive alteration to the Company's core products and
business model. Additionally, the Company has made significant investment in
Java and XML initiatives. Most recently, Rogue Wave has initiated the pursuit of
two new technologies, the first addressing the Web integration needs of the C++
developer and the second involving an Internet shared memory space for
transparent collaborative applications, providing an area on the Internet where
XML documents can be written or read, subject to appropriate security
constraints.
Evolution of the market place has created the need for higher order
solutions. Customers are less interested in atomic software components and more
interested in technology suites and frameworks that address a higher percentage
of their needs. Customer purchasing practices have migrated away from the
individual developer, with a greater focus on project, division or enterprise
requirements. As a result, during fiscal 2001, Rogue Wave began migrating from
concentrating on the sale of individual developer licenses to a business model
centered on the deployment of the customers' finished applications. In order to
minimize the impact on long-term customers, existing licensing models were
maintained for historical products while introducing the new license model for
new customer contracts. The transition is expected to be completed in fiscal
2002.
Rogue Wave(R) SourcePro(TM) C++ Product Launch
Effective May 1, 2001, Rogue Wave announced the launch of the SourcePro C++
product line, reflecting a substantive alteration to the Company's core products
business model. The SourcePro C++ products, which integrate the majority of
formerly offered Rogue Wave C++ component technology as well as adding features
not previously available, are designed to provide more comprehensive solutions
while optimizing the use of the Company's core C++ products. SourcePro C++ is
comprised of four products: SourcePro Core, SourcePro DB, SourcePro Net and
SourcePro Analysis. Pricing of the SourcePro C++ products is based on a customer
value model, which considers scope of deployment, including operating systems,
in contrast to the historically employed "license per developer" approach.
Overall, the new model allows customers greater flexibility in their utilization
of the Company's products. Adoption of the new core business model, including
the transition to the new SourcePro C++ product line, and pricing strategy is
not expected to have an adverse impact on the Company's business, financial
condition or results of operations.
Large Scale Object Solutions
Large Scale Object Solutions ("LSOS") is a set of technologies targeted at
customers with specific needs: running very high throughput systems deployed
against a relational database. LSOS offers services such as a hierarchical
object model, object history, object reconciliation, and a method for storing
objects on relational databases in order to maximize performance. While our
first implementation is in the financial industry addressing single day trade
settlements (T+1) challenges, LSOS is a horizontal framework, usable in many
industries. Our objective is to expand into additional financial application
projects, then branch out in other industries.
International Operations
During fiscal 2001, Rogue Wave has continued to solidify its worldwide
presence. International revenue accounted for approximately 30%, 21% and 21% of
total revenue in fiscal 2001, 2000 and 1999, respectively. Since 1996, the
Company has expanded its European operations with distribution channels in the
United Kingdom, Germany, France, Italy and the Benelux countries. In fiscal
2000, the Company established offices in Japan and Hong Kong. The Company
anticipates further expansion in foreign countries and expects that
international license and service and maintenance revenue will account for an
increasing portion of its total revenue in the future. The Company has committed
and continues to commit significant management time and financial resources to
developing direct and indirect international sales and support channels.
International revenue has increased during the current period as a result of the
successful execution of Europe's revenue growth strategy as well as one large
software contract. There can be no assurance, however, that the Company will be
able to maintain or increase international market demand for its products.
The majority of the Company's international revenue is generated by the
Company's European subsidiaries. To date, other than revenue generated by the
Company's European subsidiaries, the Company's international revenue has been
denominated in United States dollars. The Company has entered into forward
foreign exchange contracts to reduce certain risks associated with currency
fluctuations. Although exposure to currency fluctuations to date has been
insignificant, to the extent international revenue is denominated in local
currencies, foreign currency translations may contribute to significant
fluctuations in, and could have a material adverse effect upon, the Company's
business, financial condition and results of operations. See "Factors That May
Affect Future Results" in Part I, Item 1 of this Form 10-K.
19
Results of Operations
The following table sets forth certain operating data expressed as a
percentage of total revenue for each period indicated:
Year Ended September 30,
------------------------
2001 2000 1999
---- ---- ----
Statements of Operations:
Revenue:
License revenue.............................................................. 53.0% 56.4% 61.0%
Service and maintenance revenue.............................................. 47.0 43.6 39.0
------ ------ ------
Total revenue.............................................................. 100.0 100.0 100.0
Cost of revenue:
Cost of license revenue...................................................... 1.4 3.1 4.0
Cost of service and maintenance revenue...................................... 20.4 14.7 13.8
------ ------ ------
Total cost of revenue...................................................... 21.8 17.8 17.8
------ ------ ------
Gross profit............................................................... 78.2 82.2 82.2
Operating expenses:
Product development.......................................................... 23.9 25.9 21.7
Sales and marketing.......................................................... 43.6 45.3 44.3
General and administrative................................................... 10.2 10.1 10.0
Restructuring, severance, acquisition, and goodwill amortization............. 3.8 3.0 2.2
Goodwill impairment charge................................................... -- 19.3 --
------ ----- ------
Total operating expenses................................................... 81.5 103.6 78.2
------ ----- ------
Income (loss) from operations.............................................. (3.3) (21.4) 4.0
Other income, net.............................................................. 1.9 3.5 2.2
------ ----- ------
Income (loss) before income taxes.......................................... (1.4) (17.9) 6.2
Income tax expense (benefit)................................................... (0.4) 1.4 2.4
------ ----- ------
Net income (loss).......................................................... (1.0)% (19.3)% 3.8%
====== ===== ======
Revenue. The Company's total revenue increased 6% to $57.7 million in fiscal
2001 from $54.4 million in fiscal 2000. Total revenue in fiscal 2000 increased
2.5% from $53.1 million in fiscal 1999. License revenue decreased 0.6% to $30.5
million in fiscal 2001 from $30.7 million in fiscal 2000. License revenue in
fiscal 2000 decreased 5.2% from $32.4 million in fiscal 1999. Although total
revenue increased during fiscal 2001, the number of licenses sold to existing
and new customers decreased resulting in lower license revenue. This decrease is
primarily due to the launch of the SourcePro C++ product line, which considers
scope of deployment, in contrast to the historically employed "license per
developer" approach. To a certain extent, these decreases were offset by the
cross platform deployment rights sales, also considered a component of license
revenue.
Service and maintenance revenue increased 14.3% to $27.1 million in
fiscal 2001 from $23.7 million in fiscal 2000. Service and maintenance revenue
in fiscal 2000 increased 14.5% from $20.7 million in fiscal 1999. The increases
in service and maintenance revenue was primarily attributable to increased sales
volume of the Company's support and maintenance services related to the
Company's core products as well as two customized software consulting contracts
totaling $5.2 million of which $4.7 million was recognized during fiscal year
ending September 30, 2001.
Cost of Revenue. Cost of license revenue consists primarily of purchased
software, materials, packaging and freight expenses. Cost of license revenue was
$788,000, $1.7 million, and $2.1 million in fiscal 2001, 2000, and 1999,
respectively, representing 2.6%, 5.6% and 6.6% of the license revenue for the
respective years. The continuing decrease in cost of license revenue is
primarily the result of an increase in product offerings delivered through the
Internet, versus physically shipped, as well as a decrease in purchased
software.
Cost of service and maintenance revenue consists primarily of
personnel-related and facilities costs incurred in providing customer support
and training services as well as third-party costs incurred in providing
training services. Cost of service and maintenance revenue was $11.8 million,
$8.0 million and $7.3 million in fiscal 2001, 2000 and 1999, respectively,
representing 43.5%, 33.7% and 35.3%, of service and maintenance revenue for the
respective years. Fluctuations in cost of service and maintenance revenue as a
percentage of service and maintenance revenue are primarily the result of
expenses associated with the initial costs related to the Company's expansion of
these services, including the preparation of training programs, utilization of
training and mentoring consultants, additional product support personnel and the
timing of product upgrades. The increase as a percentage of services and
maintenance revenue for fiscal 2001 was due
20
primarily to increasing product support personnel, an increase in the
utilization of third-party consulting services and the additional costs
associated with two significant customized software consulting contracts. The
decrease as a percentage of service and maintenance revenue for fiscal 2000 was
primarily the result of a decreased usage of outside contractors that provided
training and mentoring consulting services.
Product Development. Product development expenses consist primarily of personnel
related expenses. Product development expenses were $13.8 million, $14.1 million
and $11.5 million in fiscal 2001, 2000 and 1999, respectively. As a percentage
of total revenue, product development expenses were 23.9%, 25.9% and 21.7%, in
each respective year. The decrease in product development expenses as a
percentage of revenue in fiscal 2001 is due to an approximate 10% decrease in
development employees as a result of the discontinuance of the Fornova project
discussed below. The increase in product development expense in fiscal 2000 was
primarily attributable to the addition of product development personnel as a
result of the acquisition of NobleNet. While the Company anticipates that it
will continue to devote substantial resources to product development and that
product development expenses will continue to increase, the Company does not
believe such expenses will significantly increase as a percentage of total
revenue for fiscal 2002. All costs incurred in the research and development of
software products and enhancements to existing products have been expensed as
incurred. See Note 1 of Notes to Consolidated Financial Statements.
Sales and Marketing. Sales and marketing expenses consist primarily of salaries,
commissions and bonuses earned by sales and marketing personnel, field office
expenses and travel, entertainment and promotional expenses. Sales and marketing
expenses were $25.1 million, $24.7 million and $23.5 million in fiscal 2001,
2000 and 1999, respectively. As a percentage of total revenue, sales and
marketing expenses were 43.6%, 45.3% and 44.3% in each respective year. The
increase in sales and marketing expenses reflects the hiring of additional sales
and marketing personnel and related costs. While the Company expects that sales
and marketing expenses will continue to grow, the Company does not believe such
expenses will increase as a percentage of total revenue for fiscal 2002.
General and Administrative. General and administrative expenses were $5.9
million, $5.5 million and $5.4 million, in fiscal 2001, 2000 and 1999,
respectively. As a percentage of total revenue, general and administrative
expenses were 10.2%, 10.1% and 10.0% in each respective year. The minimal
increase in general and administrative expenses was primarily due to increased
staffing, investment in infrastructure and associated expenses necessary to
manage and support the Company's growing operations. Although the Company
believes that its general and administrative expenses will increase in absolute
dollars, such expenses are not expected to significantly vary as a percentage of
total revenues for fiscal 2002.
Restructuring, Severance, Acquisition, and Goodwill Amortization. Restructuring,
severance, acquisition and goodwill amortization costs were $2.2 million, $1.7
million and $1.2 million, in fiscal 2001, 2000 and 1999, respectively. As a
percentage of total revenue, restructuring, severance, acquisition costs and
goodwill amortization were 3.8%, 3.0% and 2.2% in the respective years. In
fiscal 2001, $227,000 related to goodwill amortization and $2.0 million related
to restructuring and severance costs. For fiscal year 2000 and 1999, these costs
related to goodwill amortization and the acquisition of NobleNet in fiscal 1999.
Restructuring, severance and asset impairment expenses totaling
approximately $2.0 million were recognized during fiscal year 2001. The Company
recognized approximately $1.3 million in restructuring charges for Stingray and
Fornova and incurred executive severance of approximately $634,000, primarily
for the termination of certain executives. During fiscal 2001, as part of an
ongoing effort to optimize its corporate organizational structure and in
conjunction with continuing cost containment programs, the Company restructured
its Stingray business unit. The restructuring was designed to integrate certain
operations of the Stingray division with other corporate functions, resulting in
estimated annual cost savings of $2.9 million. As part of this reorganization,
the Company recognized approximately $1.1 million in charges related primarily
to severance costs associated with the resulting termination of approximately 50
employees as well as costs associated with the closure of the North Carolina
facility. In relation to the closure of this facility, an asset impairment
charge was recognized for the furniture and fixtures. The Stingray products,
which primarily consist of development tools for Windows programmers, will
continue to be sold and supported by the Company. Management expects the
restructuring to have little or no impact on future revenue.
Following a decision to discontinue the Fornova project, the Company
recognized a restructuring charge of approximately $252,000 during fiscal 2001.
Fornova, a venture focused on developing internet information exchange
technology for the business to business market, had been pursuing obtaining
third party expansion capital with an initial investment commitment of $2
million from the Company. As a result of the overall softening of the U.S.
economy, coupled with the slowing of third party investment in such ventures,
the project was abandoned resulting in the termination of 12 employees. The
Company has recognized expenses of approximately $1.6 million of product
development costs associated with the Fornova project during the first, second
and third fiscal quarters of 2001. Management expects the restructuring to
21
have little or no impact on future revenue. See Note 3 of Notes to the
Consolidated Financial Statements.
Goodwill Impairment Charge. The goodwill impairment charge of $10.5 million in
fiscal 2000 relates to the obsolescence of the Nouveau product line, which was
acquired as part of the business acquisition of NobleNet in March 1999, for
$11.8 million in cash. In August 2000, the Company determined that the Nouveau
product had become obsolete, mitigating future revenue opportunities.
Other Income, Net. Other income, net consists of interest income earned on the
Company's cash, cash equivalents and short-term investments. Other income, net
was $1.1 million, $1.9 million and $1.2 million in fiscal 2001, 2000 and 1999,
respectively. As a percentage of total revenue, other income, net was 1.9%, 3.5%
and 2.2%, in the respective years. The general decrease in other income, net is
a result of a decrease in short-term investments as well as general decreases in
interest rates.
Income Tax Expense. The Company's effective tax rates were 26.4%, 107.6% and
38.8%, for fiscal 2001, 2000 and 1999. The decrease in the rate for fiscal 2001
is primarily due to a significant decrease in goodwill amortization, which is
non-deductible for tax purposes, stock option exercises and a decline in the
recognition of the research and experimentation tax credit. The increase in the
rate for fiscal 2000 is primarily related to the recognition of a goodwill
impairment charge of $10.5 million, which is non-deductible for tax purposes,
contributing to the Company's loss before income taxes of $9.8 million. The
increase in the rate for fiscal 1999 is primarily attributable to the
termination of the research and experimentation tax credit on June 30, 1999.
As of September 30, 2001 and 2000, the Company had net operating loss
carryforwards for federal and foreign income tax purposes of $4.8 million and
$555,000 and $66,000 and $756,000, respectively. The federal losses expire in
2007 to 2021. Utilization of the acquired foreign net operating loss
carryforwards will first be offset against goodwill.
Under Statement of Financial Accounting Standards ("SFAS") 109,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. SFAS 109 provides for the recognition of deferred tax
assets if realization of such assets is more likely than not. Based upon
management's estimates, the Company has provided a valuation allowance against
certain deferred tax assets. The Company evaluates the realizability of the
deferred tax assets on a quarterly basis. See Note 7 of Notes to Consolidated
Financial Statements.
Liquidity and Capital Resources
As of September 30, 2001, the Company had cash, cash equivalents and
short-term investments of $34.2 million. Net cash provided by operating
activities was $3.6 million for fiscal 2001 compared to $4.0 million recognized
in fiscal 2000. The overall decline in cash from operating activities was
attributable to a significant increase in the deferred tax asset related to the
creation of NOLs for fiscal 2001 compared to fiscal 2000, offset by noncash
charges for depreciation and amortization, plus an increase in accounts payable.
Net cash provided by operating activities was $4.0 million in fiscal 2000 and
was composed primarily of net loss that was offset by certain non-cash charges
of $12.2 million, which primarily consisted of a goodwill impairment charge,
depreciation and amortization.
In fiscal 2001 and 2000, the Company's investing activities consisted
primarily of purchases of equipment including those under capital leases and
purchases and maturities of short-term investments, resulting in net decrease of
cash of $8.8 million and $1.2 million, respectively. Accordingly, in fiscal 2001
the Company purchased $5.4 million in short term investments and $3.4 million in
equipment.
Net cash provided by financing activities in fiscal 2001 was $686,000
and included proceeds from the employee stock purchase plan and from the
exercise of stock options. Cash provided by financing activities of $5.5 million
during fiscal 2000 included $1.5 million from the sale of common stock and $4.0
million provided by the issuance of common stock in connection with the employee
stock purchase plan and the exercise of stock options.
In September 2001, the Board of Directors authorized the Company to
repurchase up to an aggregate of $5 million or 2.5 million shares of its common
stock. At October 31, 2001 the Company had repurchased approximately 117,950
shares, at prices ranging from $2.50 - $3.14 per share.
The Company believes that expected cash flows from operations combined
with existing cash and cash equivalents and short-term investments will be
sufficient to meet its cash requirements for the on-going operation of the
Company.
22
New Accounting Pronouncements
On June 30, 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS 141, "Business Combinations", and SFAS 142, "Goodwill and Other
Intangible Assets". Major provisions of these Statements are as follows: all
business combinations initiated after June 30, 2001 must use the purchase method
of accounting; the pooling of interest method of accounting is prohibited except
for transactions initiated before July 1, 2001; intangible assets acquired in a
business combination must be recorded separately from goodwill if they arise
from contractual or other legal rights or are separable from the acquired entity
and can be sold, transferred, licensed, rented or exchanged, either individually
or as part of a related contract, asset or liability; goodwill and intangible
assets with indefinite lives are not amortized but are tested for impairment
annually, except in certain circumstances, and whenever there is an impairment
indicator and all acquired goodwill must be assigned to reporting units for
purposes of impairment testing and segment reporting. Effective January 1, 2002,
goodwill will no longer be subject to amortization. SFAS 142 will be effective
for the Company for fiscal year beginning October 1, 2002. Management does not
believe adoption of these statements will have a material impact on the
Company's financial position, results of operations or cash flows.
In August 2001, the FASB issued SFAS 143, "Accounting for Asset
Retirement Obligations." SFAS 143 requires entities to record the then fair
value of a liability for legal obligations associated with the retirement
obligations of tangible long-lived assets in the period in which it is incurred
and the corresponding cost capitalized by increasing the carrying amount of the
related asset. The liability will continue to be accreted to the fair value at
the time of settlement over the useful life of the asset with the capitalized
cost being depreciated over the useful life of the related asset. If the
liability is settled for an amount other than the recorded amount, a gain or
loss is recognized. The standard is effective for the Company beginning fiscal
year October 1, 2002. Management does not believe that this statement will have
a material impact on the Company's financial position, results of operations, or
cash flows.
In October 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and replaces the accounting and reporting provisions for
segments of a business to be disposed of under Accounting Principles Board
("APB") Opinion No. 30, "Reporting Results of Operations--Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." SFAS 144 maintains the
requirement that an impairment loss be recognized for a long-lived asset to be
held and used if its carrying value is not expected to be recoverable from its
undiscounted cash flows. SFAS 144 requires that long-lived assets to be disposed
of, other than by sales, be considered held and used until actually disposed of
and requires that depreciable lives be revised in accordance with APB Opinion
No. 20, "Accounting Changes." SFAS 144 also requires that long-lived assets to
be disposed of by sale be measured at the lower of carrying amount or fair value
less selling costs, but retains the requirement to report discontinued
operations separately from continuing operations and extends that reporting to a
component of an entity that has either been disposed of or is classified as held
for sale. The provisions of SFAS 144 are effective for the Company for the
fiscal year beginning October 1, 2002. Management does not believe adoption of
this statement will have a material impact on the Company's financial position,
results of operations or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk exposure is the potential loss arising from
changes in interest rates and its impact on short-term investments and foreign
currency exchange rate fluctuations.
As of September 30, 2001, the Company had short-term investments of
$17.1 million of which $11.9 million were held to maturity and $5.2 million were
held available for sale. All investments have acquired maturities of less than
360 days. Short-term investments consist primarily of high credit and highly
liquid corporate notes and commercial paper. A reasonable reduction in overall
interest rates would not have a material affect on the fair value of the
investments or the financial position of the Company.
Exposure to variability in foreign currency exchange rates is managed
primarily through the use of natural hedges, whereby funding obligations and
assets are both managed in the local currency. In addition, the Company will
from time to time enter into foreign currency exchange agreements to manage its
exposure arising from fluctuating exchange rates, primarily in the Euro. The
Company does not enter into any derivative transactions for speculative
purposes. The sensitivity of earnings and cash flows to variability in exchange
rates is assessed by applying an appropriate range of potential rate
fluctuations to the Company's assets, obligations and projected results of
operations denominated in foreign currencies. Based on the Company's overall
foreign currency rate exposure at September 30, 2001, movements in foreign
currency rates would not materially affect the financial position of the
Company. At September 30, 2001 and 2000, the Company had
23
outstanding short-term forward exchange contracts to exchange Euros for U.S.
dollars in the amount of $1.2 million and $1.3 million, respectively.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) for an index to the consolidated financial statements and
supplementary financial information, which are attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding Registrant's directors will be set forth under
the caption "Election of Directors - Nominees" in the Registrant's proxy
statement for use in connection with the Annual Meeting of Stockholders to be
January 17, 2002 (the "2001 Proxy Statement") and is incorporated herein by
reference. The 2001 Proxy Statement will be filed with the Securities and
Exchange Commission within 120 days after the end of the Registrant's fiscal
year.
Information regarding Registrant's executive officers is set forth in
this Form 10-K in Part I, Item 1.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference from the information set forth under the caption "Compensation of
Executive Officers" in the Registrant's 2001 Proxy Statement that will be filed
with the Securities and Exchange Commission within 120 days after the end of the
Registrant's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference into
this Form 10-K from the information set forth under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Registrant's 2001
Proxy Statement that will be filed with the Securities and Exchange Commission
within 120 days after the end of the Registrant's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference from the information set forth under the caption "Certain
Transactions" in the Registrant's 2001 Proxy Statement that will be filed with
the Securities and Exchange Commission within 120 days after the end of the
Registrant's fiscal year.
25
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this Report:
(1) Index To Consolidated Financial Statements Page
----
Report of KPMG LLP........................................................................... F-1
Consolidated Balance Sheets.................................................................. F-2
Consolidated Statements of Operations........................................................ F-3
Consolidated Statements of Stockholders' Equity.............................................. F-4
Consolidated Statements of Cash Flows........................................................ F-5
Notes to Consolidated Financial Statements................................................... F-6
(b) Reports on Form 8-K:
None
(c) See Exhibits Listed under Exhibit Index.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROGUE WAVE SOFTWARE, INC.
Date: November 29, 2001 /s/ MERLE A. WATERMAN
---------------------------------
Merle A. Waterman
Vice President, Chief Financial
Officer and Secretary
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John Floisand and Merle A.Waterman and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments to this Report on Form
10-K, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming that all said
attorneys-in-fact and agents, or any of them or their or his substitute or
substituted, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ THOMAS KEFFER Chairman of the Board November 29, 2001
---------------------------------------
Thomas Keffer
/s/ JOHN FLOISAND Interim Chief Executive Officer and Director November 29, 2001
---------------------------------------
John Floisand (Principal Executive Officer)
/s/ MERLE A. WATERMAN Vice President, Chief Financial Officer and Secretary November 29, 2001
---------------------------------------
Merle A. Waterman (Principal Financial and Accounting Officer)
/s/ THOMAS M. ATWOOD Director November 29, 2001
---------------------------------------
Thomas M. Atwood
/s/ LOUIS C. COLE Director November 29, 2001
---------------------------------------
Louis C. Cole
/s/ MARGARET M. NORTON Director November 29, 2001
---------------------------------------
Margaret M. Norton
/s/ MARC H. STERNFELD Director November 29, 2001
---------------------------------------
Marc H. Sternfeld
27
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Rogue Wave Software, Inc.:
We have audited the accompanying consolidated balance sheets of Rogue
Wave Software, Inc. and subsidiaries as of September 30, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended September 30, 2001.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rogue Wave
Software, Inc. and subsidiaries as of September 30, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 2001, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Boulder, Colorado
October 19, 2001
F-1
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
September 30,
------------
2001 2000
---- ----
ASSETS
Current assets:
Cash and cash equivalents............................................ $17,047 $21,823
Short-term investments............................................... 17,150 11,703
Accounts receivable, net............................................. 12,193 12,101
Prepaid expenses and other current assets............................ 940 1,499
Deferred income taxes................................................ 2,828 1,603
------- -------
Total current assets.............................................. 50,158 48,729
Deferred income taxes.................................................. 789 --
Equipment, net......................................................... 5,114 5,208
Intangibles resulting from business acquisitions, net.................. 273 822
Other assets, net...................................................... 503 860
------- -------
Total assets...................................................... $56,837 $55,619
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... 821 880
Accrued expenses..................................................... 6,927 5,746
Deferred revenue..................................................... 11,801 11,700
------- -------
Total liabilities................................................. 19,549 18,326
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value. Authorized 35,000 shares; issued
and outstanding 11,090 and 10,909 shares at September 30, 2001
and 2000, respectively............................................. 11 11
Additional paid-in capital........................................... 41,573 40,801
Accumulated deficit.................................................. (4,030) (3,419)
Accumulated other comprehensive loss................................. (266) (100)
------- -------
Total stockholders' equity........................................ 37,288 37,293
------- -------
Total liabilities and stockholders' equity........................ $56,837 $55,619
======= =======
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
F-2
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended September 30,
------------------------
2001 2000 1999
---- ---- ----
Revenue:
License revenue................................................... $30,549 $ 30,724 $ 32,394
Service and maintenance revenue................................... 27,104 23,718 20,710
-------- -------- --------
Total revenue.................................................. 57,653 54,442 53,104
-------- -------- --------
Cost of revenue:
Cost of license revenue........................................... 788 1,710 2,149
Cost of service and maintenance revenue........................... 11,781 7,981 7,306
-------- -------- --------
Total cost of revenue.......................................... 12,569 9,691 9,455
-------- -------- --------
Gross profit................................................... 45,084 44,751 43,649
-------- -------- --------
Operating expenses:
Product development............................................... 13,759 14,072 11,512
Sales and marketing............................................... 25,140 24,668 23,510
General and administrative........................................ 5,908 5,491 5,354
Restructuring, severance, acquisition, and goodwill amortization.. 2,192 1,661 1,170
Goodwill impairment charge........................................ -- 10,493 --
-------- -------- --------
Total operating expenses....................................... 46,999 56,385 41,546
-------- -------- --------
Income (loss) from operations.................................. (1,915) (11,634) 2,103
Other income, net................................................... 1,085 1,877 1,182
-------- -------- --------
Income (loss) before income taxes.............................. (830) (9,757) 3,285
Income tax expense (benefit)........................................ (219) 746 1,274
-------- -------- --------
Net income (loss).............................................. $ (611) $(10,503) $ 2,011
======== ======== ========
Basic earnings (loss) per share..................................... $ (0.06) $ (1.00) $ 0.19
======== ======== ========
Diluted earnings (loss) per share................................... $ (0.06) $ (1.00) $ 0.19
======== ======== ========
Shares used in basic per share calculation.......................... 10,983 10,512 10,383
Shares used in diluted per share calculation........................ 10,983 10,512 10,860
Net income (loss).............................................. $ (611) $(10,503) $ 2,011
Other comprehensive income (loss):
Foreign currency translation gain (loss)....................... (166) (354) 280
-------- -------- --------
Total comprehensive income (loss).............................. $ (777) $(10,857) $ 2,291
======== ======== ========
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
F-3
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Additional Retained Accumulated Total
Common stock Paid-in Earnings Comprehensive Treasury Stock Stockholders'
------------ --------------
Shares Amount Capital (Deficit) Income (Loss) Shares Amount Equity
------ ------ ------- -------- ------------ ------ ------ -------
Balance at October 1, 1998.................. 10,457 $ 10 $37,848 $ 5,073 $ (26) -- $ -- $ 42,905
Purchase of common stock.................. -- -- -- -- -- 595 (4,011) (4,011)
Issuance of common stock, net............ -- -- -- -- -- (87) 596 596
Exercise of stock options................. 18 -- 53 -- -- (150) 356 409
Tax benefit from stock option exercise.... -- -- 152 -- -- -- -- 152
Net income................................ -- -- -- 2,011 -- -- -- 2,011
Foreign currency translation adjustment... -- -- -- -- 280 -- -- 280
------ ------ ------- ------- ---------- ---- -------- --------
Balance at September 30, 1999............... 10,475 10 38,053 7,084 254 358 (3,059) 42,342
Issuance of common stock, net............. 123 -- 1,200 -- -- (51) 260 1,460
Exercise of stock options................. 311 1 1,201 -- -- (307) 2,799 4,001
Tax benefit from stock option
exercises............................... -- -- 347 -- -- -- -- 347
Net loss.................................. -- -- -- (10,503) -- -- -- (10,503)
Foreign currency translation adjustment... -- -- -- -- (354) -- -- (354)
------ ------ ------- ------- ---------- ---- -------- --------
Balance at September 30, 2000............... 10,909 11 40,801 (3,419) (100) -- -- 37,293
Issuance of common stock, net............. 169 -- 676 -- -- -- -- 676
Exercise of stock options................. 12 -- 10 -- -- -- -- 10
Tax benefit from stock option
exercises.............................. -- -- 20 -- -- -- -- 20
Accelerated vesting of stock.............. -- -- 66 -- -- -- -- 66
options
Net loss.................................. -- -- -- (611) -- -- -- (611)
Foreign currency translation adjustment... -- -- -- -- (166) -- (166)
------ ------ ------- ------- ---------- ---- -------- --------
Balance at September 30, 2001............... 11,090 $ 11 $41,573 $(4,030) $ (266) -- $ -- $ 37,288
====== ====== ======= ======= ========== ===== ======== ========
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
F-4
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended September 30,
-------------------------
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income (loss).................................................................. $ (611) $ (10,503) $ 2,011
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization.................................................... 4,086 15,292 4,050
Tax benefit from stock options................................................... 20 347 152
Loss on disposal of equipment.................................................... 99 -- 58
Changes in assets and liabilities:
Accounts receivable............................................................ (920) (1,925) (2,805)
Prepaid expenses and other current assets...................................... 559 (79) 1,079
Deferred income taxes.......................................................... (1,266) (365) (425)
Other assets, net.............................................................. 205 70 (77)
Accounts payable and accrued expenses.......................................... 1,229 808 1,332
Deferred revenue............................................................... 217 394 3,436
-------- --------- ---------
Net cash from operating activities........................................... 3,618 4,039 8,811
-------- --------- ---------
Cash flows from investing activities:
Purchase of equipment.............................................................. (3,364) (3,283) (1,743)
Maturities of short-term investments............................................... -- 2,086 7,494
Purchase of short-term investments................................................. (5,447) -- --
Purchase of business, net of cash acquired......................................... -- -- (11,840)
-------- --------- ---------
Net cash used in investing activities........................................ (8,811) (1,197) (6,089)
-------- --------- ---------
Cash flows from financing activities:
Payments on long-term obligations.................................................. -- -- (112)
Treasury stock purchases........................................................... -- -- (4,011)
Net proceeds from issuance of common stock......................................... -- 1,460 --
Proceeds from Employee Stock Purchase Plan......................................... 406 364 596
Proceeds from exercise of stock options............................................ 280 3,636 409
-------- --------- ---------
Net cash from (used in) financing activities................................. 686 5,460 (3,118)
-------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents......................... (269) (354) 290
-------- --------- ---------
Net change in cash and cash equivalents...................................... (4,776) 7,948 (106)
Cash and cash equivalents at beginning of year....................................... 21,823 13,875 13,981
-------- --------- ---------
Cash and cash equivalents at end of year............................................. $ 17,047 $ 21,823 $ 13,875
======== ========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest............................................................. $ -- $ 2 $ 28
Cash paid for income taxes......................................................... 302 547 1,597
Supplemental disclosure of non-cash investing and financing activities:
Purchase of business, net of cash acquired:
Working capital, other than cash................................................... $ -- $ -- $ (655)
Equipment.......................................................................... -- -- 345
Cost in excess of net assets acquired, net......................................... -- -- 12,150
-------- --------- ---------
Net cash used to acquire businesses.......................................... $ -- $ -- $ 11,840
======== ========= =========
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
F-5
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(1) Description of Business and Summary of Significant Accounting Policies
Description of Business
Rogue Wave Software, Inc. and its subsidiaries (the "Company") is
primarily engaged in the development, sale and support of object-oriented
software solutions. The Company markets its products primarily through its
direct sales organization and, to a lesser extent, through outside sales
representatives and indirect channel partners to business and government
customers. The Company's customers operate in many industry segments across
geographically diverse markets.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. Intercompany accounts and
transactions have been eliminated.
Use of Estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States of America
requires the Company's management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Currency Translation
The Company translates the assets and liabilities of its non-U.S.
functional currency subsidiaries into dollars at the rates of exchange in effect
at the end of the period. Revenue and expenses are translated using rates that
approximate those in effect during the period. Gains and losses from currency
translation are recognized as other comprehensive income or loss and are
included in stockholders' equity in the consolidated balance sheets.
Cash Equivalents and Short-Term Investments
Cash equivalents consist of investments in highly liquid investment
instruments with maturities of less than three months at date of acquisition.
Short-term investments consist primarily of commercial paper and corporate notes
with acquired maturities of 360 days or less. Approximately $5,254 of the
short-term investments was held as securities available for sale and are carried
at their fair value as of the balance sheet date, which approximates cost. The
remaining $11,896 of the short-term investments are being held to maturity and
are carried at their amortized cost.
Equipment
Furniture, fixtures and equipment are stated at cost. Maintenance and
repairs are expensed as incurred. Depreciation of furniture, fixtures and
equipment is calculated on the straight-line method over the estimated useful
lives of the assets ranging from three to seven years.
Intangible Assets
Intangible assets include purchased software rights, a covenant not to
compete and goodwill, which are amortized over estimated useful lives of three
to ten years using the straight-line method. The Company reviews its long-lived
assets, including goodwill, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets including goodwill held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets, including goodwill,
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of their carrying
amount or fair value less cost to sell. Original cost of these intangibles was
$17,488 and $17,310 at September 30, 2001 and 2000, respectively. Accumulated
amortization at September 30, 2001 and 2000, was $17,164 and $16,583,
respectively. Amortization charged to expense was $581, $12,154 and $2,068 for
the years ended September 30, 2001, 2000 and 1999, respectively. The Company
plans to adopt
F-6
the Statement of Financial Accounting Standards ("SFAS") 141, "Business
Combinations", and SFAS 142, "Goodwill and Other Intangible Assets" for fiscal
year beginning October 1, 2002. These statements will not have an impact on the
financial position, results of operations or cash flows as goodwill will be
fully amortized during fiscal year 2002.
Foreign Exchange Contracts
Effective October 1, 2000, the Company adopted SFAS 133 "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS 137 and SFAS
138, which establishes accounting and reporting standards for derivative
instruments, including foreign exchange forward contracts.
The Company enters into foreign exchange forward contracts to hedge
certain operational and balance sheet exposures, primarily intercompany royalty
fees, from changes in foreign currency exchange rates. At inception, such
contracts are designated as cash flow hedges. To achieve hedge accounting,
contracts must reduce the foreign currency exchange rate risk otherwise inherent
in the amount and duration of the hedged exposure and comply with established
Company risk management policies. The Company does not enter into any derivative
transactions for speculative purposes. Hedging contracts generally mature within
60 to 425 days.
When hedging the intercompany receivable exposure, 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 in the
period in which earnings are impacted by the variability of the cash flow of the
hedged item. The ineffective portion of the gain or loss is reported in current
period earnings immediately. The realized gains and losses are recorded in
"Other income-net" in the Statements of Operations.
The notional amount of foreign exchange contracts outstanding at
September 30, 2001 was $1,208 with a fair value of $1,216. The fair value of the
forward contracts is estimated based on quoted exchange rates at September 30,
2001. The effective or unrealized gain related to the outstanding contracts was
$6 and the ineffective or realized gain was $15 at September 30, 2001. Also
during the twelve months ended September 30, 2001, certain foreign currency
contracts matured resulting in a total realized net gain of $39.
Revenue Recognition
License revenue is recognized according to the criteria of SOP 97-2, as
amended. Revenue is recognized upon execution of a license agreement or signed
written contract with fixed or determinable fees, shipment or electronic
delivery of the product, and collection of the resulting receivable is probable.
Maintenance and service revenue includes maintenance revenue that is deferred
and recognized ratably over the maintenance period. Service revenue, including
training and consulting services, is recognized as services are performed. The
percentage of completion revenue recognition method is used for customized
software consulting contracts. The Company generally provides a thirty-day right
of return policy for software sales. The allowance for returns was $390 and $575
at September 30, 2001 and 2000, respectively.
Advertising Costs
Advertising costs are charged to expense when incurred and amounted to
$1,772, $1,855, and $2,525 in 2001, 2000 and 1999, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents,
short-term investments and accounts receivable. The counter parties to the
agreements relating to the Company's cash equivalents and short-term investments
consist of various major corporations and financial institutions of high credit
standing. The Company's receivables are derived primarily from the sales of
software products and services to customers in diversified industries as well as
distributors in the U.S. and foreign markets. International revenue accounted
for approximately 30%, 21% and 21% of the Company's total revenue for the years
ended September 30, 2001, 2000 and 1999, respectively. The Company performs
ongoing credit evaluations of its customers' financial condition and limits the
amount of credit extended when deemed necessary, but generally requires no
collateral. The Company has provided an allowance for doubtful accounts of $692
and $575 at September 30, 2001 and 2000, respectively.
F-7
Research and Development
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed. Under the standard,
capitalization of software development costs begins upon the establishment of
technological feasibility, subject to net realizable value considerations. The
Company begins capitalization upon completion of a working model. To date, such
capitalizable costs have been de minimis. Accordingly, the Company has charged
all such costs to product development expense.
Basic and Diluted Earnings (Loss) Per Share
Basic earnings (loss) per share is computed on the basis of the
weighted average number of common shares outstanding. Diluted earnings (loss)
per share is computed on the basis of the weighted average number of common
shares outstanding plus the effect of outstanding stock options using the
"treasury stock" method, unless the impact is anti-dilutive. The difference
between basic earnings per share and diluted earnings per share is due to the
effect of outstanding stock options. Diluted earnings per share include 477
shares of dilutive stock options for 1999. As a result of the net loss incurred
for the fiscal years ending September 30, 2001 and 2000, all options are
anti-dilutive and, accordingly, the number of shares used in computing the basic
and diluted shares is the same. For the twelve months ended September 30, 2001
and 2000, the number of outstanding options excluded from the calculation
because of their anti-dilutive effect was 59 and 325, respectively.
Calculation of basic and diluted earnings (loss) per share is as
follows:
Year Ended September 30,
2001 2000 1999
---- ---- ----
Numerator:
Net income (loss)........................................... $ (611) $ (10,503) $ 2,011
======== ========= ========
Denominator:
Historical common shares outstanding for basic income
(loss) per share at beginning of year..................... 10,909 10,475 10,457
Weighted average common equivalent shares issued
during the year........................................... 74 395 163
Weighted average common equivalent shares retired
during the year........................................... -- (358) (237)
-------- --------- --------
Denominator for basic income (loss) per share -
weighted average shares................................... 10,983 10,512 10,383
Incremental common shares attributable to shares
issuable under equity incentive plans (Treasury Stock
Method)................................................... -- -- 477
-------- --------- --------
Denominator for diluted net income (loss) per share -
weighted average shares................................... 10,983 10,512 10,860
======== ========= ========
Basic earnings (loss) per share............................. $ (0.06) $ (1.00) $ 0.19
======== ========= ========
Diluted earnings (loss) per share........................... $ (0.06) $ (1.00) $ 0.19
======== ========= ========
Accounting for Stock-Based Compensation
The Company has elected to account for its stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued To Employees ("APB 25"), with the Financial Accounting Standards Board
Interpretation No. 44 Accounting for Certain Transactions involving Stock
Compensation ("FIN 44") which is an interpretation of APB Opinion No. 25, and
has adopted the "disclosure only" alternative described in SFAS 123, Accounting
for Stock-Based Compensation.
Accounting for Income Taxes
The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. A valuation allowance is
recorded to reduce deferred tax assets to an amount where realization is more
likely than not.
F-8
(2) Mergers and Acquisitions
On March 1, 1999, the Company acquired 100% of the outstanding stock of
NobleNet, Inc. ("NobleNet") for $11.8 million in cash. The acquisition has been
accounted for under the purchase method of accounting and, accordingly, the
accompanying financial statements include NobleNet's results beginning with the
acquisition date. The purchase price was allocated to the assets of NobleNet
based on their respective fair values. The excess of the purchase price over
assets acquired approximated $11.8 million and was being amortized over 10
years. The pro forma information that follows assumes that the acquisition of
NobleNet took place as of October 1, 1997. The unaudited pro forma information
is not necessarily indicative of either the results of operations that would
have occurred had the purchase been made during the periods presented or the
future results of the combined operations.
Year Ended
September 30, 1999
------------------
Revenue.................................. $ 53,743
Net loss................................. (873)
Basic loss per share..................... (0.08)
Diluted loss per share................... (0.08)
NobleNet's Nouveau technology, an Internet-generation Object Request
Broker ("ORB"), was expected to expand Rogue Wave's product offering by
providing a unified architecture for building high performance, distributed
applications that interoperate across an enterprise or over the Internet. In
August 2000, the Company determined that the Nouveau product had become
obsolete, eliminating future revenue opportunities. Accordingly, the Company
recorded an impairment charge of $10,493 to write-off the remaining goodwill
related to the NobleNet investment.
(3) Restructuring, Severance and Asset Impairment Charges
Stingray
In early May 2001, as part of an ongoing effort to optimize its
corporate organizational structure and in conjunction with continuing cost
containment programs, the Company restructured its Stingray business unit. As
part of this restructuring, during the three months ended June 30, 2001, the
Company recognized a restructuring charge of $621, related primarily to
severance costs associated with the termination of approximately 50 employees as
well as certain closure costs, including those related to facility lease costs.
In the fourth fiscal quarter of 2001, the Company incurred additional
restructuring costs of $456 as a result of an asset impairment charge and
finalization of severance costs; resulting in a total of $1,077 restructuring
charge in fiscal year 2001. The asset impairment charge was the result of the
Company's review of its furniture and fixtures in the Stingray facility. The
carrying amount of the assets prior to the asset impairment charge was $402 and
the expected disposal date is in the first fiscal quarter of 2002. The Stingray
products, which primarily consist of development tools for Windows Programmers,
will continue to be sold and supported by the Company.
The following table summarizes restructuring costs by primary component
and related reserve at September 30, 2001. The remaining restructuring costs of
$251 at September 30, 2001 are expected to be paid by December 31, 2001.
Employee Site
Severance & Closure
Related Costs Other Total
---------------------------------------------
Stingray restructuring estimate at May 31, 2001........... $ 432 $ 154 $ 35 $ 621
Cash payments.............................................. (398) (69) (35) (502)
Adjustment for revised estimates........................... 132 -- -- 132
----- ----- ----- ------
Balance at September 30, 2001.............................. $ 166 $ 85 $ -- $ 251
----- ----- ----- ------
Fornova
Following a decision to discontinue the Fornova project, the Company
recognized a restructuring charge of approximately $447 during March 2001.
Fornova, a venture focused on developing internet information exchange
technology for the business to business market, had been pursuing obtaining
third party expansion capital with an initial investment commitment of $2
million from the Company. As a result of the overall softening of the U.S.
economy, coupled with the slowing of third party investment in such ventures,
the project was abandoned with the termination of 12 employees. In the third
fiscal quarter of 2001, the Company revised its estimate of the initial
restructuring costs by $196, as a result of the successful renegotiation of
certain contract termination fees as well as the finalization of severance
costs.
F-9
The following table summarizes restructuring costs by primary component
at September 30, 2001.
Contract
Termination Employee
Fees Severance Other Total
-------------------------------------------
Fornova restructuring estimate at March 31, 2001........... $ 305 $ 133 $ 9 $ 447
Cash payments.............................................. (130) (103) (18) (251)
Adjustments for revised estimates.......................... (175) (30) 9 (196)
----- ----- ------ ------
Balance at September 30, 2001.............................. $ -- $ -- $ -- $ --
===== ===== ====== ======
Severance
During 2001, the employment of three Company executives was terminated.
As a result, the Company recognized approximately $634 in severance costs,
including $66 related to the accelerated vesting of certain stock options.
(4) Balance Sheet Components
Equipment
Furniture, fixtures and equipment at September 30, 2001 and 2000, consist
of the following:
2001 2000
---- ----
Computer equipment............................... $12,016 $10,789
Furniture, fixtures and equipment................ 4,061 3,460
------- -------
16,077 14,249
Less accumulated depreciation and amortization... (10,639) (9,041)
Less asset impairment (see note 3)............... (324) --
------- -------
Furniture, fixtures and equipment, net........... $ 5,114 $ 5,208
======= =======
Depreciation and amortization expense for the years ended September 30,
2001, 2000 and 1999 was $3,056, $2,578 and $2,486, respectively. Related to the
restructuring of the Stingray operation, the Company recognized an asset
impairment charge of approximately $324 for furniture and fixtures.
Accrued Expenses
The Company's accrued expenses at September 30, 2001 and 2000, include the
following:
2001 2000
---- ----
Accrued payroll and related liabilities................ $ 2,925 $ 2,520
Other accrued expenses................................. 4,002 3,226
------- -------
Accrued expenses....................................... $ 6,927 $ 5,746
======= =======
F-10
(5) Valuation and Qualifying Accounts
Balance Balance
at Beginning at End
of Period Additions Deductions of Period
------------ --------- ---------- ----------
September 30, 2001:
Allowance for doubtful accounts................ $ 575 $ 415 $ (298) $ 692
Sales returns and allowance.................... 575 248 (433) 390
Valuation allowance for deferred tax asset..... 813 747 -- 1,560
September 30, 2000:
Allowance for doubtful accounts................. 470 214 (109) 575
Sales returns and allowance..................... 432 888 (745) 575
Valuation allowance for deferred tax asset...... 788 25 -- 813
September 30, 1999:
Allowance for doubtful accounts................. 259 404 (193) 470
Sales returns and allowance..................... 278 719 (565) 432
Valuation allowance for deferred tax asset...... 593 195 -- 788
(6) Leases
The Company leases certain equipment and office space through
noncancelable operating lease arrangements. The leases expire in 2001 through
2006 and are net leases with the Company paying all executory costs, including
insurance, utilities and maintenance. Rent expense for operating leases during
the years ended September 30, 2001, 2000 and 1999 was $2,284, $1,730 and $1,958,
respectively.
Future minimum lease payments under operating leases are as follows:
Operating
---------
Year ending September 30:
2002................................................... $ 1,898
2003................................................... 1,545
2004................................................... 875
2005................................................... 311
2006................................................... 100
---------
Total minimum lease payments......................... $ 4,729
=========
(7) Income Taxes
The provision for income taxes consists of the following:
Year Ended September 30,
------------------------
2001 2000 1999
---- ---- ----
Current:
Federal..................... $ 1,047 $ 809 $ 1,470
State and local............. -- 302 229
-------- -------- --------
1,047 1,111 1,699
-------- -------- --------
Deferred:
Federal..................... (1,005) (292) (333)
State and local............. (261) (73) (92)
-------- -------- --------
(1,266) (365) (425)
-------- -------- --------
Total..................... $ (219) $ 746 $ 1,274
======== ======== ========
F-11
Income tax expense differs from the expected tax expense (computed by
applying the U.S. Federal corporate income tax rate of 34% to net income before
income taxes) as follows:
Year Ended September 30,
------------------------
2001 2000 1999
---- ---- ----
Computed expected income tax expense (benefit)............................ $ (282) $(3,317) $ 1,117
Difference in income tax expense resulting from:
State and other income tax expense (benefit).............................. (186) (366) 123
Research and experimentation credit....................................... (746) (327) (560)
Change in valuation allowance............................................. 747 25 195
Foreign net operating loss applied as a reduction of goodwill............. -- -- 65
Non-deductible meals and entertainment.................................... 79 70 39
Non-deductible intangible asset amortization.............................. 88 4,632 399
Non-deductible ISO........................................................ (8) -- --
International rate difference............................................. 179 50 9
Other, net................................................................ (90) (21) (113)
------- ------- -------
Income tax expense (benefit)........................................... $ (219) $ 746 $ 1,274
======= ======= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
September 30,
-------------
2001 2000
---- ----
Deferred tax assets:
Accounts receivable........................................ $ 331 $ 375
Intangible assets.......................................... 230 (139)
Accrued expenses........................................... 828 596
Fixed assets............................................... (307) 99
Foreign operating loss carryforwards....................... 322 310
Federal operating loss carryforwards....................... 1,619 --
State operating loss carryforwards......................... 325 --
Research and experimentation credit carryforward........... 1,312 641
Equity losses of unconsolidated subsidiary................. 503 503
Other...................................................... 14 31
------- -------
Total gross deferred tax assets.......................... 5,177 2,416
Valuation allowance......................................... (1,560) (813)
------- -------
Net deferred tax assets.................................. $3,617 $ 1,603
======= =======
At September 30, 2001, the Company had net operating loss carryforward for
Federal and foreign income tax purposes of $4.8 million and $322, respectively.
The federal net operating loss carryforwards expires 2007 to 2021. The Company
also had $1,312 of tax credit carryforwards that expire 2003 to 2015. The net
federal operating loss of $66 and $86 of the tax credit carryforwards were
generated by Inmark prior to Inmark's merger with the Company on October 27,
1995. Tax benefits resulting from the utilization of the acquired foreign net
operating loss carryforwards will first be offset against goodwill, if any,
associated with the acquisition of Precision before being recorded as a tax
benefit. Based upon management's estimates, the Company has provided a valuation
allowance against the research and development credit, net operating loss
carryforward and equity earnings in subsidiary.
(8) Equity Incentive Plans
In June 1996, the Company's Board of Directors adopted the 1996 Equity
Incentive Plan (the "Equity Incentive Plan"). The Company has reserved 3,500
shares of common stock for issuance under the Equity Incentive Plan. The Equity
Incentive Plan replaced the Company's 1994 Stock Option Plan and the Inmark
Stock Option Plan. The Equity Incentive Plan provides for grants of incentive
stock options to employees (including officers and employee directors) and
nonstatutory stock options to employees (including officers and employee
directors), directors and consultants of the Company.
The Equity Incentive Plan and the Non-Officer Equity Incentive Plan are
administered by a committee appointed by the Board of Directors which determines
recipients, types of awards to be granted, including exercise price, number of
shares subject to the award and the exercisability thereof.
The terms of a stock option granted under the Equity Incentive Plan
generally may not exceed ten years (five years in the case of holders of more
than 10% of the Company's capital stock). The exercise price of options granted
under the Equity
F-12
Incentive Plan is determined by the Board of Directors but, in the case of an
incentive stock option, cannot be less than 100% of the fair market value of the
common stock on the date of grant. Options granted under the Equity Incentive
Plan vest at the rate specified in the option agreement.
In October 1997, the Company's Board of Directors adopted the 1997 Non-
Officer Equity Incentive Plan. In October 2000, the Company's Board of Directors
amended the Plan changing its name to the 1997 Equity Incentive Plan and
modified the Plan to allow the granting of nonstatutory stock options to officer
employees. The Company has reserved 4,850 shares of common stock for issuance
under the plan.
The terms of a stock option granted under the 1997 Equity Incentive Plan
may not exceed ten years. The exercise price of options granted under the plan
shall not be less than 85% of the fair market value of the stock subject to the
option on the date the option is granted. Options granted under the 1997 Equity
Incentive Plan vest at the rate specified in the option agreement.
The following table summarizes stock option activity for the three years
ended September 30, 2001:
Weighted avg.
-------------
Shares price per share
------ ---------------
Outstanding options at October 1, 1998.................... 2,290 $8.97
Granted.................................................. 1,159 6.14
Exercised................................................ (167) 2.45
Canceled................................................. (594) 9.23
------ -----
Outstanding options at September 30, 1999................. 2,688 8.10
Granted.................................................. 2,409 5.58
Exercised................................................ (542) 6.71
Canceled................................................. (1,151) 8.55
------ -----
Outstanding options at September 30, 2000................. 3,404 6.39
Granted.................................................. 2,313 4.94
Exercised................................................ (12) 0.94
Canceled................................................. (1,791) 6.07
------ -----
Outstanding options at September 30, 2001................. 3,914 $5.57
====== =====
Options vested and exercisable were 1,816, 885 and 1,163 at September 30,
2001, 2000 and 1999, respectively. For various price ranges, weighted average
characteristics of outstanding stock options at September 30, 2001 were as
follows:
Outstanding Options Exercisable Options
------------------- -------------------
Remaining Weighted Weighted
Exercise Price Shares life (years) avg. price Shares avg. price
-------------- ------ ------------ ---------- ------ ----------
$0.15-$4.72................ 1,278 7.4 $ 4.09 585 $ 4.17
$4.75-$5.31................ 686 8.1 $ 5.07 400 $ 5.11
$5.37-$5.44................ 1,165 9.0 $ 5.43 297 $ 5.43
$5.50-$17.00............... 785 7.6 $ 8.60 534 $ 9.16
----- -----
3,914 8.0 $ 5.57 1,816 $ 6.05
===== =====
The Company follows APB Opinion No. 25, to account for stock option and
employee stock purchase plans. No compensation cost is recognized because the
option exercise price is equal to the fair value of the underlying stock on the
date of grant. Assuming compensation cost for these plans had been determined
based on the fair value at the grant dates for awards as prescribed by SFAS 123,
pro forma net income (loss) and earnings (loss) per share would have been:
Year Ended September 30,
------------------------
2001 2000 1999
---- ---- ----
Pro forma net income (loss).................................... $(3,887) $ (13,138) $ 41
Pro forma diluted earnings (loss) per share.................... $ (0.35) $ (1.25) $ 0.00
The pro forma disclosures above include the amortization of the fair value
of all options vested during fiscal 2001, 2000 and 1999. The effects of applying
SFAS 123 in this pro forma disclosure may not be indicative of future amounts.
The weighted average Black-Scholes value of options granted under the stock
option plans during fiscal 2001, 2000 and 1999 was $3.00, $4.24 and $6.27
respectively. Such value was estimated using an expected life of five years, a
dividend factor
F-13
of 0% in 2001 and 48% in 2000 and 1999, volatility of 74% in 2001, 102% in 2000
and 76% in 1999 and risk-free interest rates of 3.61%, 5.7% and 5.0% in 2001,
2000 and 1999, respectively.
(9) Common Stock Repurchase
In October 1998, the Board of Directors authorized the Company to
repurchase up to the lesser of 500 shares of the Company's common stock or $10
million. In July 1999, the Board of Directors further authorized the Company to
repurchase the lesser of an additional 500 shares, or a cumulative total of $8.5
million for the full 1,000 shares. The Company purchased 595 shares ($4.0
million) of its common shares during the year ended September 30, 1999. The
Company has purchased and subsequently issued a total of 358 and 237 shares for
employee benefit plans as of September 30, 2000 and 1999, respectively.
In September 2001, the Board of Directors authorized the Company to
repurchase up to an aggregate of $5 million or 2.5 million shares of its Common
Stock. At October 31, 2001, the Company had repurchased approximately 118
shares, at prices ranging from $2.50 - $3.14 per share.
(10) Employee Stock Purchase Plan
In June 1996, the Board of Directors adopted the Employee Stock Purchase
Plan (the "Purchase Plan") covering an aggregate of 450 shares of common stock.
The Purchase Plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code. Under the
Purchase Plan, the Board of Directors may authorize participation by eligible
employees, including officers, in periodic offerings following the adoption of
the Purchase Plan. The offering period for any offering will be no more than 27
months.
Employees are eligible to participate if they are employed by the Company
or an affiliate of the Company designated by the Board of Directors. Employees
who participate in an offering can have up to 15% of their earnings withheld
pursuant to the Purchase Plan and applied, on specific dates determined by the
Board of Directors, to the purchase of shares of common stock. The price of
common stock purchased under the Purchase Plan will be equal to 85% of the lower
of the fair market value of the common stock on the commencement date of each
offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the Company.
During the years ended September 30, 2001, 2000 and 1999, 169, 51 and 87 shares
respectively, were purchased under this plan.
(11) Qualified Profit Sharing Plan
The Company has a 401(k) profit sharing plan which is offered to eligible
employees and calls for a discretionary employer match of employee
contributions, which is approved by the Board of Directors. To participate in
the plan, the person has to be an employee of the Company. The Company matches
all employee contributions up to 3% of earnings and half of employee
contributions from 3% to 5%. Company contributions paid in the years ended
September 30, 2001, 2000 and 1999 were $717, $448 and $466, respectively.
F-14
(12) Worldwide Operations
Revenue by geographic area for fiscal years 2001, 2000 and 1999 was 70%,
79% and 79% in the United States; 29%, 21% and 21% in Europe; 1%, 0% and 0% in
Japan, respectively.
Information regarding worldwide operations is as follows:
United
States Europe Japan Eliminations Total
------ ------ ----- ------------ -----
September 30, 2001, and for the year then ended:
Revenue to unaffiliated customers.................. $40,580 $16,517 $ 556 $ -- $57,653
Intercompany transfers............................. 6,456 -- -- (6,456) --
------- ------- ------- ----------- -------
Net revenue........................................ 47,036 16,517 556 (6,456) 57,653
Operating income (loss)............................ (5,349) 3,669 (235) -- (1,915)
Long-lived assets.................................. 4,681 352 81 -- 5,114
September 30, 2000, and for the year then ended:
Revenue to unaffiliated customers.................. $43,134 $11,308 $ -- $ -- $54,442
Intercompany transfers............................. 3,896 -- -- (3,896) --
------- ------- ------- ----------- -------
Net revenue........................................ 47,030 11,308 -- (3,896) 54,442
Operating income (loss)............................ (12,526) 892 -- -- (11,634)
Long-lived assets.................................. 4,735 473 -- -- 5,208
September 30, 1999, and for the year then ended:
Revenue to unaffiliated customers.................. $41,852 $11,252 $ -- $ -- $53,104
Intercompany transfers............................. 4,036 -- -- (4,036) --
------- ------- ------- ----------- -------
Net revenue........................................ 45,888 11,252 -- (4,036) 53,104
Operating income................................... 1,592 511 -- -- 2,103
Long-lived assets.................................. 3,845 465 -- -- 4,310
(13) Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or cash flows.
(14) Quarterly Information (Unaudited)
The following table presents unaudited quarterly operating results for
each of the Company's eight quarters in the two-year period ended September 30,
2001.
Quarter Ended
----------------------------------------------
Dec. 31, Mar. 31, Jun. 30, Sept. 30,
-------- -------- -------- ---------
Fiscal year 2001
Total revenue........................................... $ 14,295 $ 15,019 $ 14,645 $ 13,694
Gross margin............................................ 11,119 11,264 11,363 11,338
Income (loss) from operations........................... 78 (1,338) (568) (87)
Net income (loss)....................................... 364 (653) (192) (130)
Basic and diluted earnings (loss) per share............. 0.03 (0.06) (0.02) (0.01)
Fiscal year 2000
Total revenue........................................... $ 12,616 $ 13,042 $ 14,061 $ 14,723
Gross margin............................................ 10,245 10,680 11,437 12,389
Income (loss) from operations........................... (929) (338) 77 (10,444)
Net income (loss)....................................... (507) (112) 266 (10,150)
Basic and diluted earnings (loss) per share............. (0.05) (0.01) 0.02 (0.96)
The Company discontinued the Fornova project and restructured the Stingray
business unit resulting in a restructuring and asset impairment charge of $447,
$426 and $456 in the second, third and fourth fiscal quarters of 2001,
respectively. See Note 3 of Notes to the Consolidated Financial Statements. In
August 2000, the Company determined that the Nouveau product had become
obsolete. Accordingly, the Company recorded an impairment charge of $10,493 to
write-off the remaining goodwill related to the NobleNet Investment. See Note 2
of Notes to the Consolidated Financial Statements.
F-15
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
-----------------------
2.1(1) Agreement and Plan of Reorganization between Registrant, Inmark
Development Corporation and RW Acquisitions, Inc. dated as of
September 19, 1995.
2.2(1) Agreement and Plan of Merger between the Registrant and Rogue Wave
Software, Inc., an Oregon corporation.
2.3(3) Agreement and Plan of Merger and Reorganization among Rogue Wave
Software, Inc., a Delaware corporation, SR Acquisition Corp., a North
Carolina corporation, Stingray Software, Inc., a North Carolina
corporation and the shareholders of Stingray Software, Inc., dated as
of January 19, 1998.
2.4(4) Articles of Merger and Plan of Merger dated February 27, 1998 filed
with the Secretary of State of North Carolina on February 27, 1998.
2.5(6) Agreement and Plan of Merger and Reorganization among Rogue Wave
Software, Inc., a Delaware corporation, NN Acquisition Corp., a
Delaware corporation, NobleNet, Inc., a Delaware corporation and Steve
Lemmo, as agent for the stockholders of NobleNet, dated as of February
11, 1999.
2.6(6) Certificate of Merger and Plan of Merger dated March 1,1998, filed
with the Secretary of State of the State of Delaware on March 1, 1999.
3.1(2) Amended and Restated Certificate of Incorporation of Rogue Wave
Software, Inc., a Delaware corporation.
3.2(1) Bylaws of Rogue Wave Software, Inc., a Delaware corporation.
4.1(1) Reference is made to Exhibits 3.1 and 3.2.
4.2(1) Specimen Stock Certificate.
4.3(1) Amended and Restated Investors' Rights Agreement between the
Registrant and certain investors, dated November 10, 1995, as amended
June 27, 1996.
4.4(5) Registration Rights Agreement between the Registrant and Intel 64 Fund
LLC, dated February 22, 2000.
10.1(1) Registrant's 1996 Equity Incentive Plan.
10.2(8) Amended and Restated Employee Stock Purchase Plan, dated June 6, 1996,
as amended January 25, 2000.
10.3(1) Form of Indemnity Agreement to be entered into between the Registrant
and its officers and directors.
10.4(1) Lease Agreement between Registrant and the State of Oregon dated May
1, 1996.
10.5(1) Lease Agreement between the Registrant and the Landmark dated April
22, 1996.
10.6(7) Home Loan Agreement between Registrant and Michael Scally dated
January 7,1998.
10.7(7) Home Loan Agreement between Registrant and Robert Holburn dated
February 2,1998.
10.8(8) Amended and Restated Employee Stock Purchase Plan, dated October 1997,
as amended October 1, 2000.
21.1 List of Subsidiaries of Registrant.
23.1 Consent of KPMG LLP.
24.1 Power of Attorney (reference is made to signature page).
- -----------------
(1) Filed as an Exhibit to the Registrant's Registration Statement on
Form SB-2, as amended (No. 333 -13517)
(2) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1996.
(3) Filed as Exhibit 2.1 to the Registrant's Form 8-K dated February 27,
1998, and filed on March 9, 1998.
(4) Filed as Exhibit 2.2 to the Registrant's Form 8-K dated February 27,
1998, and filed on March 9, 1998.
(5) Filed as Exhibit to the Registrant's Form 8-K dated March 1, 1999, and
filed on March 9, 1998.
(6) Filed as an Exhibit to the Registrant's Form 10-K for the year ended
September 30, 1998.
(7) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1999.
(8) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 2000.