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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended October 2, 1998
|_| Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _________ to ___________
Commission File Number: 000-21415
WHITE PINE SOFTWARE, INC.
(Name of Small Business Issuer as Specified in Its Charter)
Delaware 04-3151064
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
542 Amherst Street, Nashua, New Hampshire 03063
(Address of Principal Executive Offices)
(603) 886-9050
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 |_|
A total of 10,322,160 shares of the Registrant's common stock were outstanding
as of November 10, 1998.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
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TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of October 2, 1998 and
December 31, 1997......................................................................................3
Condensed Consolidated Statements of Income for the three and
nine months ended October 2, 1998 and October 3, 1997..................................................4
Condensed Consolidated Statements of Cash Flows for the nine
months ended October 2, 1998 and October 3, 1997.......................................................5
Note to Condensed Consolidated Financial Statements....................................................6
Item 2. Management's Discussion and Analysis or Plan of Operation...............................................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................................................15
Item 6. Exhibits and Reports on Form 8-K.......................................................................16
Signatures.....................................................................................................17
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2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WHITE PINE SOFTWARE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
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October 2, December 31,
1998 1997
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Assets
Current assets:
Cash and cash equivalents.............................................. $ 8,247 $14,704
Accounts receivable, net............................................... 1,836 2,403
Inventories............................................................ 60 98
Prepaid expenses and other current assets.............................. 1,080 1,378
------- -------
Total current assets................................................ 11,223 18,583
Property and equipment, net................................................ 4,079 1,514
Third party licenses, net.................................................. 684 669
Goodwill, net.............................................................. 497 676
Other long term assets..................................................... 177 168
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Total assets................................................................... $16,660 $21,610
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Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses.................................. $ 2,216 $ 2,550
Deferred revenue....................................................... 211 246
Current portion of long-term debt ..................................... 11 55
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Total current liabilities........................................... 2,438 2,851
Long term debt, net of current portion..................................... 26 33
Total stockholders' equity..................................................... 14,196 18,726
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Total liabilities and stockholders' equity..................................... $16,660 $21,610
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See Note to Condensed Consolidated Financial Statements
3
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WHITE PINE SOFTWARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
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<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ----------------------------------
October 2, October 3, October 2, October 3,
1998 1997 1998 1997
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Revenue:
Software license fees......................$ 1,761 $ 2,534 $ 5,034 $ 7,108
Services and other......................... 173 338 607 989
---------------- ---------------- --------------- ----------------
Total revenue.......................... 1,934 2,872 5,641 8,097
Cost of revenue................................ 373 343 1,093 1,363
---------------- ---------------- ---------------- ----------------
Gross profit................................... 1,561 2,529 4,548 6,734
Operating expenses:
Sales and marketing........................ 1,719 1,810 5,675 5,895
Research and development................... 1,244 1,298 3,855 4,545
General and administrative................. 590 519 1,860 2,073
Restructuring.............................. - - - 661
---------------- ---------------- ---------------- ----------------
Total operating expenses............... 3,553 3,627 11,390 13,174
---------------- ---------------- ---------------- ----------------
Loss from operations........................... (1,992) (1,098) (6,842) (6,440)
Other income (expense):
Interest income (expense).................. 132 236 489 819
Other, net ................................ (29) (6) (55) (76)
---------------- ---------------- ---------------- ----------------
103 230 434 743
Net loss before provision for income taxes..... (1,889) (868) (6,408) (5,697)
Provision for income taxes..................... - 7 5 7
---------------- ---------------- ---------------- ----------------
Net loss.......................................$ (1,889) $ (875) $ (6,413) $ (5,704)
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
Net loss per share:
Basic......................................$ (0.18) $ (0.10) $ (0.67) $ (0.63)
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
Diluted....................................$ (0.18) $ (0.10) $ (0.67) $ (0.63)
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
Weighted average number of common and
common equivalent shares outstanding........... 10,223,672 9,168,921 9,621,000 9,107,338
---------------- ---------------- ---------------- ----------------
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See Note to Condensed Consolidated Financial Statements
4
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WHITE PINE SOFTWARE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
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Nine Months Ended
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October 2, October 3,
1998 1997
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Operating activities
Net loss......................................................................... $ (6,413) $ (5,704)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation................................................................ 414 334
Amortization of goodwill and third-party licenses........................... 380 511
Provision for bad debts..................................................... 36 (45)
Changes in operating assets and liabilities:
Accounts receivable..................................................... 531 610
Inventories............................................................. 39 22
Prepaid expenses........................................................ 284 (1,328)
Other assets............................................................ 11 (55)
Accounts payable and accrued expenses................................... (368) (81)
Deferred revenue........................................................ (40) (541)
------------------ ------------------
Net cash used in operating activities............................................ (5,126) (6,277)
Investing activities.............................................................
Purchase of property and equipment, net.......................................... (2,969) (595)
Purchase of third-party licenses, net............................................ (216) (384)
------------------ ------------------
Net cash used in investing activities............................................ (3,185) (979)
Financing activities
Principal payments on long-term debt............................................. (52) (215)
Proceeds from common stock issued upon exercise
of stock options............................................................... 57 216
Proceeds from common stock issued under
Employee Stock Purchase Plan................................................... 39 -
Market value of common stock issued upon purchase
of intangible assets........................................................... 1,828 -
------------------ ------------------
Net cash provided by financing activities....................................... 1,872 1
Currency translation effect on cash and cash equivalents......................... (18) (24)
------------------ ------------------
Net decrease in cash and cash equivalents........................................ (6,457) (7,279)
Cash and cash equivalents at beginning of period................................. 14,704 23,298
------------------ ------------------
Cash and cash equivalents at end of period....................................... $ 8,247 $ 16,019
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See Note to Condensed Consolidated Financial Statements
5
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WHITE PINE SOFTWARE, INC. AND SUBSIDIARY
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
October 2, 1998
1. Accounting Policies
Description of Business
The Company develops, markets and supports multiplatform desktop
multimedia software that facilitates worldwide video and audio communication
and data collaboration across the Internet, intranets and other networks that
use the Internet Protocol ("IP"). The Company's desktop videoconferencing
software products, CU-SeeMe and MeetingPoint, create a client-server solution
that allows users to participate in real-time, multipoint videoconferences
over the Internet and intranets. In November 1997, the Company began
commercial shipments of MeetingPoint, the first multimedia conferencing
server software to implement the ITU H.323 standard for conferencing over
packet networks. MeetingPoint enables any standards-based client to
participate in full multipoint group conferences. Further building upon the
core CU-SeeMe and MeetingPoint technologies, the Company developed
ClassPoint, an integrated vertical solution for distance learning and
distance training, which began shipping commercially in April 1998. In
September 1998, the Company released MeetingPoint version 3.5, which includes
new features for audio mixing and video switching, as well as improvements in
interoperability and in conference administration capabilities for
scheduling, bandwidth management and security. The Company also offers
desktop X Windows and terminal emulation software. The Company's customers
include businesses, educational institutions, government organizations and
individual consumers. The Company markets and sells its products in the
United States, Canada, Europe and the Pacific Rim through distributors, a
combination of strategic partners and OEMs, and its direct sales
organization, as well as over the Internet. The Company was incorporated in
April 1992.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned foreign subsidiary, White Pine Software, Europe.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and investments in
high grade commercial paper having maturities of three months or less when
purchased. Commercial paper qualifying as cash equivalents totaled $7,401,000
and $13,440,000 at October 2, 1998 and December 31, 1997, respectively. These
investments have been categorized as held to maturity under the provisions of
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Accordingly, the balances are
stated at amortized cost, which approximates fair value because of the short
maturity of these instruments.
Revenue Recognition
The Company's revenue is derived from software license fees and fees for
services related to its software products, primarily software maintenance
fees. The Company's revenue recognition practices were substantially in
compliance with the provisions of AICPA Statement of Position No. 97-2,
Software Revenue Recognition, at the time of adoption on January 1, 1998.
6
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Software license revenue is recognized upon receipt of a firm customer
order and shipment of the software, net of allowances for estimated future
returns, provided that no significant obligations remain on the part of the
Company and collection of the related receivable is deemed probable. Revenue
under certain license agreements is recognized upon execution of a signed
contract and fulfillment of the contractual obligations, provided that no
significant obligations remain on the part of the Company and collection is
deemed probable.
Software maintenance fees, which generally are payable in advance and
are non-refundable, are recognized ratably over the period of the maintenance
contract, typically twelve months. Revenue from training and consulting
services is recognized as services are provided.
Deferred revenue consists of software license fees, consulting fees and
training fees that have been prepaid or invoiced but that do not yet qualify
for recognition as revenue under the Company's policy, as well as prepaid
maintenance fees not yet recognized as revenue.
Loss per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
SFAS 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. Pursuant
to the previous requirements of the Securities and Exchange Commission (the
"SEC"), common shares and common share equivalents issued by the Company
during the twelve-month period prior to the initial public offering of the
Company's common stock had been included in the calculations as if they were
outstanding for all periods prior to the offering in August 1996 whether or
not they were anti-dilutive. In February 1998, the SEC issued Staff
Accounting Bulletin 98 which, among other things, conformed prior SEC
requirements to SFAS 128 and eliminated inclusion of such shares in the
computation of earnings per share. All earnings per share amounts for all
periods have been presented, and where appropriate, restated to conform to
SFAS 128 and SEC requirements.
Basic net loss per common share is computed using the weighted average
number of shares of common stock outstanding during the period. Diluted net
loss is computed using the weighted average number of shares of common stock
and dilutive common equivalent shares outstanding during the period. Common
equivalent shares consist of the incremental common shares issuable upon the
exercise of stock options and warrants using the treasury stock method.
7
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Item 2. Management's Discussion and Analysis or Plan of Operation
THIS FORM 10-QSB CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. ANY STATEMENTS CONTAINED HEREIN THAT ARE NOT
STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS.
WITHOUT LIMITING THE FOREGOING, THE WORDS "BELIEVES," "ANTICIPATES," "PLANS,"
"EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THE FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS,
PERFORMANCE AND ACHIEVEMENTS OF WHITE PINE SOFTWARE, INC. TO DIFFER
MATERIALLY FROM THOSE INDICATED BY THE FORWARD-LOOKING STATEMENTS, INCLUDING
(a) THE COMPANY'S HISTORICAL AND CONTINUING OPERATING LOSSES, (b) THE
COMPANY'S RELIANCE ON ITS UNPROVEN PRODUCTS, MEETINGPOINT AND CLASSPOINT,
THAT WERE INTRODUCED RELATIVELY RECENTLY, (c) SIGNIFICANT AND INCREASING
COMPETITION, INCLUDING COMPETITION FROM FREE VIDEOCONFERENCING CLIENT
SOFTWARE SUCH AS MICROSOFT CORPORATION'S NETMEETING, (d) POTENTIAL
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS, (e) RELIANCE ON TWO
SIGNIFICANT DISTRIBUTORS OF THE COMPANY'S SOFTWARE PRODUCTS, (f) DEPENDENCE
UPON TECHNOLOGY LICENSED UNDER AN AGREEMENT WITH THE CORNELL RESEARCH
FOUNDATION, INC. AND (g) THE OTHER FACTORS DESCRIBED UNDER "ITEM 1A. Risk
Factors" IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 1997, A COPY OF WHICH ITEM IS INCLUDED AS AN EXHIBIT TO THIS
FORM 10-QSB AND IS INCORPORATED HEREIN BY REFERENCE.
OVERVIEW
The Company develops, markets and supports multi-platform desktop
multimedia software that facilitates worldwide video and audio communication
and data collaboration across the Internet, intranets and other networks
using IP. The Company's desktop videoconferencing software products, CU-SeeMe
and MeetingPoint, create a client-server solution that allows users to
participate in real-time, multipoint videoconferences over the Internet and
intranets. In November 1997, the Company began commercial shipments of
MeetingPoint, the first multimedia conferencing server software to implement
the ITU H.323 standard for conferencing over packet networks. MeetingPoint
enables any standards-based client to participate in full multipoint group
conferences. Further building upon the core CU-SeeMe and MeetingPoint
technologies, the Company developed ClassPoint, an integrated vertical
solution for distance learning and distance training, which began shipping
commercially in the last week of April 1998. In September 1998, the Company
released MeetingPoint version 3.5, which includes new features for audio
mixing and video switching, as well as improvements in interoperability and
in conference administration capabilities for scheduling, bandwidth
management and security. The Company also offers desktop X Windows and
terminal emulation software.
In June 1995, as a part of its continuing plan to focus on software
connectivity products, the Company entered into the License Agreement with
the Cornell Research Foundation, Inc. (the "Cornell Foundation"), which
granted to the Company the exclusive worldwide right to develop, modify,
market, distribute and sublicense commercial versions of Freeware CU-SeeMe
and its related software-only multipoint conferencing server. The Company
commenced shipments of the initial commercial versions of CU-SeeMe and the
White Pine Reflector (the predecessor of MeetingPoint) in March 1996 and May
1996, respectively.
8
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The Company anticipates that its revenue growth, if any, will depend on
increased sales of MeetingPoint and other multimedia server solutions, such
as ClassPoint. Accordingly, the Company intends to continue to devote a
substantial portion of its research and development and sales and marketing
resources to technologies related to group conferencing. On May 22, 1997, the
Company renegotiated the terms of its License Agreement with the Cornell
Foundation. The principal changes to the agreement were a $1,000,000
prepayment of royalties by the Company to the Cornell Foundation and a
decrease in the revenue-based royalties. The renegotiated terms were
retroactive to January 1, 1997. The Company is still subject to minimum
royalty payments.
The Company's revenue is derived from software license fees and fees for
services related to its software products, primarily software maintenance
fees. During fiscal 1997, the Company recognized revenue in accordance with
the American Institute of Certified Public Accountants Statement of Position
No. 91-1, "Software Revenue Recognition." For fiscal 1998, the Company is
recognizing revenue in accordance with AICPA Statement of Position 97-2,
"Software Revenue Recognition." Software license revenue is recognized upon
execution of a contract or purchase order and shipment of the software, net
of allowances for estimated future returns, provided that no significant
obligations on the part of the Company remain outstanding and collection of
the related receivable is deemed probable by management. An allowance for
product returns is recorded by the Company at the time of sale and is
measured periodically to adjust to changing circumstances, including changes
in retail sales. Software maintenance fees, which are generally payable in
advance and are non-refundable, are recognized ratably over the period of the
maintenance contract, typically twelve months. Revenue from training and
consulting services is recognized as services are provided. Deferred revenue
consists of software license fees, consulting fees and training fees that
have been prepaid or invoiced but that do not yet qualify for recognition as
revenue under the Company's policy, as well as prepaid maintenance fees not
yet recognized as revenue.
Effective January 1, 1997, the Company changed its interim fiscal
reporting periods from calendar quarters to quarters consisting of thirteen
weeks.
On July 8, 1998, the Company purchased certain assets (the "Labtam
Assets"), including intellectual property, comprising certain T.120
whiteboarding and data collaboration technology from Labtam Communications
Pty. Ltd. ("Labtam"), an Australian corporation with a principal place of
business in Braeside, Victoria, Australia. T.120 is the protocol that defines
whiteboarding, application sharing and data collaboration for multipoint
conferencing applications. The purchase price for the Labtam Assets consisted
of (i) 900,000 shares of the Company's common stock, par value U.S. $0.01 per
share; (ii) cash payment of a total of U.S. $628,060 in July 1998; and (iii)
cash payment of A$201,606 due on January 15, 1999. The Company is
incorporating the purchased technology into its MeetingPoint and ClassPoint
conferencing solutions.
On July 29, 1998, the Company reduced its total headcount by ten
persons, of which seven were engaged in research and development, one in
general and administration activities, and two in marketing. The Company
estimates that the reorganization will provide cost savings of approximately
$1,000,000 annually.
On September 30, 1998, the Company terminated the employment of Bruce W.
Lichorowic, its Vice President of Sales. On October 15, 1998, the Company
terminated the employment of Brian L. Lichorowic, its Vice President of
Marketing. The Company has consolidated the positions into one office, Vice
President of Sales and Marketing, and has engaged the services of an
executive search firm to assist in identifying candidates for the position.
The Company believes that the temporary vacancy created by its termination of
these two officers will not have an adverse effect on the Company's
operations or financial results.
9
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RESULTS OF OPERATIONS
The following table sets forth line items from the Company's statement
of operations as percentages of total revenue for the three and nine months
ended October 2, 1998 and October 3, 1997.
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Three Months Ended Nine Months Ended
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October 2, October 3, October 2, October 3,
1998 1997 1998 1997
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Revenue:
Software license fees................... 91.0 % 88.2 % 89.2 % 87.8 %
Services and other...................... 9.0 11.8 10.8 12.2
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Total revenue........................... 100.0 100.0 100.0 100.0
Cost of revenue............................... 19.3 12.0 19.4 16.8
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Gross profit.................................. 80.7 88.0 80.6 83.2
Operating expenses:
Sales and marketing..................... 88.9 63.0 100.6 72.8
Research and development................ 64.3 45.2 68.3 56.1
General and administrative.............. 30.5 18.1 33.0 25.6
Restructuring........................... 0.0 0.0 0.0 8.2
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Total operating expenses................ 183.7 126.3 201.9 162.7
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Loss from operations......................... (103.0) (38.3) (121.3) (79.5)
Other income (expense), net................... 5.3 8.0 7.7 9.2
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Net loss before provision for income
taxes....................................... (97.7) (30.3) (113.6) (70.3)
Provision for income taxes.................... 0.0 0.2 0.1 0.1
------------------ ----------------- ----------------- -----------------
Net loss...................................... (97.7)% (30.5)% (113.7)% (70.4)%
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Revenue
Total revenue decreased by 33% to $1,934,000 in the quarter ended
October 2, 1998 from $2,872,000 in the quarter ended October 3, 1997. Total
revenue decreased by 30% to $5,641,000 in the nine months ended October 2,
1998 from $8,097,000 in the comparable period of the prior year. The decrease
in revenue was attributable to the continuing transition among the Company's
product offerings, as growth in revenue from the Company's recently
introduced server-solutions products was insufficient to offset declines in
revenue from the Company's legacy connectivity and CU-SeeMe software products.
The Company's revenue from CU-SeeMe, its videoconferencing client
software, declined by 50% to $627,000 in the quarter ended October 2, 1998
from $1,240,000 in the quarter ended October 3, 1997, and declined by 44% to
$2,031,000 in the nine months ended October 2, 1998 from $3,655,000 in the
same period of the prior year. Increased competition from free
videoconferencing client offerings, primarily Microsoft's NetMeeting, has
sharply driven the decline, as the Company's OEM vendors, which are
principally located in the Pacific Rim countries, migrated from bundling
CU-SeeMe to bundling free clients. As the result of these competitive
pressures, the percentage of total revenue represented by revenue from
CU-SeeMe has decreased to 32% in the quarter ended October 2, 1998 from 43%
in the quarter ended October 3, 1997.
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The Company's legacy connectivity product sales continued to decline as
the Company focuses fewer resources on the older product line. Legacy
connectivity revenue declined by 52% to $433,000 in the quarter ended October
2, 1998 from $894,000 in the quarter ended October 3, 1997 and decreased 45%
to $1,613,000 in the nine months ended October 2, 1998 from $2,961,000 in the
nine months ended October 3, 1997. The percentage of total revenue
represented by revenue from legacy connectivity products decreased to 22% in
the quarter ended October 2, 1998 from 31% in the quarter ended October 3,
1997. Maintenance and other revenue has also decreased in conjunction with
the decline of the legacy connectivity products, as the majority of
maintenance agreements were for legacy products.
Server-solutions revenue increased by 119% to $857,000 in the quarter
ended October 2, 1998 from $391,000 in the quarter ended October 3, 1997 and
increased 155% to $2,078,000 from $814,000 in the nine months ended October
2, 1998 and October 3, 1997, respectively. Server-solutions revenue
represented 44% of total revenue in the quarter ended October 2, 1998,
compared with 41% in the second fiscal quarter and 26% in the first fiscal
quarter. The Company anticipates that this trend will continue and
server-solutions revenue will eventually offset the steady decline of client
and connectivity revenues. The increases in server-solution revenue were
attributable primarily to the Company's most recently released server
products, MeetingPoint and ClassPoint, which were released in November 1997
and April 1998, respectively. The most recent release of MeetingPoint,
version 3.5, began shipping on September 14, 1998 and accounted for 47% of
total server-solutions revenue in the quarter ended October 2, 1998. The rate
of server revenue growth currently is determined principally by product
performance and by customer acceptance and adoption. The Company is
experiencing relatively lengthy, two-step sales cycles for its MeetingPoint
and ClassPoint server products. The first step typically extends from one to
three months and results in sales of small quantities of the server products
for pilot programs. The Company expects that the second step will extend
considerably longer, from six months to over a year, as customers decide
whether to move beyond the pilot programs to deployment of MeetingPoint on a
company-wide basis or deployment of ClassPoint as an operational
long-distance learning program.
The Company believes that minimal additional investment in the legacy
connectivity products in the foreseeable future will slow the decline in
connectivity revenue in the short term, providing the Company with an
additional period to build the sales base for its server products. There can
be no assurance that the Company will be successful in generating server
revenue in an amount sufficient to offset declines in revenue from its client
and legacy connectivity products, or at all. The actual amount of revenue
generated by the Company's server products may vary significantly depending
on a number of factors, including the unproven market status and
acceptability of the products, significant and increasing competition for
those products and other factors described under "Item 1A. Risk Factors" in
the Company's Form 10-KSB for the year ended December 31, 1997, a copy of
which is filed as an exhibit hereto and incorporated by reference herein.
Even if the Company meets its internally projected revenue targets, the
Company expects to incur a net loss for the fiscal year ending December 31,
1998 and further expects that net losses will continue into the fiscal year
ending December 31, 1999.
Cost of Revenue
Cost of revenue consists principally of royalties and associated
amortization of paid license fees relating to third-party software included
in the Company's products, and costs of product media, manuals, packaging
materials, product localization for international markets, duplication and
shipping. Cost of revenue as a percentage of total revenue increased by 7% to
19% for the quarter ended October 2, 1998 over the quarter ended October 3,
1997, due to higher royalties paid on the server revenue streams.
11
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Sales and Marketing
Sales and marketing expense consists primarily of costs associated with
sales and marketing personnel, sales commissions, trade shows, advertising
and promotional materials. Sales and marketing expense decreased by 5% to
$1,719,000 in the quarter ended October 2, 1998 as compared to the respective
period in the prior year, and decreased by 4% to $5,675,000 in the nine
months ended October 2, 1998 as compared to the respective period in the
prior year. The Company added six sales personnel in the quarter ended July
3, 1998, and terminated the employment of its Vice President of Sales, whose
employment began in April 1998, on September 30, 1998. See "--Overview."
While these net headcount additions increased salary expense over the prior
year, the Company's decision to forego all bonuses in fiscal 1998 resulted in
an overall decrease in sales and marketing expense in the current fiscal
year. The Company expects sales and marketing expense to increase in the
fourth fiscal quarter as the result of increased trade show activity.
Research and Development
Research and development expense consists primarily of costs of
personnel and equipment. Research and development expense decreased by 4% to
$1,244,000 in the quarter ended October 2, 1998, and by 15% to $3,855,000 in
the nine months ended October 2, 1998, compared with the comparable periods
in the previous year. The decreases were attributable principally to
reductions in headcount, consulting fees and bonuses in comparison with the
same periods in the prior year.
General and Administrative
General and administrative expense consists of administrative, financial
and general management activities, including legal, accounting and other
professional fees. General and administrative expense increased by 14% to
$590,000 for the quarter ended October 2, 1998, and decreased by 10% to
$1,860,000 for the nine months ended October 2, 1998, versus the
corresponding periods in the prior year. The quarter-over-quarter increase
was primarily due to the additional salaries of the President and Corporate
Controller, both of which positions were vacant for part of the third quarter
of 1997, and the inclusion in general and administration of the Company's
order administration activities, which was classified in sales and marketing
expense in 1997. The year-over-year decrease was attributable to decreased
facilities expense and lower legal, audit and investor relations expenses.
Provision for Income Taxes
The Company's provision for income taxes consists of federal alternative
minimum taxes and state and foreign income taxes. The Company made no
provision for federal or state income taxes for the three or nine months
ended October 2, 1998 or October 3, 1997 as the result of the net losses
during those periods and its expectation that it will incur a net loss for
the fiscal year ending December 31, 1998. The Company expects that its
effective combined federal and state tax rate for the foreseeable future will
be lower than the combined statutory rate, primarily as a result of the
realization of net operating loss carryforwards. From time to time, the
Company records a provision for foreign income taxes; to date, these
provisions have been immaterial in amount.
LIQUIDITY AND CAPITAL RESOURCES
The Company used cash of $6,457,000 in the nine months ended October 2,
1998, as compared with $7,279,000 in the nine months ended October 3, 1997.
Cash used in the nine months ended October 2, 1998 consisted principally
of the net loss of $6,413,000, the payment of $770,000 as part of the
purchase price for the Labtam Assets, and $191,000 in severance
12
<PAGE>
payments, offset in part by receivables collections of $531,000 and the
benefit of prepaid expenses in the amount of $284,000. Cash used in the nine
months ended October 3, 1997 consisted primarily of the net loss of
$5,704,000, prepayment to the Cornell Foundation of $1,000,000 for software
royalties, and deferred revenue in the amount of $541,000. The Company's
investing activities, predominantly investment in computer equipment and
third-party software licenses, used cash of $543,000 and $979,000 in the nine
months ended October 2, 1998 and October 3, 1997, respectively.
On December 20, 1996, the Company entered into a commercial loan
agreement with Fleet Bank-NH (the "Bank") providing for a $3,000,000
revolving line of credit and a separate term loan in the initial principal
amount of $53,000. The revolving line of credit expired on June 30, 1998, and
was extended through August 30, 1998. On October 27, 1998, the line of credit
was renewed and reduced to $1,000,000. Borrowings under the line of credit
and the term loan are secured by substantially all of the Company's assets,
including a $515,000 certificate of deposit and all of the Company's computer
software products (including all source code, object code and intellectual
property rights relating thereto). Amounts outstanding under the line of
credit and the term loan bear interest at the Bank's prime rate plus 0.5%
(8.5% at November 9, 1998).
The commercial loan agreement requires that the Company provide the Bank
with certain periodic financial reports and comply with certain financial and
other ratios, including maintenance of a minimum net worth, a maximum ratio
of total liabilities to tangible net worth, a minimum ratio of current assets
to current liabilities and cumulative profitability levels for fiscal 1997
and 1998. At October 2, 1998 and October 3, 1997, no borrowings were
outstanding under the revolving line of credit and $20,000 and $31,000 were
outstanding under the term loan, respectively.
At October 2, 1998, the Company had cash and cash equivalents of
$8,247,000 and working capital of $8,785,000. The Company believes that its
current cash and cash equivalents, funds generated from operations (if any)
and borrowings under its bank line of credit, will be sufficient to fund the
Company's operations and capital expenditures through the remainder of 1998.
Thereafter, the Company's liquidity will be materially dependent upon its
internally generated funds and its ability to obtain funds from additional
equity or debt financings from external sources. There can be no assurance
that the Company will be able to secure these funds or the partnerships
necessary to finance its operations.
Year 2000 Compliance
The Company has completed its Year 2000 compliance testing with respect
to its client/server videoconferencing products (CU-SeeMe, MeetingPoint and
ClassPoint) and believes, based on its testing, that each of those products
is Year 2000 compliant. Each of those products is subject, however, to the
compliancy of the third party vendors whose technology the Company has
integrated. Similarly, the Company has completed its compliance testing with
respect to its terminal emulation connectivity products (WebTerm, WebTermX,
and eXodus), and believes, based on its testing, that each of those products
is Year 2000 compliant. Their Year 2000 compliancy is dependent, however,
upon the compliancy of the host systems to which they connect.
As a result of the completion of the compliance testing, the Company
does not expect to incur any material additional cost in connection with Year
2000 compliance testing, and does not believe it is at material risk of
noncompliance with respect to the Company's products. The Company does not
extend any warranty for its products with respect to Year 2000 compliance.
There can be no assurance, however, that certain of utility companies,
including telephone companies, and other suppliers to the Company's business
will be Year 2000 compliant. Any significant failure of any of those
utilities or other vendors to comply may have an adverse affect on the
Company's business.
13
<PAGE>
INFLATION
Although certain of the Company's expenses increase with general
inflation in the economy, inflation has not had a material impact on the
Company's financial condition or results of operations to date.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income and AICPA Statement of Position No. 97-2, Software Revenue
Recognition. The adoption of these pronouncements has not had a material
effect on the Company's financial position or results of operations.
In June 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS No. 131"), which is
effective for fiscal 1998. SFAS No. 131 establishes standards for the way
that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to stockholders. The adoption of SFAS No. 131 has not had a material
effect on the Company's financial position, results of operations or cash
flows.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a defendant in six lawsuits pending in New York federal
and state courts (the "RSI Suits") in which the plaintiffs claim to suffer
from carpal tunnel syndrome, or "repetitive stress injuries," as a result of
having used computer keyboards (the "Keyboards") that are alleged to have
been defectively designed. The Keyboards were supplied, and possibly designed
and manufactured, by Ontel Corporation. The assets of Ontel Corporation were
purchased in 1982 by Visual Technology, Inc. ("Visual"), a predecessor of
Visual T.I., Inc. ("VTI"), which in turn is a predecessor of the Company. The
RSI Suits, which seek money damages, were brought from February 1992 to June
1996 by employees of New York Telephone, which purchased the Keyboards from
Lockheed Electronics Corporation. One or more of Visual, Ontel Corporation,
Lockheed Electronic Corporation and Key Tronics Corporation, a subcontractor
for certain of the Keyboards, are named as co-defendants in certain of the
RSI Suits. New York Telephone employees are also proceeding with 29 suits
that name as defendants only Visual and/or Ontel Corporation. The Company
could be named as a defendant in these cases. None of the RSI Suits has
reached trial and additional information detrimental to the Company could be
developed in the course of discovery.
In May 1993, VTI's product liability coverage terminated. Certain of the
RSI Suits appear to be based on claims that allegedly arose after May 1993,
and therefore may be uninsured. The insurers for VTI, the Company and others
(the "Insurers") are defending the RSI Suits under a reservation of rights.
To date, the Company's proportionate share of the defense costs of the RSI
Suits has not been material. There can be no assurance, however, that the
Company will not incur material legal expenses defending the RSI Suits. The
Company has a reserve of approximately $290,000 in connection with the RSI
Suits, based upon the Company's belief that (i) certain of the RSI Suits are
covered by product liability insurance, (ii) the Company is contractually
indemnified by Lockheed Electronics Corporation and/or Key Tronics
Corporation against all or a portion of the damages to which the Company may
be subject and (iii) the Company has defenses to substantially all of the
claims under the RSI Suits. Although the Company believes that its reserve
for the RSI Suits is adequate, there can be no assurance that the Company's
liabilities under the RSI Suits will not substantially exceed that reserve.
New York Telephone and others may continue to use certain of the
Keyboards and, accordingly, there can be no assurance that additional product
liability claims will not be asserted against the Company in the future.
From time to time, the Company has received and may receive in the
future notice of claims of infringement of other parties' proprietary rights.
Although the Company believes that its products and technology do not
infringe the proprietary rights of others, there can be no assurance that
additional third parties will not assert infringement and other claims
against the Company or that any infringement claims will not be successful.
From time to time, the Company may be exposed to litigation arising out
of its products, services and operations. As of the date of filing this Form
10-QSB, the Company is not engaged in any legal proceedings of a material
nature, other than the RSI Suits.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
------ ----------
10.1 Third Amendment to Commercial Loan Agreement and Loan
Documents dated October 27, 1998 with Fleet Bank - NH and
related Revolving Line of Credit Promissory Note
11.1 Statement re computation of per share earnings
27.1 Financial Data Schedule for fiscal quarter ended
October 3, 1998
99.1 Disclosure set forth under "Item 1A. Risk Factors" in the
Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997 (incorporated by reference from pages
15 to 25 of such Annual Report)
(b) Reports on Form 8-K
On July 23, 1998, the Company filed with the Securities and Exchange
Commission a Current Report on Form 8-K dated July 8, 1998 relating to the
Company's acquisition of the Labtam Assets. See "Item 1. Management's
Discussion and Analysis or Plan of Operation--Overview." No financial
statements were required to be filed as a part of such Form 8-K.
On November 4, 1998, the Company filed with the Securities and Exchange
Commission a Current Report on Form 8-K dated September 30, 1998 relating
to the Company's termination of the employment of two of its executive
officers, Bruce W. Lichorowic and Brian L. Lichorowic, on September 30 and
October 15, 1998, respectively. See "Management's Discussion and Analysis
or Plan of Operation--Overview."
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, as of November 16, 1998.
WHITE PINE SOFTWARE, INC.
By: /s/ KILLKO A. CABALLERO
----------------------------
Killko A. Caballero
President
By: /s/ CHRISTINE J. COX
----------------------------
Christine J. Cox
Vice President - Finance
(Principal Financial and Accounting Officer)
17
<PAGE>
Exhibit 10-1
FLEET BANK - NH
THIRD AMENDMENT TO COMMERCIAL LOAN AGREEMENT
AND LOAN DOCUMENTS
This Amendment (the "Amendment") is made as of this 7th day of October,
1998, by and among WHITE PINE SOFTWARE, INC., a Delaware corporation with its
principal place of business at 542 Amherst Street, Nashua, New Hampshire 03063
(the "Borrower") and FLEET BANK - NH, a bank organized under the laws of the
State of New Hampshire with a principal address of NH NA E02A, 1155 Elm Street,
Manchester, New Hampshire 03101 (the "Bank").
WITNESSETH:
WHEREAS, pursuant to a certain Commercial Loan Agreement dated December
30, 1994 between the Bank and the Borrower, as amended by a First Amendment to
Commercial Loan Agreement dated December 20, 1996 and a Second Amendment to
Commercial Loan Agreement dated June 30, 1998 (the "Loan Agreement"), the Bank
has extended to the Borrower a certain Revolving Line of Credit Loan in the
current principal amount of up to Three Million Dollars ($3,000,000.00) (the
"Revolving Line of Credit Loan") and have executed certain documentation in
connection therewith (the Loan Agreement and all of the foregoing are referred
to collectively as the "Loan Documents"); and
WHEREAS, the parties wish to amend the Loan Agreement and the Loan
Documents in order to decrease the Revolving Line of Credit Loan and in
connection therewith to make certain other modifications to the terms and
conditions of the Loan Agreement and the Loan Documents, all as hereinafter set
forth.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Bank and the Borrower agree as
follows:
1. Amendment to Loan Agreement. The Loan Agreement shall be and hereby
is amended as follows:
a. The maximum available dollar amount under the Revolving Line of
Credit Loan shall be and is hereby decreased to One Million Dollars
($1,000,000.00), subject to the limitation set forth in clause (2) of
Section I. A. of the loan agreement.
b. The Review Date as set forth in Section I. C of the Loan
Agreement shall be and hereby is amended to mean June 30, 1999 and each
anniversary of such date to which the Bank in its sole discretion
elects to renew and extend the Revolving Line of Credit Loan.
c. Section IV of Schedule B of the Loan Agreement shall be and
hereby is amended by deleting the same and inserting in place these of
the following:
1. Borrower shall have a Tangible Net Worth (as hereinafter
defined) equal to at least Ten Million Dollars ($10,000,000.00) as
at September 30, 1998 and as at each
1
<PAGE>
fiscal quarter end thereafter. "Tangible Net Worth" means total
shareholders' equity less intangible assets, all as determined in
accordance with generally accepted accounting principles from
Borrower's financial statements delivered to the Bank in
accordance with the covenants of the Borrower in the Loan
Agreement (the "Financial Statements").
2. Borrower shall maintain Cash Equivalents (as hereinafter
defined) of not less than Four Million Dollars ($4,000,000.00) at
all times. For purposes hereof, "Cash Equivalents" shall mean the
aggregate amount of all cash, bank accounts, certificates of
deposit, marketable securities (i.e., equity securities listed on
the New York or - American stock exchanges or quoted on the
National Association of Securities Dealers Automated Quotation
system (NASDAQ), state or municipal bonds, or United States
Treasury securities), and funds invested for management with Fleet
Investment Advisors as at the fiscal quarter ending on the date of
determination, all as determined in accordance with generally
accepted accounting principals from the Financial Statements.
3. Borrower shall report and certify to Bank compliance with
the financial covenants hereinabove within thirty (30) days of the
end of each fiscal quarter on the form attached hereto as Exhibit
B-2 or on such other form or forms as may from time to time be
specified by the Bank.
2. Confirmation of Loan Documents. The Borrower hereby confirms, agrees
and acknowledges that the Revolving Line of Credit Note is and shall be subject
to the terms and conditions of the Loan Agreement and the Loan Documents, as
amended hereby, which shall remain in full force and effect as long as any
Obligations (as defined in the Loan Agreement) are due and owing to the Bank by
the Borrower and which are hereby expressly acknowledged, agreed to, reaffirmed,
and consented to by the Borrower.
3. Reaffirmation of Representations and Warranties. The Borrower hereby
confirms, reasserts, and restates all of its representations and warranties
under the Loan Agreement and the Loan Documents as of the date hereof
4. Reaffirmation of Affirmative Covenants. The Borrower hereby
confirms, reasserts. and restates its affirmative covenants as set forth in the
Loan Agreement and the Loan Documents, as amended hereby, as of the date hereof.
5. Reaffirmation of Negative Covenants. The Borrower hereby confirms,
reasserts, and restates its negative covenants as set forth in the Loan
Agreement and the Loan Documents, as of the date hereof
6. Binding Agreement. This Amendment shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
7. No Further Effect. Except as amended hereby, the terms and
conditions of the Loan Agreement and the Loan Documents as set forth therein and
as heretofore amended, modified, and renewed shall remain in full force and
effect.
2
<PAGE>
8. Costs and Expenses of Bank. The Borrower agrees to reimburse the
Bank for all reasonable costs, expenses, and fees, including attorneys' fees,
associated with the documentation of this Amendment. Borrower consents to
Bank charging Borrower's Revolving Line of Credit Loan account for any such
costs, expenses and fees.
IN WITNESS WHEREOF, the Borrower and the Bank have executed and
delivered this Agreement as of the date first set forth above.
WHITE PINE SOFTWARE, INC.
Kenneth R. Sheldon By: /s/ Christine J. Cox
- ----------------------------- --------------------------------
Witness Christine Cox, Vice President
FLEET BANK - NH
Roxanne Persament By: /s/ Kenneth R. Sheldon
- ----------------------------- --------------------------------
Witness Kenneth Sheldon, Vice President
3
<PAGE>
REVOLVING LINE OF CREDIT PROMISSORY NOTE
$1,000,000.00 U.S. Nashua, NH October 27, 1998
FOR VALUE RECEIVED, WHITE PINE SOFTWARE, INC., a Delaware corporation
with its principal place of business at 542 Amherst Street, Nashua, New
Hampshire 03063 (the "Borrower"), promises to pay to the order of FLEET BANK -
NH, a bank incorporated under the laws of the State of New Hampshire with a
principal address of Mail Stop NH NA E02A, 1155 Elm Street, Manchester, New
Hampshire 03101 (the "Bank"), at such address, or such other place or places as
the holder hereof may designate in writing from time to time hereafter, the
maximum principal sum of ONE MILLION DOLLARS ($1,000,000.00), or so much thereof
as may be advanced or readvanced by the Bank to the Borrower from time to time
hereafter (such amounts defined as the "Debit Balance" below), together with
interest as provided for herein below, in lawful money of the United States of
America.
The Borrower's "Debit Balance" shall mean the debit balance in an
account on the books of the Bank, maintained in the form of a ledger card,
computer records or otherwise in accordance with the Bank's customary practice
and appropriate accounting procedures wherein there shall be recorded the
principal amount of all advances made by the Bank to the Borrower, all principal
payments made by the Borrower to the Bank hereunder, and all other appropriate
debits and credits. The Bank shall render to the Borrower a statement of account
with respect thereto on a monthly basis. Such statement shall indicate the
Borrower's then current Debit Balance and any interest amounts due and payable
from the Borrower to Bank. The statement shall be considered correct and be
considered accepted by the Borrower, and shall conclusively bind the Borrower,
unless Borrower notifies the Bank to the contrary within thirty (30) days after
the date of mailing.
Under the Revolving Line of Credit Loan evidenced by this Note (the
"Line of Credit"), the Bank agrees to lend to the Borrower, and the Borrower may
borrow, up to the maximum principal sum provided for in this Note in accordance
with and subject to the terms, conditions, and limitations of this Note and the
Commercial Loan Agreement dated December 30, 1994 entered into by and between
the Borrower and the Bank, as amended to date and as the same may be amended
from time to time hereafter (the "Loan Agreement"). The holder of this Note is
entitled to all of the bene.-its and rights of the Bank under the Loan
Agreement. However, neither this reference to the Lo-Ln Agreement nor any
provision thereof shall impair the absolute and unconditional obligation of the
Borrower to pay the principal and interest of this Note as herein provided.
Terms not otherwise defined herein shall have the meanings ascribed to them in
the Loan Agreement.
The Borrower shall make requests for advances under this Note as
provided in the Loan Agreement. The Borrower agrees that the Bank may make all
advances under this Note by direct deposit to any demand account of the Borrower
with the Bank or in such other manner as may be provided in the Loan Agreement,
and that all such advances shall represent binding obligations of the Borrower.
1
<PAGE>
The Borrower acknowledges that this Note is to evidence the Borrower's
obligation to pay its Debit Balance, plus interest and any other applicable
charges as determined from time to time, and that it shall continue to do so
despite the occurrence of intervals when no Debit Balance exists because the
Borrower has paid the previously existing Debit Balance in full.
Interest shall be calculated and charged daily, based on the actual
days elapsed over a three hundred sixty (360) day banking year, on the unpaid
principal balance outstanding from time to time at an annual variable rate equal
to the Bank's Base Rate, so called, plus one-half of one percent (0.5%) per
annum; provided, however, that at such time and during such period as the
Borrower maintains funds in excess of Fifteen Million Dollars ($15,000,000.00)
under investment management with Fleet Investment Advisors the annual variable
interest rate hereunder shall be equal to the Base Rate. The Base Rate shall be
the Base Rate of the Bank as established and changed by the Bank from time to
time whether or not such rate shall be otherwise published or Borrower is
provided with notice thereof. Each time the Base Rate changes, the interest rate
hereunder shall change contemporaneously with such change in the Base Rate. The
Borrower acknowledges that the Base Rate is used for reference purposes only as
an index and is not necessarily the lowest interest charged by the Bank on
commercial loans.
Pending an Event of Default as provided in the Loan Agreement and
herein below, the Bank shall extend the Line of Credit through and until June
30, 1999, and, if the Line of Credit is renewed and extended by the Bank
pursuant to the Loan Agreement, through and until each anniversary of such date
with respect to which the Line of Credit is renewed and extended (June 30, 1999,
and each anniversary thereof to which the Line of Credit is renewed and
extended, being a "Review Date"). The Borrower shall (i) make payments of
principal from time to time as provided in the Loan Agreement and (ii) make
payments of interest monthly in arrears commencing thirty (30) days from the
date hereof (or on any day within 30 days of the date hereof agreed to by the
Borrower and the Bank to provide for a convenient payment date) and continuing
on the same date of each month thereafter through and until the earlier of the
acceleration of this note upon an Event of Default as provided herein below or
any Review Date with respect to which the Line of Credit is not renewed by the
Bank, whereupon all principal, accrued and unpaid interest, and any other
charges provided for hereunder, shall be due and payable in full. In the event
that the Line of Credit is renewed pursuant to the Loan Agreement as of any
Review Date, this Note shall thereafter continue to evidence amounts advanced
and due under the Line of Credit as renewed.
This Note is being executed and delivered in accordance with the terms
of the Loan Agreement and the documents defined therein as the "Loan Documents".
The payment and performance of the obligations contained in the Loan Documents
are secured by the collateral granted to the Bank therein (the "Collateral") and
the security granted to the Bank in the Loan Documents.
At the option of the Bank, this Note shall become immediately due and
payable in full, without further demand or notice, if any payment of interest or
principal is not made when due
2
<PAGE>
hereunder or upon the occurrence of any other Event of Default under the terms
hereof, under the Loan Agreement, or under any of the other Loan Documents.
The holder may impose upon the Borrower a delinquency charge of five
percent (5%) of the amount of interest not paid on or before the tenth (10th)
day after such installment is due. The entire principal balance hereof, together
with accrued interest, shall after maturity, whether by demand, acceleration or
otherwise, bear interest at the contract rate of this Note plus an additional
two percent (2%) per annum.
The Borrower agrees that any other property upon or in which the
Borrower has granted or hereafter grants the holder a mortgage or security
interest, securing the payment and performance of any other liability of the
Borrower to the holder, shall also constitute Collateral. As additional
Collateral, the Borrower grants (1) a security interest in, or pledges, assigns
and delivers to the holder, as appropriate, all deposits, credits and other
property now or hereafter due from the holder to the Borrower; and (2) the right
to set off and apply (and a security interest in said right), from time to time
hereafter and without demand or notice of any nature, all, or any portion, of
such deposits, credits and other property, against the indebtedness evidenced by
this Note whether the other Collateral if any, is deemed adequate or not.
The Borrower, and every maker, endorser, or guarantor of this Note,
jointly and severally, agree to pay on demand all reasonable out-of-pocket costs
of collection hereof, including reasonable attorneys' fees, whether or not any
foreclosure or other action is instituted by the holder in its discretion.
No delay or omission on the part of the holder in exercising any right,
privilege or remedy shall impair such right, privilege or remedy or be construed
as a waiver thereof or of any other right, privilege or remedy. No waiver of any
right, privilege or remedy or any amendment to this Note shall be effective
unless made in writing and signed by the holder. Under no circumstances shall an
effective waiver of any right, privilege or remedy on any one occasion
constitute or be construed as a bar to the exercise of or a waiver of such
right, privilege or remedy on any future occasion.
The acceptance by the holder hereof of any payment after any default
hereunder shall not operate to extend the time of payment of any amount then
remaining unpaid hereunder or constitute a waiver of any rights of the holder
hereof under this Note.
All rights and remedies of the holder, whether granted herein or
otherwise, shall be cumulative and may be exercised singularly or concurrently,
and the holder shall have, in addition to all other rights and remedies, the
rights and remedies of a secured party under the Uniform Commercial Code of New
Hampshire. The holder shall have no duty as to the collection or protection of
the Collateral or of any income thereon, or as to the preservation of any rights
pertaining thereto beyond the safe custody thereof. Surrender of this Note, upon
payment or otherwise, shall not affect the right of the holder to retain the
Collateral as security for the payment and performance of any other liability of
the Borrower to the holder.
3
<PAGE>
The Borrower, and every maker, endorser, or guarantor of this Note,
hereby jointly waive, to the fullest extent permitted by law, presentment,
notice, protest and all other demands and notices and assents (1) to any
extension of the time of payment or any other indulgence, (2) to any
substitution, exchange or release of Collateral, and (3) to the release of any
other person primarily or secondarily liable for the obligations evidenced
hereby.
This Note and the provisions hereof shall be binding upon the Borrower
and the Borrower's heirs, administrators, executors, successors, legal
representatives and assigns and shall inure to the benefit of the holder, the
holder's heirs, administrators, executors, successors, legal representatives and
assigns.
The word "holder" as used herein shall mean the payee or endorsee of
this Note who is in possession of it, or the bearer, if this Note is at the time
payable to the bearer.
This Note may not be amended, changed or modified in any respect except
by a written document which has been executed by each party. This Note
constitutes a New Hampshire contract to be governed by the laws of such state
and to be paid and performed therein.
The provisions of this Note are expressly subject to the condition that
in no event shall the amount paid or agreed to be paid to the holder hereunder
and deemed interest under applicable law exceed the maximum rate of interest on
the unpaid principal balance hereunder allowed by applicable law, if any, (the
"Maximum Allowable Rate"), which shall mean the law in effect on the date
hereof, except that if there is a change in such law which results in a higher
Maximum Allowable Rate being applicable to this Note, then this Note shall be
governed by such amended law from and after its effective date. In the event
that fulfillment of any provisions of this Note results in the interest rate
hereunder being in excess of the Maximum Allowable Rate, the obligation to be
fulfilled shall automatically be reduced to eliminate such excess. If
notwithstanding the foregoing, the holder receives an amount which under
applicable law would cause the interest rate hereunder to exceed the Maximum
Allowable Rate, the portion thereof which would be excessive shall automatically
be applied to and deemed a prepayment of the unpaid principal balance hereunder
and not a payment of interest.
This Note is executed and delivered in replacement of, but not in
novation or discharge of the Revolving Line of Credit Promissory Note of the
undersigned in the principal amount of Three Million Dollars ($3,000,000.00)
dated December 20, 1996 (the "Old Note"). All references to the Old Note in the
Loan Agreement or any other Loan Document shall be deemed to refer to this Note.
4
<PAGE>
Executed and delivered this 27th day of October, 1998.
BORROWER:
WHITE PINE SOFTWARE, INC.
/s/ Kenneth R. Shelton By /s/ Christine J. Cox, VP Finance
- ---------------------------------- -----------------------------------
Witness Signature and Title\Duly Authorized
5
<PAGE>
Exhibit 11.1
Statement re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------------------------------
October 2, October 3, October 2, October 3,
1998 1997 1998 1997
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding.................. 10,223,672 9,168,921 9,621,000 9,107,338
------------------------------------------------------------------
Total shares......................................... 10,223,672 9,168,921 9,621,000 9,107,338
------------------------------------------------------------------
Net loss............................................. $(1,889,206) $(874,874) $(6,413,006) $(5,704,278)
------------------------------------------------------------------
------------------------------------------------------------------
Net loss per share:
------------------------------------------------------------------
------------------------------------------------------------------
Basic.............................. $ (0.18) $ (0.10) $ (0.67) $ (0.63)
------------------------------------------------------------------
------------------------------------------------------------------
Diluted............................ $ (0.18) $ (0.10) $ (0.67) $ (0.63)
------------------------------------------------------------------
------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001006591
<NAME> WHITE PINE SOFTWARE, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> OCT-02-1998
<EXCHANGE-RATE> 1
<CASH> 8,246,776
<SECURITIES> 0
<RECEIVABLES> 1,998,879
<ALLOWANCES> 163,402
<INVENTORY> 59,994
<CURRENT-ASSETS> 1,080,135
<PP&E> 5,081,142
<DEPRECIATION> 1,002,270
<TOTAL-ASSETS> 16,659,677
<CURRENT-LIABILITIES> 2,437,963
<BONDS> 0
102,632
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,659,677
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<INCOME-TAX> 5,306
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<NET-INCOME> (6,413,006)
<EPS-PRIMARY> (0.67)
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</TABLE>
