1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
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 000-27985
QUINTUS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0021612
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
47212 MISSION FALLS COURT
FREMONT, CALIFORNIA 94539
(Address of principal executive offices, including ZIP code)
(510) 624-2800
(Registrant's telephone number, including area code)
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 [ ] No [X]
Although the registrant has filed all reports required to be filed by Section 13
or 15 (d) of the Securities Exchange Act of 1934 during the period that the
registrant was required to file such reports, the registrant did not become
subject to such filing requirements until the registration of certain shares of
its common stock pursuant to a registration statement on Form S-1 (the
"Registrant Statement") was declared effective by the Securities and Exchange
Commission on November 15, 1999.
The number of shares outstanding of the registrant's common stock as of January
31, 2000 was 33,371,644.
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QUINTUS CORPORATION
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of December 31, 1999
and March 31, 1999 1
Condensed Consolidated Statements of Operations and Comprehensive
Loss for the Three and Nine Months Ended December 31, 1999 and 1998 2
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended December 31, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
Item 3. Qualitative and Quantitative Disclosures About Market Risk 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Securities Holders 22
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURE 25
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUINTUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
DECEMBER 31, MARCH 31,
1999 1999
------------ ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 36,820 $ 1,785
Short-term investments 30,700 --
Accounts receivable, net 16,284 8,671
Prepaid expenses and other assets 1,533 573
--------- --------
Total current assets 85,337 11,029
Property and equipment, net 4,463 3,162
Purchased technology, net 1,788 2,111
Intangible assets, net 44,264 2,970
Other assets 830 322
--------- --------
Total assets $ 136,682 $ 19,594
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 3,601 $ 2,352
Accrued compensation and related benefits 4,873 2,114
Other accrued liabilities 3,656 2,268
Deferred revenue 8,077 6,615
Borrowings under bank line of credit -- 4,868
Current portion of debt and lease obligations 888 1,456
--------- --------
Total current liabilities 21,095 19,673
Debt and lease obligations, less current portion 1,447 1,801
Deferred revenue 500 400
Redeemable convertible preferred stock -- 17,811
STOCKHOLDER'S EQUITY (DEFICIENCY):
Convertible preferred stock, $0.001 par value; authorized shares --
10,000,000 in December 1999 and 14,555,000 in March 1999;
issued and outstanding shares -- none in December 1999 and
13,970,914 in March 1999 -- 14
Redeemable convertible preferred stock, $0.001 par value; authorized
shares -- none in December 1999 and 4,500,000 in March 1999; issued and
outstanding shares -- none in December 1999 and
3,967,935 in March 1999 -- 3
Common stock, $0.001 par value; authorized shares -- 100,000,000
in December 1999 and 40,000,000 in March 1999; issued and
outstanding shares -- 33,257,765 in December 1999 and 4,208,478
in March 1999 34 4
Additional paid-in capital 161,439 15,483
Notes receivable from stockholders (223) (117)
Deferred compensation (2,526) (884)
Unrealized loss on short-term investments (30) --
Accumulated deficit (45,054) (34,594)
--------- --------
Total stockholders' equity (deficiency) 113,640 (20,091)
--------- --------
Total liabilities and stockholders' equity (deficiency) $ 136,682 $ 19,594
========= ========
See accompanying notes to condensed consolidated financial statements.
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QUINTUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- ----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
REVENUES:
License $ 9,471 $ 2,930 $ 22,819 $ 12,843
Service 4,042 3,024 12,784 8,971
-------- ------- -------- --------
Total revenues 13,513 5,954 35,603 21,814
COST OF REVENUES:
License 1,319 155 1,990 423
Service 2,886 2,426 7,957 6,602
-------- ------- -------- --------
Total cost of revenues 4,205 2,581 9,947 7,025
-------- ------- -------- --------
Gross profit 9,308 3,373 25,656 14,789
OPERATING EXPENSES:
Sales and marketing 7,840 4,639 17,278 13,255
Research and development 3,312 1,792 7,286 5,145
General and administrative 1,610 1,109 3,603 2,741
Amortization of intangibles 2,045 798 3,637 2,394
Acquired in-process technologies 3,000 -- 3,000 --
Stock-based compensation 574 56 1,183 116
-------- ------- -------- --------
Total operating expenses 18,381 8,394 35,987 23,651
-------- ------- -------- --------
Loss from continuing operations (9,073) (5,021) (10,331) (8,862)
Other income (expense), net 296 (181) (129) (706)
-------- ------- -------- --------
Net loss from continuing operations (8,777) (5,202) (10,460) (9,568)
Loss from discontinued operations -- (781) -- (1,430)
-------- ------- -------- --------
Net loss (8,777) (5,983) (10,460) (10,998)
======== ======= ======== ========
OTHER COMPREHENSIVE LOSS:
Unrealized loss on short-term investments (30) -- (30) --
-------- ------- -------- --------
Comprehensive loss $ (8,807) $(5,983) $(10,490) $(10,998)
======== ======= ======== ========
BASIC AND DILUTED NET LOSS PER COMMON SHARE:
Continuing operations $ (0.48) $ (1.62) $ (1.24) $ (3.24)
Discontinued operations -- (0.25) -- (0.48)
-------- ------- -------- --------
Basic and diluted net loss per common share $ (0.48) $ (1.87) $ (1.24) $ (3.72)
======== ======= ======== ========
Shares used in computation, basic and diluted 18,298 3,207 8,434 2,955
======== ======= ======== ========
See accompanying notes to condensed consolidated financial statements.
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QUINTUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
-----------------------------
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
OPERATING ACTIVITIES:
Net loss $(10,460) $(10,998)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 5,010 3,854
Stock based compensation 1,183 116
Noncash interest expense -- 72
Acquired in-process technologies 3,000 --
Provision for doubtful accounts 300 200
Changes in operating assets and liabilities:
Accounts receivable (7,740) (1,743)
Prepaid expenses and other current assets (158) 69
Accounts payable 1,234 (98)
Accrued compensation and related benefits 2,760 224
Other accrued liabilities 605 1,337
Deferred revenue 499 2,666
-------- --------
Net cash used in operating activities (3,767) (4,301)
-------- --------
INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired 744 --
Purchase of property and equipment (1,649) (1,750)
Purchase of short-term investments (30,730) --
Increase in other assets (440) (87)
-------- --------
Net cash used in investing activities (32,075) (1,837)
-------- --------
FINANCING ACTIVITIES:
Proceeds from initial public offering, net 84,964 --
Proceeds from issuance of preferred stock 11,247 5,275
Proceeds from issuance of common stock 368 78
Repurchase of common stock (6) (29)
Proceeds from payment of notes receivable 59 1
Proceeds from notes payable to stockholders -- 1,000
Payments of redeemable preferred stock (18,122) --
Borrowings (repayment) under bank line of credit (4,868) 118
Borrowings (repayments of) bank loan (2,623) (2,050)
Principal payments on capital lease obligations (142) (90)
-------- --------
Net cash provided by financing activities 70,877 4,303
-------- --------
Net increase (decrease) in cash and cash equivalents 35,035 (1,835)
Cash and cash equivalents at beginning of period 1,785 1,986
-------- --------
Cash and cash equivalents at end of period $ 36,820 $ 151
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
Cash paid for interest $ 528 $ 318
======== ========
SUPPLEMENTAL NONCASH ACTIVITIES
Issuance of common stock and preferred stock and assumption
of options and warrants for the acquisition of Acuity $ 46,157 $ --
Issuance of common stock in exchange for notes receivable $ 165 $ --
Property acquired under capital lease $ 446 $ --
Issuance of warrants $ 660 $ 165
Issuance of common stock below fair market value $ 2,725 $ 405
Issuance of Series E preferred stock for notes payable to
stockholders $ -- $ 5,684
See accompanying notes to condensed consolidated financial statements.
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QUINTUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by Quintus Corporation ("Quintus") and reflect all
adjustments, consisting only of normal recurring adjustments, which are, in
the opinion of management, necessary for a fair presentation of our
financial position and results of operations for the interim periods. The
statements have been prepared in accordance with the regulations of the
Securities and Exchange Commission. Accordingly, they do not include all
information and footnotes required by generally accepted accounting
principles. The result of operations for the three and nine-month periods
ended December 31, 1999 are not necessarily indicative of the operating
results to be expected for the full fiscal year or future operating periods.
The information included in this report should be read in conjunction with
the audited consolidated financial statements and notes thereto included in
Quintus' Registration Statement on Form S-1, as amended, declared effective
by the Securities and Exchange Commission on November 15, 1999 (the
"Registration Statement").
2. INITIAL PUBLIC OFFERING
On November 16, 1999, Quintus completed an initial public offering in
which it sold 5,175,000 shares of common stock at $18 per share, which
included 675,000 shares in connection with the exercise of the underwriters'
over allotment option. The total proceeds from this transaction were $85.0
million, net of underwriters' discounts and other related costs of $8.2
million. Immediately after the closing of the offering, Quintus paid $18.1
million to holders of some series of preferred stock. The remaining net
proceeds were held in cash equivalents and short-term investments at
December 31, 1999. Upon the completion of the offering, all 17,938,849
shares of preferred stock, par value $0.001 per share, were automatically
converted to common stock on a one for one basis.
3. ACQUISITION OF ACUITY CORPORATION
On November 10, 1999, Quintus completed its acquisition of Acuity
Corporation ("Acuity"), a company specializing in providing Web based
customer interaction software. The transaction was accounted for using the
purchase method of accounting and, accordingly, the net assets and results
of operations of Acuity have been included in Quintus' consolidated
financial statements since the acquisition date. Quintus issued 2,021,146
shares of common stock and 3,047,378 shares of preferred stock. The shares
of preferred stock were converted to common stock upon the completion of the
offering on November 16, 1999. In addition, Quintus assumed warrants and
options to purchase 328,364 shares and 422,867 shares of common stock,
respectively. The purchase price for the acquisition was $47.1 million based
on capital stock issued, the value of the options and warrants assumed, and
transaction costs incurred. Quintus recognized a charge for in-process
technologies of $3.0 million in the quarter ended December 31, 1999. The
fair market value of assets acquired and liabilities assumed in the
acquisition were as follows (in thousands):
Tangible assets $ 3,616
Goodwill and other intangible assets 44,609
In-process research and development 3,000
Liabilities assumed (4,079)
-------
$47,146
=======
Intangible assets consist of purchased technology and assembled
workforce of $1.4 million which are being amortized over four years,
trademark and trade name, customer related intangibles and
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goodwill of $43.2 million which are being amortized over five years, the
in-process research and development of $3.0 million which was expensed upon
acquisition.
The acquired technology provides a comprehensive framework to manage
internet-based customer interactions, including Web self-service, Web chat,
browser-based collaboration and Web-call back. The in-process research and
development represents technology which has not yet reached technological
feasibility and does not have alternative future uses. This amount was
charged to Quintus' operations during the quarter ended December 31, 1999.
The in-process research and development was identified and valued through
extensive interviews and discussions with Quintus and Acuity management and
the analysis of data provided by Acuity concerning developmental products,
their respective stage of development, the time and resources needed to
complete them, their expected income generating ability, target markets and
associated risks. The Income Approach, which included an analysis of the
markets, cash flows, and risks associated with achieving such cash flows,
was the primary technique utilized in valuing each in-process research and
development project. A portion of the purchase price was allocated to the
developmental projects based on the appraised fair values of such projects.
The following unaudited pro forma consolidated results of operations for
the nine months ended December 31, 1999 and 1998 assume the acquisition of
Acuity occurred as of April 1 of each period. The one-time $3.0 million
charge for purchased in-process technology was excluded as it was a material
nonrecurring charge.
(in thousands, except per share data):
NINE MONTHS ENDED NINE MONTHS ENDED
----------------- -----------------
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
Revenues 36,761 26,664
Net Loss from Continuing Operations (18,609) (22,854)
Loss Per Share (1.85) (4.59)
4. COMMON STOCK AND NET LOSS PER SHARE
The following is a reconciliation of the numerators and denominators
used in computing basic and diluted net loss per share from continuing
operations (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
Net loss from continuing operations (numerator),
basic and diluted $ (8,777) $(5,983) $(10,460) $(10,998)
======== ======= ======== ========
Shares (denominator):
Weighted average common shares outstanding 19,026 4,217 9,222 4,230
Weighted average common shares outstanding
subject to repurchase (728) (1,010) (788) (1,275)
-------- ------- -------- --------
Shares used in computation, basic and diluted 18,298 3,207 8,434 2,955
======== ======= ======== ========
Loss per share from continuing operations,
basic and diluted $ (0.48) $ (1.87) $ (1.24) $ (3.72)
======== ======= ======== ========
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At December 31, 1999 and 1998, options to purchase 2,859,664 and 1,946,309
shares of common stock, and warrants to purchase 837,358 and 722,645 shares
of common stock and preferred stock (in 1998) were excluded from the
calculation of net loss per share as their inclusion would be antidilutive.
5. COMPREHENSIVE LOSS
In fiscal 2000, Quintus adopted the Financial Accounting Standards Board
(SFAS) No. 130, Reporting Comprehensive Income. SFAS No. 130 requires
companies to report a new, additional measure of income on the income
statement or to create a new financial statement that shows the new measure
of income. Comprehensive income includes unrealized gains and losses on debt
and equity securities that have been previously excluded from net loss and
instead, reflected in equity. Quintus has reported the components of
comprehensive loss on its consolidated statements of operations.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee (AcSEC)
issued SOP 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. SOP 98-1 establishes the accounting for costs of
software products developed or purchased for internal use, including when
such costs should be capitalized. SOP 98-1 will be effective for Quintus'
fiscal year ending March 31, 2000. Quintus believes the adoption of this
statement will not have a significant impact on its financial position,
results of operations or cash flows.
In April 1998, the AcSEC issued SOP 98-5, Reporting on the Costs of
Start-up Activities. Under SOP 98-5, the cost of start-up activities should
be expensed as incurred. SOP 98-5 will be effective for Quintus' fiscal year
ending March 31, 2000. Quintus believes the adoption of this statement will
not have a significant impact on its financial position, results of
operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting For Derivative Instruments and Hedging Activities. This
statement requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting
from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. SFAS No. 133 will be effective for Quintus' fiscal year ending
March 31, 2001. Management believes that this statement will not have a
significant impact on Quintus' financial position, results of operations or
cash flows.
7. LEGAL MATTERS
Quintus may be a potential defendant in lawsuits and claims arising in
the ordinary course of business. While the outcomes of such claims,
lawsuits, or other proceedings cannot be predicted with certainty,
management expects that such liability, to the extent not provided by
insurance or otherwise, will not have a material adverse effect on Quintus'
financial condition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information contained or incorporated by reference in
this section, the following discussion contains forward-looking statements
within the meaning Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended. Quintus' actual results
could differ significantly from those discussed herein. Factors that could cause
or contribute to these differences include, but are not limited to, those
discussed herein with this quarterly report on Form 10-Q and the Registration
Statement. Any forward-looking statements speak only as of the date such
statements are made.
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OVERVIEW
Quintus provides a comprehensive e-Customer Relationship Management or eCRM
solution to manage customer interactions, such as customer orders, inquiries and
service requests, and deliver consistent customer service across multiple
communication channels, including the Internet, email and the telephone. Our
Quintus eContact software suite includes applications that address the needs of
customer service representatives and agents in sales and service, consumer
relations, technical support and human resources centers and a routing engine to
manage customer interactions. These applications and our routing engine can be
sold separately or in a group. eContact enables companies to handle high volumes
of customer interactions and leverage opportunities to sell additional products
and services to their customers.
The Quintus eContact software suite allows companies to personalize, route
and manage customer interactions. Our eContact suite enables consistent customer
service through the use of common rules for prioritizing, handling and
responding to customer interactions, shared customer profile information,
uniform strategies for selling additional products and services to customers,
and consolidated management and reporting functions that allow companies to
capture and analyze customer information.
We derive substantially all of our revenues from licenses and services
associated with our products. License revenues are derived from product sales to
customers and through resellers and distributors. Service revenues are
attributable to the installation, consulting, maintenance and other support
services related to the sale of our products.
License revenues from sales to end users are recognized upon shipment of the
product, if a signed contract exists, the fee is fixed and determinable,
collection is deemed probable and vendor-specific objective evidence exists to
allocate the total fee to elements of the arrangement. License revenues for
contracts requiring us to provide significant customization services are
recognized using percentage of completion accounting using labor days as the
basis for determining the percentage complete. License revenues from sales to
resellers and distributors are generally recognized at the time a reseller or
distributor reports to us that they have sold our software and all revenue
recognition criteria have been met.
Service revenues include maintenance revenues which were deferred and
recognized ratably over the maintenance period, which in most cases is one year,
and revenues from training and consulting services, which are recognized as
services are performed.
We sell our products to customers in North and South America, Europe, South
Africa and Japan through a direct sales force and indirectly through resellers
and distribution partners. All of our sales are denominated in U.S. dollars. We
intend to establish additional distribution relationships with partners outside
of the United States and expect international revenues to continue to increase
as a percentage of our total revenues in the future. We also expect that sales
of our products to a limited number of parties will continue to account for a
large percentage of total revenues for the foreseeable future.
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RESULTS OF OPERATIONS
The following table sets forth our results of operations as a percentage of
total revenues:
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
REVENUES:
License 70.1 % 49.2 % 64.1 % 58.9 %
Service 29.9 50.8 35.9 41.1
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
COST OF REVENUES:
License 9.8 2.6 5.6 1.9
Service 21.3 40.7 22.3 30.3
----- ----- ----- -----
Total cost of revenues 31.1 43.3 27.9 32.2
----- ----- ----- -----
Gross profit 68.9 56.7 72.1 67.8
OPERATING EXPENSES:
Sales and marketing 58.1 77.9 48.5 60.8
Research and development 24.5 30.1 20.6 23.6
General and administrative 11.9 18.6 10.1 12.6
Amortization of intangibles 15.1 13.4 10.2 11.0
Acquired in-process technologies 22.2 -- 8.4 --
Stock-based compensation 4.2 1.0 3.3 0.4
----- ----- ----- -----
Total operating expenses 136.0 141.0 101.1 108.4
----- ----- ----- -----
Loss from continuing operations (67.1) (84.3) (29.0) (40.6)
Other income (expense), net 2.1 (3.0) (0.4) (3.2)
----- ----- ----- -----
Net loss from continuing operations (65.0) (87.3) (29.4) (43.8)
Loss from discontinued operations -- (13.2) -- (6.6)
----- ----- ----- -----
Net loss (65.0)% (100.5)% (29.4)% (50.4)%
===== ===== ===== =====
REVENUES
Total Revenues. Total revenues for the third quarter of fiscal 2000
increased 127.0% to $13.5 million from $6.0 million in the third quarter of
fiscal 1999. For the nine months ended December 31, 1999, total revenues
increased 63.2% to $35.6 million from $21.8 million in the comparable period of
fiscal 1999. One customer, Ticketmaster, L.L.P., accounted for 38.7% and 17.8%
of total revenues in the third quarter of fiscal 2000 and for the nine months
ended December 31, 1999, respectively. No one customer accounted for more than
10.0% of total revenues for the third quarter of fiscal 1999 and for the nine
months ended December 31, 1998.
License. License revenues increased 223.2% to $9.5 million in the third
quarter of fiscal 2000 from $3.0 million in the third quarter of fiscal 1999.
Total license revenues in the nine months ended December 31, 1999 increased
77.7% to $22.8 million from $12.8 million in the comparable period in fiscal
1999. The increase in license revenues was primarily due to an increase in the
number of licenses sold to new and existing customers and increased sales
generated by our expanded sales force. The increase in the number of licenses
was primarily due to increased market acceptance of our products, both in the
United States and internationally.
Service. Service revenues increased 33.7% to $4.0 million in the third
quarter of fiscal 2000 from $3.0 million in the third quarter of fiscal 1999.
Service revenues in the nine months ended December 31, 1999 increased 42.5% to
$12.8 million from $9.0 million in the comparable period of fiscal 1999. The
increase in absolute dollars was primarily due to growth in our consulting
business and growth in our installed base of customers with a maintenance
contract. Service revenues as a percentage of total revenues decreased to
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29.9% for the third quarter of fiscal 2000 from 50.8% for the third quarter of
fiscal 1999, and to 35.9% in the period ended December 31, 1999 from 41.1% in
the period ended December 31, 1998. Service revenues decreased as a percentage
of total revenues as we continue to have third-party system integrators
undertake a greater percentage of our product implementation. In future periods,
we expect this trend to continue.
COST OF REVENUES
License. Cost of licenses consists primarily of royalties, product
packaging, documentation and production. Cost of licenses increased 751.0% to
$1.3 million in the third quarter of fiscal 2000 from $155,000 in the third
quarter of fiscal 1999 representing 13.9% and 5.3% of license revenues in the
respective periods. Cost of licenses increased 370.4% to $2.0 million in the
nine months ended December 31, 1999 from $423,000 in the comparable period in
fiscal 1999 representing 8.7% and 3.3% of license revenues in the respective
periods. The increase was primarily due to an increase in sales of third-party
license revenues and the resulting increase in third-party royalty payments and
to a lesser extent increases in material costs and other related expenses. The
cost of licenses may vary significantly in the future, depending on the mix of
internally developed and third-party products.
Service. Cost of services consists primarily of personnel costs and
third-party consulting fees associated with implementation, customization,
maintenance and other support services. Cost of services increased 19.0% to $2.9
million in the third quarter of fiscal 2000 from $2.4 million in the third
quarter of fiscal 1999, representing 71.4% and 80.2% of service revenues,
respectively. Cost of services increased 20.5% to $8.0 million in the nine
months ended December 31, 1999 from $6.6 million in the comparable period in
fiscal 1999, representing 62.2% and 73.6% of service revenues, respectively. The
dollar increase was primarily due to the number of third-party consultants we
engaged to provide consulting and implementation of our products and an increase
in our installed base for our maintenance contracts. Cost of services as a
percentage of service revenues declined primarily due to an increase in margins
for service revenues. Cost of services as a percentage of service revenues may
vary between periods due to the mix of services provided and the resources used
to provide these services.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions, bonuses, travel, public relations, marketing materials
and trade shows. Sales and marketing expenses increased 69.0% to $7.8 million in
the third quarter of fiscal 2000 from $4.6 million in the third quarter of
fiscal 1999, representing 58.1% and 77.9% of total revenues in the respective
quarter. For the nine months ended December 31, 1999, sales and marketing
expenses increased 30.4% to 17.3 million from $13.3 million in the comparable
period in fiscal 1999, representing 48.5% and 60.8% of total revenues in the
respective periods. The increase in the dollar amount of sales and marketing
expenses was attributable primarily to the addition of sales and marketing
personnel, which increased from 67 employees at December 31, 1998 to 99
employees at December 31, 1999, an increase in sales commissions associated with
increases in revenues and higher marketing costs due to expanded advertising and
promotional activities. Sales and marketing expenses as a percentage of total
revenues decreased primarily due to growth in total revenues. We intend to
invest substantial resources to expand our direct sales force and other
distribution channels, and to conduct marketing programs to support our existing
and new product offerings. As a result, sales and marketing expenses are
expected to increase in future periods.
Research and Development. Research and development expenses consist
primarily of personnel and related expenses associated with the development of
new products, the enhancement and localization of existing products, and quality
assurance and testing costs incurred prior to commercial production. Research
and development expenses increased 84.8% to $3.3 million in the third quarter of
fiscal 2000 from $1.8 million in the third quarter of fiscal 1999, representing
24.5% and 30.1% of total revenues in the respective quarter. For the nine months
ended December 31, 1999, research and development expenses increased 41.6% to
$7.3 million from $5.1 million in the comparable period of fiscal 1999,
representing 20.6% and 23.6% of total revenues in the respective periods. The
increase in research and development expenses was primarily due to increases in
personnel, which increased from 42 employees at December 31, 1998 to 84
employees at December 31, 1999. The decline in research and development expenses
as a percentage of total revenues was primarily due to the growth in total
revenues. We anticipate that research and development expenses in absolute
dollars will continue to increase in future periods. To date, all research and
development costs have been expensed as incurred.
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General and Administrative. General and administrative expenses consist
primarily of salaries and other related costs for finance and human resource
employees, as well as accounting, legal, other professional fees and allowance
for doubtful accounts. General and administrative expenses increased 45.2% to
$1.6 million in the third quarter of fiscal 2000 from $1.1 million in the third
quarter of fiscal 1999, representing 11.9% and 18.6% of total revenues in the
respective quarter. For the nine months ended December 31, 1999, general and
administrative expenses increased 31.4% from to $3.6 million from $2.7 million
in the comparable period of fiscal 1999, representing 10.1% and 12.6% of total
revenues in the respective periods. The dollar increase was primarily due to
increase in personnel, which increased from 24 employees at December 31, 1998 to
35 employees at December 31, 1999, and associated expenses necessary to manage
and support our increased scale of operations. The decline in general and
administrative expenses as a percentage of total revenues was primarily due to
the growth in total revenues. We currently expect general and administrative
expenses to increase in absolute dollars in the future as we continue to expand
our infrastructure.
Amortization of Intangibles. Amortization of intangibles represents costs
associated with our acquisition of Nabnasset in November 1997 and our
acquisition of Acuity in November 1999. Amortization is recorded on a
straight-line basis over a period of three to five years ending September 2004.
Amortization of intangibles was $2.0 million and $798,000 for the third quarter
of fiscal 2000 and 1999, respectively, representing 15.1% and 13.4% of total
revenues in the respective quarter. Amortization of intangibles was $3.6 million
and $2.4 million for the nine months ended December 31, 1999 and 1998,
respectively, representing 10.2% and 11.0% of total revenues in the respective
periods.
Acquired In-Process Technologies. In November 1999, we acquired Acuity for
$47.1 million based on capital stock issued, the value of options and warrants
assumed, and transaction costs incurred. The transaction was accounted for as a
purchase. In this acquisition, acquired technologies of $3.0 million were
charged to operations in the third quarter of fiscal 2000 as the technologies
did not have alternative future uses as of the date of the acquisition. There
were no acquired in-process technologies for the respective quarter and nine
months ended December 31, 1998.
Stock-Based Compensation. In the nine months ended December 31, 1999 and
1998, we recorded deferred stock-based compensation of $2.7 million and
$431,000, relating to stock options granted to employees. Such amounts represent
the difference between the exercise price and the deemed fair value of our
common stock at the date of grant. These amounts are being amortized over the
vesting periods of the granted options. In the third quarter of fiscal 2000 and
1999, we recognized stock-based compensation expense, in continuing operations,
related to options granted to employees of $574,000 and $56,000, respectively.
In the nine months ended December 31, 1999 and 1998, we recognized stock-based
compensation expense, in continuing operations, related to options granted to
employees of $1.2 million and $116,000, respectively.
Other Income (Expense), Net. Other income in the third quarter of fiscal
2000 consisted primarily of interest income from our investments of initial
public offering proceeds in short-term investments. Interest expense of $181,000
in the third quarter of fiscal 1999 and $706,000 in the nine months ended
December 31, 1998 was primarily due to our line of credit with a financial
institution, which was paid in full in the third quarter of fiscal 2000.
Included within interest expense in the nine months ended December 31, 1998, is
$165,000 with respect to warrants granted in connection with notes payable to
stockholders.
DISCONTINUED OPERATIONS
On February 26, 1999 we sold the assets of our Call Center Enterprises
division. The division had a loss of $781,000 for the third quarter of fiscal
1999 and $1.4 million for the nine months ended December 31, 1998, which were
recorded as discontinued operations. We may receive an additional payment of up
to 1998 to 84 employees at December 31, 1999. The decline in research and
development expenses as a percentage of total revenues was primarily due to the
growth in total revenues. We anticipate that research and development expenses
in absolute dollars will continue to increase in future periods. To date, all
research and development costs have been expensed as incurred. $400,000 from the
sale of Call Center Enterprises based on the number of former Call Center
Enterprises employees who remain employed by the purchaser for one year
subsequent to the date of disposition.
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LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, our principal source of liquidity was approximately
$67.5 million of cash, cash equivalents and short-term investments.
On November 16, 1999, we completed an initial public offering in which we
sold 5,175,000 shares of common stock at $18 per share, including 675,000 shares
in connection with the exercise of the underwriters' over allotment option. The
total proceeds from this transaction were $85.0 million, net of underwriters'
discounts and other related costs of $8.2 million. Immediately after the closing
of our offering, we paid $18.1 million to holders of some series of our
preferred stock. The remaining net proceeds were held in cash equivalents and
short-term investments at December 31, 1999.
Cash used in operating activities was $3.8 million and $4.3 million for the
nine months ended December 31, 1999 and 1998, respectively. Cash used for the
nine months ended December 31, 1999 was primarily due to a net loss of $10.5
million and an increase in accounts receivable, offset by increases in
depreciation and amortization, a $3.0 million non-cash charge for in-process
technologies related to our acquisition of Acuity, and increases in accrued
compensation and accounts payable.
Cash used in investing activities was $32.1 million and $1.8 million for the
nine months ended December 31, 1999 and 1998, respectively. Cash used in
investing activities for the nine months ended December 31, 1999 was primarily
for purchases of short-term investments of $30.7 million.
Cash provided by financing activities was $70.9 million and $4.3 million for
the nine months ended December 31, 1999 and 1998, respectively. Cash provided by
financing activities consisted primarily of net proceeds from our initial public
offering in November 1999 of $85.0 million and net proceeds from issuance of
preferred stock of $11.2 million, offset in part by payments of $18.1 million to
some series of our preferred shareholders and $4.9 million in repayments of our
bank line of credit.
We expect to experience significant growth in our operating expenses,
particularly sales and marketing and research and development expenses, for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that these operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. In addition,
we may utilize cash resources to fund acquisitions or investments in
complementary businesses, technologies or product lines. We currently anticipate
that our current cash, cash equivalents and investments will be sufficient to
meet our anticipated cash needs for working capital and capital for at least the
next 12 months. Thereafter, we may find it necessary to obtain additional equity
or debt financing. In the event additional financing is required, we may not be
able to raise it on acceptable terms or at all.
YEAR 2000 COMPLIANCE
In 1999, we implemented a company-wide program to identify and correct any
systems or devices which were not Year 2000 compliant. We determined that our
proprietary software products were Year 2000 compliant when configured and used
in accordance with the related documentation, assuming that the underlying
operation system of the host machine and any other software used with or in the
host machine or our products were Year 2000 compliant. Based on the results of
these tests, we did not expect recent versions of our products to suffer Year
2000-related problems, and to date we have not experienced significant Year
2000-related problems.
We made reasonable efforts to ensure that software licensed from third
parties that we incorporate into our eContact suite was Year 2000 compliant. In
instances where our customers were using older, non-compliant versions of these
software components, we advised them specifically what changes they needed to
make in order to make their systems Year 2000 compliant.
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We assessed our material internal IT systems, including both our own
software products and third party software and hardware technology, and our
non-IT systems. To the extent that we were not able to test the technology
provided by third-party vendors, we sought assurances from these vendors that
their systems were Year 2000 compliant.
As of December 1999, we did not have any information concerning the Year
2000 compliance status of our customers. Our current or future customers may
have incurred significant expenses to achieve Year 2000 compliance and they may
experience significant costs remedying any Year 2000 complications that may have
arisen. Our customers may also face litigation costs related to Year 2000
complications. In either case, Year 2000 issues could reduce or eliminate the
budgets that current or potential customers could have for, or delay purchases
of, our products and services. As a result, our operating results could suffer.
We funded our Year 2000 readiness program from operating cash flows and did
not separately account for these costs. These expenses have not materially
affected our operating results. Because we contracted with a third party to
perform the majority of our hardware and systems upgrades, our engineering and
IT projects were not materially delayed.
Although we believe that no serious problems have arisen or will arise in
the future, a reasonable "worst case" scenario might include:
o Cash expenditures and lost person-hours. If certain functions of
our eContact suite fail, our customers may be unable to manage
their eCRM operations and we may be forced to spend time and money
to correct these deficiencies.
o Alternative use problems. We certified the eContact software
components, whether internally developed or licensed from others,
as Year 2000 compliant in the eCRM field of use. If any of our
customers have adapted and are using eContact for alternative
uses, they may face problems we are not aware of.
o Failure of engineering applications. While we certified as Year
2000 compliant our material internal systems, it is possible that
some of our non-critical, narrow use engineering applications will
experience difficulties. Although we have not experienced failures
in these areas, some engineering efforts could be hindered if
problems arise.
In assessing its state of readiness, Acuity determined, through internal
testing or certifications from vendors, that all of its systems were generally
Year 2000 compliant. In particular, Acuity investigated the readiness of its
desktop applications and its engineering and accounting software systems. Acuity
also assessed its internal hardware and servers, as well as its telephone and
security systems. Acuity also requested that third-party providers of material
software products certify that these software products, including software
incorporated into Acuity's products, were Year 2000 compliant. Expenses related
to these procedures did not have a material effect on Acuity's results of
operations.
Acuity determined that certain older versions of its software product were
not Year 2000 compliant. In response, Acuity attempted to contact all customers
with noncompliant products to notify them and to offer them the opportunity to
purchase a compliant product upgrade. We may be liable for claims that Acuity
customers have against Acuity. In addition, Acuity previously sold an iChat
product that was not Year 2000 compliant. Acuity sold its iChat product line
prior to entering an agreement to be acquired by us. We believe that any
liabilities that result from the iChat product's failure to be Year 2000
compliant will be the responsibility of the purchaser of the iChat product line;
however third parties might seek to assert liability against us following our
acquisition of Acuity.
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RISK FACTORS
In addition to the other information in this Form 10-Q, the following risk
factors should be considered carefully in evaluating our business or any
investment in Quintus.
BECAUSE WE MAY NOT ACHIEVE PROFITABILITY, THE TRADING PRICE OF OUR COMMON STOCK
COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
We have not had a profitable quarter and we cannot assure you that we will
become profitable. We expect to increase our sales and marketing, research and
development, and other expenses as we attempt to grow our business. As a result,
we will need to generate significant revenues to become profitable, which we may
be unable to do. If we fail to become profitable, the trading price of our
common stock could decline significantly. We have funded our operations through
the sale of equity securities, borrowings and the sale of our products and
services. We incurred net losses from continuing operations of $8.8 million and
$5.2 million for the third quarter of fiscal 2000 and 1999 and $10.5 million and
$9.6 million for the nine months ended December 31, 1999 and 1998, respectively.
As of December 31, 1999 we had an accumulated deficit of $45.1 million. In
addition, in November 1999, we acquired Acuity which had incurred net losses of
$6.6 million, $7.7 million and $4.6 million in the years ended December 31, 1997
and 1998 and for the nine months ended September 30, 1999, respectively. Acuity
had an accumulated deficit of $25.3 million as of September 30, 1999. In
connection with our acquisition of Acuity, we recorded approximately $44.6
million of goodwill and intangible assets, which will be amortized on a monthly
basis over periods of four to five years. In connection with the acquisition of
Acuity, we recognized a charge for in-process technologies of approximately $3.0
million in the quarter ending December 31, 1999.
BECAUSE WE RECENTLY EXPANDED THE SCOPE OF OUR PRODUCT OFFERING, IT MAY BE
DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS PROSPECTS.
In February 1999, we expanded the scope of our product offering with
components for managing email and Internet-based customer interactions and
introduced the Quintus eContact suite. As a result, while we sold many of the
components that are included in our eContact suite prior to 1999, we have only
recently sold the components for managing email and Internet-based customer
interactions. We sold our first email management and Internet-based customer
service components in the quarter ended September 30, 1999 and, as a result, no
customer has completed the implementation of these components. We cannot assure
you that our eContact suite will achieve market acceptance. In addition, we are
still integrating Acuity's WebCenter and WebACD products into our eContact
suite. We may encounter technical difficulties, delays and unforeseen expenses
as we continue our product integration and development efforts.
IF OUR INITIAL IMPLEMENTATIONS OF THE QUINTUS ECONTACT SUITE SUFFER PROBLEMS OR
DELAYS, OUR REPUTATION AND FUTURE OPERATING RESULTS MAY BE HARMED.
We are just beginning to deploy our eContact suite. The initial
implementations of our eContact suite may encounter problems or delays. Although
we have successfully deployed some of the components of our eContact suite, we
have not deployed eContact with integrated computer telephony, email, Web chat
and Web self-service capabilities. To successfully implement our eContact suite,
we must complete the integration of its components and will likely have to
integrate eContact with a wide variety of complex systems currently used by our
customers. If these implementations meet with significant technological
obstacles, we may be forced to spend additional resources, harming our operating
results. If the ease and speed of these implementations do not meet the
expectations of our customers, our reputation and ability to sell our eContact
suite will be harmed.
BECAUSE OUR QUARTERLY REVENUES AND OPERATING RESULTS MAY FLUCTUATE
SIGNIFICANTLY, THE TRADING PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE.
It is likely that in some future quarter our revenues and operating results
will fall below the expectations of market analysts and investors. If this
happens, the trading price of our common stock may fall substantially. Our
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revenues and operating results are likely to vary significantly from quarter to
quarter due to a variety of factors, including the risks we describe in this
section.
Our ability to forecast revenues is limited. We derive substantially all of
our revenues from licenses of our software and related services. License
revenues in any quarter are substantially dependent on orders booked and shipped
in that quarter, and we cannot predict revenues for any future quarter with any
significant degree of certainty. In addition, we expect that sales derived
through indirect channels, which are more difficult to forecast, may increase as
a percentage of total revenues in the future. Our expenses are relatively fixed
and are based, in part, on our expectations of future revenues. Consequently, if
revenue levels do not meet our expectations, our operating results will suffer.
BECAUSE WE DEPEND UPON A LIMITED NUMBER OF LARGE SALES FOR A SUBSTANTIAL PORTION
OF OUR REVENUES, THE FAILURE TO OBTAIN LARGE PROSPECTIVE CUSTOMERS COULD CAUSE
OUR REVENUES TO FALL QUICKLY AND UNEXPECTEDLY.
We depend upon a limited number of large sales for a substantial portion of
our revenues in each quarter. For example, in the third quarter of fiscal 2000
and in the nine months ended December 31, 1999, our largest customer,
Ticketmaster L.L.P., accounted for 38.7% and 17.8% of our total revenues,
respectively. Our failure to successfully close one or more large sales in any
particular period could cause our revenues to drop quickly and unexpectedly. We
expect to continue to be dependent upon a limited number of customers for a
significant portion of our revenues, and these customers are expected to vary
from period-to-period. The loss of prospective major customers could result in
our failure to meet quarterly revenue expectations, causing the trading price of
our common stock to fall.
WE RELY HEAVILY ON OUR INDIRECT DISTRIBUTION CHANNELS, PARTICULARLY OUR
DISTRIBUTION AGREEMENT WITH LUCENT TECHNOLOGIES.
If Lucent Technologies were to cease reselling or fail to continue to
promote our products, our operating results could be harmed. Lucent Technologies
accounted for 5.8% and 21.1% of our total revenues for the third quarter of
fiscal 2000 and 1999 and 19.8% and 22.9% of our total revenues for the nine
months ended December 31, 1999 and 1998, respectively. Our distribution
agreement with Lucent Technologies expires in May 2000 and can be terminated
beforehand on 30 days' notice following a material breach of the agreement.
Lucent Technologies is not obligated to make any minimum purchases.
In addition, the loss of a reseller, the failure of a reseller to sell our
products, or our failure to attract and retain qualified new resellers in the
future could also harm our business. Typically our resellers do not have minimum
purchase or resale obligations, can cease marketing our products at any time,
and may offer competing products. We intend to expand our indirect distribution
channels by establishing additional relationships with resellers and
distribution partners. Competition for these relationships is intense, and we
may be unable to establish relationships on favorable terms, if at all. Even if
we are successful in establishing these relationships, they may not
substantially increase our revenues.
BECAUSE A SUBSTANTIAL PORTION OF OUR REVENUES COMES FROM SALES OF OUR
CTI PRODUCT, OUR OPERATING RESULTS WILL SUFFER IF THESE SALES DO NOT CONTINUE.
If sales of our Quintus CTI product do not meet our expectations, our
operating results will be harmed. Revenues from our CTI product were 16.8% for
the third quarter of fiscal 2000 and 38.4% in fiscal 1999. We expect that
revenues from our CTI product will continue to account for a substantial portion
of our revenues in the future.
WE FACE A NUMBER OF RISKS RELATED TO OUR RECENT ACQUISITION OF ACUITY, AND WE
MAY FACE SIMILAR RISKS IN THE FUTURE IF WE ACQUIRE OTHER BUSINESSES OR
TECHNOLOGIES.
In November 1999, we acquired Acuity, a company located in Austin, Texas,
where we previously had no other operations. Although our integration of
Acuity's products, personnel and systems is largely complete, unknown
complications could arise in the future. If difficulties stemming from these
integrations arise in the future, our business and operating results are likely
to suffer.
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Further, the acquisition of Acuity was our third acquisition within the last
three years, and we may make more acquisitions in the future. If we are unable
to integrate effectively any newly acquired businesses, technologies or
products, our operating results could suffer. Integrating any newly acquired
businesses, technologies or products may be expensive and time-consuming. Future
acquisitions could also result in large and immediate write-offs for in-process
research and development, increased amortization charges or the incurrence of
debt and contingent liabilities. To finance acquisitions, we may need to raise
additional funds through public or private financings. Additional funds may not
be available on favorable terms, or at all, and, in the case of equity
financings, may result in dilution to our stockholders. Moreover, we may not be
able to operate any acquired businesses profitably or otherwise implement our
growth strategy successfully.
BECAUSE MANY OF OUR SALES PEOPLE ARE NEW HIRES AND HIRING ADDITIONAL SALES
PERSONNEL IS PARTICULARLY COMPETITIVE, WE MAY BE UNABLE TO EXPAND OUR BUSINESS.
We have replaced a large number of our sales people during the last year. As
a result, many of our sales personnel are new to us. We expect our new sales
personnel will require substantial training in our products and sales practices.
New sales personnel tend to be less productive than those with greater
experience selling our products. Moreover, we intend to hire additional direct
sales force personnel in the United States. Competition for qualified sales
personnel is particularly intense in the software industry. In the past, we have
experienced difficulty hiring employees with appropriate qualifications in the
timeframe we desired. Any delays or difficulties we encounter in these
recruiting, training or retention efforts could impair our ability to attract
new customers and enhance our relationships with existing customers.
BECAUSE THE ECRM MARKET IS HIGHLY COMPETITIVE, WE MAY NOT BE ABLE TO SUCCEED AND
YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT.
If we fail to compete successfully in the highly competitive and rapidly
changing eCRM market, we may not be able to succeed and you may lose part or all
of your investment. We face competition primarily from customer relationship
management software firms, emerging Internet customer interaction software
vendors and computer telephony software companies. We also face competition from
traditional call center technology providers, large enterprise application
software vendors, independent systems integrators, consulting firms and in-house
IT departments. Because barriers to entry into the software market are
relatively low, we expect to face additional competition in the future.
Many of our competitors can devote significantly more resources to the
development, promotion and sale of products than we can, and many of them can
respond to new technologies and changes in customer preferences more quickly
than we can. Further, other companies with resources greater than ours may
attempt to gain market share in the eCRM market by acquiring or forming
strategic alliances with our competitors.
OUR ABILITY TO PROVIDE EMAIL MANAGEMENT FUNCTIONALITY WOULD BE HARMED IF WE
COULD NOT RESELL BRIGHTWARE'S EMAIL MANAGEMENT PRODUCT.
We resell Brightware's software to provide the email management
functionality of the Quintus eContact suite. Our agreement with Brightware
expires on March 22, 2000 and can be cancelled without cause upon 60 days'
notice. If our relationship with Brightware is not extended beyond March 22,
2000 or if Brightware were to cancel our reseller agreement or be acquired by
one of our competitors, or their email management product were otherwise
unavailable to us, we would likely incur substantial delays and costs as we
attempt to integrate alternative email management functionality into our product
suite. In particular, there may be few alternative sources for Brightware's
natural language text analysis and automated email response functionality. In
addition, if we were not able to resell Brightware's product, companies
requiring email management functionality would have to purchase another product.
As a result, the sales process with our prospective customers would be
complicated by the need to coordinate with a third party.
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OUR BUSINESS WILL SUFFER IF THE ECRM MARKET DOES NOT GROW.
The eCRM market is new and may not grow. The use of email, Web chat and Web
self-service as channels for companies to interact with their customers is
recent and may not grow as expected. Our potential customers are just beginning
to look for solutions for managing customer interactions across multiple
communication channels, and concerns about the security, reliability and quality
of customer service delivery over the Internet may inhibit the growth of our
market. If eCRM software fails to achieve market acceptance, our business will
suffer and may not succeed.
BECAUSE WE DEPEND ON THIRD-PARTY SYSTEMS INTEGRATORS TO SELL OUR PRODUCTS, OUR
REVENUES WILL LIKELY SUFFER IF WE DO NOT DEVELOP AND MAINTAIN THESE
RELATIONSHIPS.
We rely on systems integrators to promote, sell and implement our solution.
If we fail to maintain and develop relationships with systems integrators, our
revenues will likely suffer. We currently rely on systems integrators such as
AnswerThink Consulting Group, Cambridge Technology Partners and Technology
Solutions Company to recommend our products to their customers and to install
our products. If we are unable to rely on systems integrators to implement our
products, we will likely have to provide these services ourselves, resulting in
increased costs. As a result, our ability to grow may be harmed. In addition,
systems integrators may develop, market or recommend products that compete with
our products. For this reason, we must cultivate our relationships with these
firms, and our failure to do so could result in reduced sales revenues. Further,
if these systems integrators fail to implement our products successfully, our
reputation may be harmed.
BECAUSE THE SALES CYCLE FOR OUR PRODUCTS CAN BE QUITE LENGTHY, IT IS DIFFICULT
FOR US TO PREDICT WHEN OR WHETHER A SALE WILL BE MADE.
The timing of our revenues is difficult to predict in large part due to the
length and variability of the sales cycle for our products. Companies often view
the purchase of our products as a significant and strategic decision. As a
result, companies tend to take significant time and effort evaluating our
products. The amount of time and effort depends in part on the size and the
complexity of the deployment. This evaluation process frequently results in a
lengthy sales cycle, typically ranging from three to nine months. During this
time we may incur substantial sales and marketing expenses and expend
significant management efforts. We do not recoup these investments if the
prospective customer does not ultimately license our product.
IF WE ARE UNABLE TO INTRODUCE NEW ECRM PRODUCTS OR PRODUCT ENHANCEMENTS ON A
TIMELY BASIS, OR IF THE MARKET DOES NOT ACCEPT THESE PRODUCTS OR PRODUCT
ENHANCEMENTS, OUR BUSINESS WILL SUFFER.
The eCRM market is new and is likely to change rapidly. Our future success
will depend on our ability to effectively and timely anticipate changing
customer requirements and offer products and services that meet these demands.
Potential customers may seek features that our products do not have. As a
result, we may need to develop these features, and this may result in a longer
sales cycle, increased research and development expenses and reduced profit
margins. In addition, the development of new or enhanced eCRM products is a
complex and uncertain process. We may experience design, development, marketing
and other difficulties that could delay or prevent the introduction of new
products and enhancements. For example, our ability to introduce new products
would be impaired if we cannot continue to attract, hire, train and retain
highly skilled personnel.
OUR FAILURE TO MANAGE OUR RAPID GROWTH COULD INCREASE OUR COSTS AND HARM OUR
BUSINESS.
We have experienced rapid growth and plan to continue to significantly
expand our operations. We may not be able to manage this growth effectively,
which would impair our ability to attract and service customers and cause us to
incur higher operating costs. Expanding our operations has placed a significant
strain on our personnel and other resources. Our revenues have grown to $35.6
million in the nine months ended December 31, 1999 from $21.8 million in the
nine months ended December 31, 1998. Our headcount increased from 189 employees
as of December 31, 1998 to 275 employees as of December 31, 1999. To manage our
growth effectively, we may need to further improve our operational, financial
and management systems. We cannot assure you that we will improve these systems
adequately.
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IF WE DO NOT SUCCESSFULLY ADDRESS THE RISKS INHERENT IN THE EXPANSION OF OUR
INTERNATIONAL OPERATIONS, OUR OPERATING RESULTS MAY SUFFER.
We have limited experience in international operations and may not be able
to compete effectively in international markets. We currently intend to expend
significant financial and management resources to expand our international
operations. We believe that the future expansion of our international operations
is important to the growth of our business. Most of our international sales are
generated through resellers and distributors, and we expect substantial costs
and resources will be required to continue to train and support these resellers.
Among the various risks we face in conducting business internationally are:
o difficulties and costs of staffing and managing foreign operations;
o longer accounts receivable payment cycles and possible difficulties in
collecting accounts receivable, which may increase our operating costs
and hurt our financial performance;
o technology standards that are different from those on which our products
are designed, which could require expensive redesigns of our products;
o political and economic instability;
o unexpected changes in regulatory requirements that could make our
products and services more expensive and therefore less attractive to
potential customers; and
o fluctuations in currency exchange rates and the imposition of currency
exchange controls.
BECAUSE WE DEPEND ON LICENSED THIRD-PARTY TECHNOLOGIES, WE WILL FACE ADDITIONAL
COSTS IF WE HAVE TO REPLACE THESE TECHNOLOGIES.
Our products incorporate technologies that we license from third parties.
Although we believe we could obtain similar technologies from alternative
sources, substituting and integrating replacement technologies could require us
to divert significant resources. These efforts, if required, could delay the
shipment of existing products and could delay the introduction of new products
or enhancements as a result of the diversion of development resources. In
addition, we may be required to license replacement technologies on terms less
favorable than our current terms, which would increase our expenses. If we are
unable to obtain the third-party technologies necessary for the successful
operation of our products, our business would be harmed.
UNKNOWN SOFTWARE DEFECTS COULD HARM OUR BUSINESS AND REPUTATION.
Our software interacts with other complex systems and software. Our software
products may contain defects, particularly when first introduced. Despite our
software testing procedures, we may not discover software defects that affect
our products until after they are deployed. These defects could result in:
o damage to our reputation;
o product returns or lost sales;
o product liability claims against us;
o delays in or loss of market acceptance of our products; and
o unexpected expenses and diversion of resources to remedy errors.
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The occurrence of any of these events would hurt our operating results. In
addition, our customers generally use our products together with products from
other vendors. As a result, when problems occur, it may be difficult to identify
the source of the problem. Therefore, even if these problems are not caused by
our products, they may cause us to incur significant warranty and repair costs,
divert the attention of our engineering personnel and cause significant customer
relations problems.
ALTHOUGH WE HAVE TAKEN MEASURES TO PROTECT OUR INTELLECTUAL PROPERTY, OUR
COMPETITIVE POSITION MAY SUFFER IF THESE MEASURES PROVE TO BE INADEQUATE.
Third parties may infringe or misappropriate our copyrights, trademarks and
similar proprietary rights. We cannot be certain that the steps we have taken to
prevent the misappropriation of our intellectual property are adequate,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States. We rely on a combination of patent,
copyright, trademark and trade secret laws and restrictions on disclosure to
protect our intellectual property rights. In addition, we enter into
confidentiality agreements with our employees and certain customers, vendors and
strategic partners. Quintus has one issued U.S. patent and one filed U.S. patent
application. Through our acquisition of Acuity, we acquired one additional
issued U.S. patent as well as nine additional filed U.S. patent applications. We
cannot assure you that any patents will be issued from these applications or
that any issued patent will protect our intellectual property. Furthermore,
other parties may independently develop similar or competing technology or
design around any patents that may be issued to us.
WE MAY FACE COSTLY INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS.
Companies have in the past alleged that our products infringe their patents,
and others may make similar allegations in the future. Such claims or other
claims that our products infringe other intellectual property rights, may force
us to seek expensive licenses, re-engineer our products, engage in expensive and
time-consuming litigation or stop marketing the challenged product. Further, by
contract we typically indemnify our customers against infringement claims
related to our products. Intellectual property litigation is expensive and
time-consuming and could divert management's attention away from running our
business. This litigation could also require us to develop non- infringing
technology or enter into royalty or license agreements. These royalty or license
agreements, if required, may not be available on acceptable terms, if at all.
Our failure or inability to develop non-infringing technology or license the
proprietary rights on a timely basis in a cost-effective manner would harm our
business.
WE COULD LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR THE SYSTEMS
OF OUR CUSTOMERS OR SIGNIFICANT THIRD PARTIES ARE NOT YEAR 2000 COMPLIANT.
Although no serious problems have arisen to date, we may experience material
problems and costs associated with the Year 2000 and our Year 2000 compliance
efforts. If our eContact suite of products, including those software components
that we license from others, do not correctly recognize date information during
the calendar year 2000, we could experience warranty or other claims by our
customers. These claims could be costly to defend and could result in judgments
against us.
If our internal systems, such as engineering and finance applications, are
not Year 2000 compliant, we could experience problems running our day-to-day
business. In such a case, product development efforts could be delayed, and we
may be unable to adequately respond to the needs and concerns of our customers.
Further, if systems generally are not Year 2000 compliant, we may not be able to
obtain adequate supplies if our suppliers experience Year 2000 problems, and
companies could reduce their spending on eCRM products if they redirect
resources toward Year 2000 remediation programs.
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WE MAY FACE YEAR 2000-RELATED CLAIMS IN CONNECTION WITH PRIOR VERSIONS OF
ACUITY'S PRODUCTS.
In 1999, Acuity determined that certain older versions of its WebCenter
software product were not Year 2000 compliant. Acuity attempted to contact all
customers with noncompliant products to notify them of this lack of compliance
and to offer them the opportunity to purchase a product upgrade that was Year
2000 compliant. We cannot assure you that customers of Acuity who experience
Year 2000 failures will not seek damages from Acuity or Quintus. In addition,
Acuity previously sold an iChat product that was not Year 2000 compliant. Acuity
sold its iChat product line prior to entering an agreement to be acquired by us.
We believe that any liabilities that result from the iChat product's failure to
be Year 2000 compliant will be the responsibility of the purchaser of the iChat
product line; however, third parties might still seek to assert liability
against us or Acuity.
SALES OF OUR COMMON STOCK INTO THE PUBLIC MARKET COULD HARM THE MARKET PRICE OF
OUR COMMON STOCK AND OUR ABILITY TO RAISE MONEY THROUGH SALES OF EQUITY
SECURITIES.
The value of an investment in our common stock and our ability to raise
money through the sale of additional equity securities could be adversely
affected if our existing stockholders sell large amounts of their Quintus common
stock into the public market. If significant volumes of our common stock are
sold into the public market, the market price of our common stock and therefor
the value of your investment could fall. This could impair our ability to raise
capital through the sale of additional equity securities. With the exception of
the shares sold in our initial public offering, substantially all of our
currently outstanding shares are subject to lock-up agreements or bylaw
restrictions providing that, with certain limited exceptions, the holders of
such shares will not sell or otherwise dispose of any of such shares for a
period of 180 days after November 15, 1999 without the prior written approval of
Donaldson, Lufkin & Jenrette Securities Corporation. When these lock-up
agreements and bylaw restrictions expire, many of these shares and the shares of
common stock underlying any options held by these individuals will become
eligible for sale.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS, AS WELL AS PROVISIONS OF
EMPLOYMENT AGREEMENTS OF SOME OF OUR KEY EXECUTIVE OFFICERS, COULD PREVENT OR
DELAY A CHANGE IN CONTROL OF QUINTUS.
Provisions in our bylaws and in our certificate of incorporation may have
the effect of delaying or preventing a change of control or changes in
management of Quintus. These provisions include:
o the requirement that a special meeting of stockholders may only be called
by stockholders owning at least a majority of our outstanding shares;
o the ability of our board of directors to issue preferred stock without
stockholder approval; and
o the right of our board of directors to elect a director to fill a vacancy
created by the expansion of the board of directors.
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In addition, some of our officers have agreements with us that provide for
acceleration of vesting following certain sales or mergers of Quintus. These
provisions could make our acquisition by a third party more costly and could
delay or prevent a change of control or changes in our management.
WE MAY HAVE CONTINGENT LIABILITY ARISING OUT OF A POSSIBLE VIOLATION OF SECTION
5 OF THE SECURITIES ACT OF 1933 IN CONNECTION WITH ELECTRONIC MAIL SENT TO SOME
EMPLOYEES REGARDING PARTICIPATION IN OUR DIRECTED SHARE PROGRAM.
As part of our initial public offering, we and the underwriters determined
to make available up to 250,000 shares at the initial public offering price for
employees and other persons associated with our company. On October 25, 1999,
representatives of Quintus sent electronic mail with respect to this directed
share program to our employees located in the United Kingdom and the Netherlands
and representatives of Acuity sent electronic mail with respect to this directed
share program to all Acuity employees. This electronic mail set forth procedural
aspects of the directed share program and informed the recipients that they
might have an opportunity to participate in the proposed directed share program.
We may not have delivered a preliminary prospectus for our initial public
offering to our employees in the United Kingdom and the Netherlands or to all
Acuity employees prior to their receipt of the electronic mail regarding the
directed share program. Also, this electronic mail may constitute a
non-conforming prospectus. We may have a contingent liability arising out of a
possible violation of Section 5 of the Securities Act of 1933 in connection with
the electronic mail sent to these potential participants who did not receive the
preliminary prospectus prior to the email regarding the directed share program
and who may have received a non-conforming prospectus. Any liability would
depend upon the number of shares purchased by the recipients of the electronic
mail. If any such liability is asserted, we will contest the matter strenuously.
We do not believe that any such liability would be material to our financial
condition.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1999, we had an outstanding balance of $1.8 million in loans
with interest rates ranging from 8.25% to 9.50%. A 10% movement in market
interest rates would not significantly impact our financial position or results
of operations.
Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our funds are invested in
instruments with maturity of less than two years. Our policy is to limit the
risk of principal loss and ensure the safety of invested founds by limiting
market and credit risk. Funds in excess of current operating requirements are
primarily invested in obligations of large corporations. Due to the nature of
our investments, we have concluded that there is no material market risk
exposure. Therefore, no quantitative tabular disclosures are required.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Changes in Securities
During the quarter ended December 31, 1999 and prior to the closing of our
initial public offering, we granted options to purchase 343,825 shares of common
stock to employees of the Company under our stock option plan, and employees of
Quintus exercised options for 226,913 shares of common stock.
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On October 15, 1999, we issued 136,997 shares of common stock pursuant to
the exercise of warrants previously issued to stockholders of Quintus. We
received proceeds in the amount of $41,099 in connection with these warrant
exercises.
On November 10, 1999, in connection with our acquisition of Acuity, we
issued 2,021,146 shares of common stock and 3,047,378 shares of Series G
preferred stock, assumed warrants to purchase 328,364 shares of common stock and
preferred stock, and assumed options to purchase 422,867 shares of common stock.
On November 15, 1999, we issued 3,194 shares of common stock pursuant to the
exercise of warrants previously issued to stockholders of Quintus. We received
proceeds in the amount of $958 in connection with these warrant exercises.
On November 15, 1999, we issued an aggregate of 282,871 shares of common
stock for no proceeds pursuant to the net exercise of warrants previously issued
by Quintus.
On December 16, 1999, we issued 7,682 shares of common stock pursuant to the
exercise of warrants previously issued to a stockholder of Acuity. We received
proceeds in the amount of $67,982 in connection with these warrant exercises.
On December 27, 1999, we issued 62,159 shares of common stock pursuant to
the cashless exercise of warrants previously issued to a stockholder of Acuity.
The sale of the above securities were deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act, as transactions by an issuer not involving any public
offering or transactions under compensation benefit plans and contracts relating
to compensation as provided under Rule 701, or Section 3(a)(10) of the
Securities Act as a security issued after a ruling by an authorized authority
upon the fairness of the transactions terms and conditions. With regard to the
sales of securities exempted by Section 4(2) of the Securities Act, the
recipients of securities in each transaction represented their intentions to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution and appropriate legends were affixed to the
share certificates issued in these transactions. All recipients had adequate
access, through their relationships with us, to information about us.
(d) Use of Proceeds from Sale of Registered Securities
In November 1999, we completed the initial public offering of our common
stock. The managing underwriters in the offering were Donaldson, Lufkin &
Jenrette, Dain Rauscher Wessels, a division of Dain Rauscher Incorporated, SG
Cowen Securities Corporation, and DLJdirect, Inc. The shares of common stock
sold in the offering were registered under the Securities Act of 1933, as
amended, on a Registration Statement of Form S-1/A (No. 333-86919). The
Securities and Exchange Commission declared the Registration Statement effective
on November 15, 1999. The offering commenced on November 15, 1999 and closed on
November 19, 1999.
In our initial public offering, we sold 5,175,000 shares of common stock at
$18 per share, which included 675,000 shares in connection with the exercise of
the underwriters' over allotment option. The total proceeds from this
transaction were $85.0 million, net of underwriters' discounts and other related
costs of $8.2 million. Immediately after the closing of our offering, we paid
$18.1 million to holders of some series of our preferred stock. The remaining
net proceeds were held in cash equivalents and short-term investments at
December 31, 1999.
The following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions of $6.5 million, payable by Quintus, in
connection with the offering. None of the amounts shown was paid directly or
indirectly to any director or officer of Quintus or their associates, persons
owning 10 percent of more of any class of equity securities of Quintus or any
affiliate of Quintus.
SEC Registration Fee $ 24,682
NASD fee 10,355
Nasdaq National Market listing fee 94,000
Printing and engraving expenses 472,352
Legal fees and expenses 575,419
Accounting fees and expenses 364,600
Blue sky fees and expenses 5,000
Transfer agent fees 25,000
Miscellaneous fees and expenses 119,975
----------
Total 1,691,383
==========
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
During the quarter ended December 31, 1999, Quintus twice submitted matters
to its stockholders by written consent in lieu of stockholders' meetings.
On October 29, 1999, prior to Quintus' initial public offering, Quintus'
stockholders approved by written consent the following:
1. The adoption of Quintus' 1999 Stock Incentive Plan, under which
employees of Quintus (including officers), non-employee members of
the Board, and consultants to Quintus may be offered the opportunity
to acquire shares of Quintus' common stock. The stockholders
approved the reservation of 1,000,000 shares of common stock for
issuance under the 1999 Stock Incentive Plan;
2. The adoption of Quintus' Employee Stock Purchase Plan, under which
eligible employees may purchase common stock through payroll
deductions. The stockholders approved the reservation of 1,000,000
shares of common stock for issuance under the Employee Stock
Purchase Plan;
3. The adoption of Quintus' 1999 Director Option Plan, under which
directors of Quintus may be offered the opportunity to acquire
shares of Quintus' common stock. The stockholders approved the
reservation of 500,000 shares of common stock for issuance under the
1999 Stock Incentive Plan;
4. The form of indemnification agreement to be entered into by each of
Quintus' executive officers and directors;
5. Quintus' Amended and Restated Certificate of Incorporation which,
among other things, (i) authorizes 100,000,000 shares of common
stock and 10,000,000 shares of undesignated preferred stock, (ii)
deletes provisions specifying the rights, preferences and privileges
of Quintus' preferred stock, and (iii) provides that stockholder
action may not be taken by written consent; and
6. The adoption of Quintus' Amended and Restated Bylaws which, among
other things, require the approval of Quintus' 50% of stockholders
to call a special meeting.
The October 29, 1999 action by written consent of the stockholders of
Quintus was approved by the holders of approximately 69% of the shares eligible
to vote on such matters.
On November 9, 1999, prior to Quintus' initial public offering, Quintus'
stockholders approved by written consent the following:
1. Quintus' acquisition of Acuity Corp. ("Acuity") pursuant to the
Agreement and Plan of Reorganization dated as of September 10, 1999
(see Exhibit 2.1 to the Registration Statement).
2. The adoption of the 1999 Acuity Stock Plan, created to replace the
options to purchase stock in Acuity outstanding at the effective
time of the acquisition of Acuity.
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The October 29, 1999 action by written consent of the stockholders of
Quintus was approved by the holders of approximately 84% of the shares eligible
to vote on such matters.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1(1) Agreement and Plan of Reorganization by and among Registrant,
Acuity Corp., Ribeye Acquisition Corp. and certain
stockholders of Acuity Corp., dated September 10, 1999.
3.3(1) Registrant's Restated Certificate of Incorporation.
3.5(1) Registrant's Amended and Restated Bylaws.
4.1(1) Reference is made to Exhibits 3.3 and 3.5.
4.2(1) Specimen Common Stock certificate.
4.3(1) Registrant's Amended and Restated Investors Rights Agreement,
dated November 10, 1999.
10.1(1) Form of Indemnification Agreement entered into between
Registrant and each of its directors and officers.
10.2(1) 1995 Stock Option Plan and forms of agreements thereunder.
10.3(1) 1999 Stock Incentive Plan and forms of agreements thereunder.
10.4(1) Employee Stock Purchase Plan.
10.5(1) 1999 Director Option Plan.
10.6(1) Light Industrial Lease between Registrant and Teachers
Insurance and Annuity Association of America, dated October
6, 1995.
10.7(1) Sublease between Registrant and Oryx Technology Corporation
and SurgX Corporation, dated October 1, 1999.
10.8(1)+ Software Distribution Agreement dated May 5, 1997, between
Nabnasset Corporation and Lucent Technologies Inc.
10.10(1)+ Authorized OEM/Reseller Agreement dated December 22, 1998,
between Registrant and Brightware, Inc.
10.11(1) Employment agreement between Registrant and Alan Anderson,
dated May 23, 1995 and Notice of Grant of Stock Option.
10.12(1) Employment agreement between Registrant and John Burke, dated
June 11, 1999.
10.13(1) Loan and Security Agreement between Registrant and Silicon
Valley Bank, dated September 18, 1998.
10.14(1) Sublease Agreement between Pavilion Technologies, Inc. and
Acuity Corp., dated December 19, 1996.
10.15+ Authorized OEM/Reseller Agreement between Quintus Corporation
and Lipstream Networks, Inc., dated December 3, 1999.
10.16 Sublease between Quintus Corporation and Advanced Radio
Telecom Corp., dated December 13, 1999, and corresponding
Master Lease.
10.17 Second Amendment to OEM/Reseller Agreement between Quintus
Corporation and Brightware, Inc., dated December 22, 1999.
27.1 Financial Data Schedule.
-------------------
(1) Incorporated herein by reference to the registrant's Registration
Statement on Form S-1 declared effective by the Securities and
Exchange Commission on November 15, 1999.
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+ Portions of these exhibits have been omitted pursuant to requests
for confidential treatment.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Quintus during the quarter ended
December 31, 1999.
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QUINTUS CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
undersigned, thereunto duly authorized.
QUINTUS CORPORATION
Date: February 14, 2000 By: /s/ Susan Salvesen
----------------------------------------
SUSAN SALVESEN
CHIEF FINANCIAL OFFICER AND SECRETARY
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
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EXHIBIT INDEX
EXHIBITS
NO. DESCRIPTION
- -------- -----------
2.1(1) Agreement and Plan of Reorganization by and among Registrant, Acuity
Corp., Ribeye Acquisition Corp. and certain stockholders of Acuity
Corp., dated September 10, 1999.
3.3(1) Registrant's Restated Certificate of Incorporation.
3.5(1) Registrant's Amended and Restated Bylaws.
4.1(1) Reference is made to Exhibits 3.3 and 3.5.
4.2(1) Specimen Common Stock certificate.
4.3(1) Registrant's Amended and Restated Investors Rights Agreement, dated
November 10, 1999.
10.1(1) Form of Indemnification Agreement entered into between Registrant and
each of its directors and officers.
10.2(1) 1995 Stock Option Plan and forms of agreements thereunder.
10.3(1) 1999 Stock Incentive Plan and forms of agreements thereunder.
10.4(1) Employee Stock Purchase Plan.
10.5(1) 1999 Director Option Plan.
10.6(1) Light Industrial Lease between Registrant and Teachers Insurance and
Annuity Association of America, dated October 6, 1995.
10.7(1) Sublease between Registrant and Oryx Technology Corporation and SurgX
Corporation, dated October 1, 1999.
10.8(1)+ Software Distribution Agreement dated May 5, 1997, between Nabnasset
Corporation and Lucent Technologies Inc.
10.10(1)+ Authorized OEM/Reseller Agreement dated December 22, 1998, between
Registrant and Brightware, Inc.
10.11(1) Employment agreement between Registrant and Alan Anderson, dated May
23, 1995 and Notice of Grant of Stock Option.
10.12(1) Employment agreement between Registrant and John Burke, dated June 11,
1999.
10.13(1) Loan and Security Agreement between Registrant and Silicon Valley
Bank, dated September 18, 1998.
10.14(1) Sublease Agreement between Pavilion Technologies, Inc. and Acuity
Corp., dated December 19, 1996.
10.15+ Authorized OEM/Reseller Agreement between Quintus Corporation and
Lipstream Networks, Inc., dated December 3, 1999.
10.16 Sublease between Quintus Corporation and Advanced Radio Telecom Corp.,
dated December 13, 1999, and corresponding Master Lease.
10.17 Second Amendment to OEM/Reseller Agreement between Quintus Corporation
and Brightware, Inc., dated December 22, 1999.
27.1 Financial Data Schedule.
- -------------------
(1) Incorporated herein by reference to the registrant's Registration Statement
on Form S-1 declared effective by the Securities and Exchange Commission on
November 15, 1999.
+ Portions of these exhibits have been omitted pursuant to requests for
confidential treatment.