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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

     For the quarterly period ended March 31, 2004

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

     For the transition period from                      to                     

 

Commission File Number: 000-27241

 

 

KEYNOTE SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   94-3226488

(State or other jurisdiction of

incorporation or organization)

  

(I.R.S. Employer

Identification No.)

 

777 Mariners Island Blvd., San Mateo, CA   94404
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (650) 403-2400

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    YES  x    NO  ¨

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class

  

Shares outstanding at April 30, 2004

Common Stock, $.001 par value

   19,473,996

 

Table of Contents

KEYNOTE SYSTEMS, INC.

 

TABLE OF CONTENTS

 

          Page
     PART I—FINANCIAL INFORMATION     
Item 1.    Financial Statements    3
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations    13
Item 3.    Qualitative and Quantitative Disclosures about Market Risk    26
Item 4.    Controls and Procedures    26
     PART II—OTHER INFORMATION     
Item 1.    Legal Proceedings    26
Item 2.    Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities    27
Item 3.    Defaults Upon Senior Securities    27
Item 4.    Submission of Matters for a Vote of Security Holders    27
Item 5.    Other Information    27
Item 6.    Exhibits and Reports on Form 8-K    27
Signatures    28

 

2

Table of Contents

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES

 

Index to Unaudited Condensed Consolidated Financial Statements

 

     Page
Condensed Consolidated Balance Sheets as of March 31, 2004 and September 30, 2003    4
Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2004 and 2003    5
Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2004 and 2003    6
Notes to Condensed Consolidated Financial Statements    7

 

3

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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

     March 31,
2004
     September 30,
2003
  

ASSETS

                 

Current assets:

                 

Cash and cash equivalents

    $ 25,806     $ 23,242  

Short-term investments

      144,269       136,972  
    
 

Total cash, cash equivalents, and short-term investments

      170,075       160,214  

Accounts receivable, less allowance for doubtful accounts of $879 and $1,048 as of March 31, 2004 and September 30, 2003, respectively

      4,723       4,349  

Prepaid and other current assets

      1,298       1,506  
    
 

Total current assets

      176,096       166,069  

Property and equipment, net

      32,952       33,928  

Goodwill

      479       195  

Identifiable intangible assets, net

      1,569       2,176  
    
 

Total assets

    $ 211,096     $ 202,368  
    
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                 

Current liabilities:

                 

Accounts payable

      659       654  

Accrued expenses

      7,419       7,077  

Deferred revenue

      5,778       4,357  
    
 

Total current liabilities

      13,856       12,088  
    
 

Total liabilities

      13,856       12,088  
    
 

Stockholders’ equity:

                 

Common stock

      19       19  

Treasury stock

      (29 )     (29 )

Additional paid-in capital

      336,967       331,912  

Accumulated deficit

      (140,220 )     (142,056 )

Accumulated other comprehensive income

      503       434  
    
 

Total stockholders’ equity

      197,240       190,280  
    
 

Total liabilities and stockholders’ equity

    $ 211,096     $ 202,368  
    
 

 

See accompanying notes to the condensed consolidated financial statements

 

4

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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

    

Three months ended

March 31,

    

Six months ended

March 31,

  
     2004
     2003
     2004
     2003
  

Revenue:

                                 

Subscription services

    $ 8,803     $ 8,567     $ 17,474     $ 17,408  

Consulting and support services

      1,016       991       2,068       1,908  
    
 
 
 

Total revenue

      9,819       9,558       19,542       19,316  
    
 
 
 

Expenses:

                                 

Costs of subscription services

      1,298       2,262       2,804       4,745  

Costs of consulting and support services

      891       971       1,694       1,870  

Research and development

      1,634       2,053       3,258       4,235  

Sales and marketing

      2,278       4,033       4,987       8,478  

Operations

      1,234       1,688       2,489       3,406  

General and administrative

      1,221       1,612       2,385       3,116  

Excess occupancy costs

      254       293       520       578  

Amortization of identifiable intangible assets and stock-based compensation

      372       424       734       827  
    
 
 
 

Total expenses

      9,182       13,336       18,871       27,255  
    
 
 
 

Income (Loss) from operations

      637       (3,778 )     671       (7,939 )

Interest income, net

      662       1,661       1,325       3,825  
    
 
 
 

Income (Loss) before provision for income taxes

      1,299       (2,117 )     1,996       (4,114 )

Provision for income taxes

      (130 )     —         (160 )     —    
    
 
 
 

Net income (loss)

    $ 1,169     $ (2,117 )   $ 1,836     $ (4,114 )
    
 
 
 

Net income (loss) per share:

                                 

Basic

    $ 0.06     $ (0.09 )   $ 0.10     $ (0.17 )
    
 
 
 

Diluted

    $ 0.06     $ (0.09 )   $ 0.09     $ (0.17 )
    
 
 
 

Shares used in computing basic and diluted net income (loss) per share:

                                 

Basic

      19,341       22,838       19,187       24,407  
    
 
 
 

Diluted

      20,833       22,838       20,637       24,407  
    
 
 
 

 

See accompanying notes to the condensed consolidated financial statements

 

5

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KEYNOTE SYSTEMS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

    

Six months ended

March 31,

  
     2004
     2003
  

Cash flows from operating activities:

                 

Net income (loss)

    $ 1,836     $ (4,114 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

                 

Depreciation and amortization of property and equipment

      2,013       3,352  

Amortization of identifiable intangible assets

      734       800  

Amortization of debt investment premium

      2,137       2,095  

Amortization of deferred stock-based compensation

      —         27  

Changes in operating assets and liabilities, net of acquired assets and liabilities:

                 

Accounts receivable, net

      (319 )     671  

Prepaids and other current assets

      208       (74 )

Accounts payable and accrued expenses

      347       (454 )

Deferred revenue

      1,414       46  
    
 

Net cash provided by operating activities

      8,370       2,349  
    
 

Cash flows from investing activities:

                 

Purchases of property and equipment

      (936 )     (1,540 )

Proceeds from (purchase of) businesses and assets, net

      (560 )     75  

Sale of short-term investments

      60,841       103,633  

Purchases of short-term investments

      (70,206 )     (59,548 )
    
 

Net cash provided by (used in) investing activities

      (10,861 )     42,620  
    
 

Cash flows from financing activities:

                 

Proceeds from issuance of common stock and exercise of stock options

      5,055       1,273  

Repurchase of outstanding common stock

      —       (38,538 )
    
 

Net cash provided by (used in) financing activities

      5,055       (37,265 )
    
 

Net increase in cash and cash equivalents

      2,564       7,704  

Cash and cash equivalents at beginning of the period

      23,242       20,874  
    
 

Cash and cash equivalents at end of the period

    $ 25,806     $ 28,578