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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 1, 1999
|_| 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 |_|
The number of shares outstanding of the Registrant's common stock as of November
10, 1999 was 10,679,257.
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of October 1, 1999 and
December 31, 1998.................................................. 3
Condensed Consolidated Statements of Operations for the three and nine
months ended October 1, 1999 and October 2, 1998 ....................4
Condensed Consolidated Statements of Cash Flows for the nine
months ended October 1, 1999 and October 2, 1998.....................5
Notes to Condensed Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis or Plan of Operation.......... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 12
Item 6. Exhibits and Reports on Form 8-K.................................. 13
Signatures................................................................ 14
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WHITE PINE SOFTWARE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 1, DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,513 $ 6,421
Accounts receivable, net 2,616 2,122
Inventories 85 65
Prepaid expenses and other current assets 337 437
------- -------
Total current assets 6,551 9,045
Property and equipment, net 1,231 1,354
Third party licenses, net 628 934
Purchased Software, net 2,740 3,142
Trademark, net 891 951
Goodwill, net 258 437
Other long term assets 103 133
------- -------
Total assets $12,402 $15,996
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,303 $ 2,046
Deferred revenue 535 346
Current portion of long-term debt 10 27
------- -------
Total current liabilities 2,848 2,419
Long term debt, net of current portion -- 7
Other long term liabilities 600 1,155
Total stockholders' equity 8,954 12,415
------- -------
Total liabilities and stockholders' equity $12,402 $15,996
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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WHITE PINE SOFTWARE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- --------------------------
October 1, October 2, October 1, October 2,
1999 1998 1999 1998
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenue:
Software license fees $ 2,587 $ 1,761 $ 7,125 $ 5,034
Services and other 322 173 864 607
------------ ------------ ------------ -----------
Total revenue 2,909 1,934 7,989 5,641
Cost of revenue 552 373 1,689 1,093
------------ ------------ ------------ -----------
Gross profit 2,357 1,561 6,300 4,548
Operating expenses:
Sales and marketing 1,887 1,719 5,209 5,675
Research and development 1,100 1,244 3,373 3,855
General and administrative 533 590 1,562 1,860
------------ ------------ ------------ -----------
Total operating expenses 3,520 3,553 10,144 11,390
------------ ------------ ------------ -----------
Loss from operations (1,163) (1,992) (3,844) (6,842)
Other income (expense):
Interest income (expense) 32 132 142 489
Other, net (24) (29) (74) (55)
------------ ------------ ------------ -----------
8 103 68 434
Net loss before provision for income taxes (1,155) (1,889) (3,776) (6,408)
Provision for income taxes -- -- -- 5
------------ ------------ ------------ -----------
Net loss $ (1,155) $ (1,889) $ (3,776) $ (6,413)
------------ ------------ ------------ -----------
Net loss per share: Basic: $ (0.11) $ (0.18) $ (0.36) $ (0.67)
============ ============ ============ ===========
Diluted: $ (0.11) $ (0.18) $ (0.36) $ (0.67)
============ ============ ============ ===========
Basic and diluted weighted average
shares outstanding 10,654,947 10,223,672 10,570,482 9,621,000
============ ============ ============ ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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WHITE PINE SOFTWARE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------
OCTOBER 1, OCTOBER 2,
1999 1998
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(3,776) $ (6,413)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 329 414
Amortization of intangible assets 947 380
Provision for bad debt (16) 36
Changes in operating assets and liabilities:
Accounts receivable (475) 531
Inventories (19) 39
Prepaid expenses 83 284
Other assets 42 11
Accounts Payable 18 (26)
Accrued Expenses and other accrued liabilities (289) (342)
Deferred revenue 191 (40)
------- --------
Net cash used in operating activities (2,965) (5,126)
INVESTING ACTIVITIES
Purchase of property and equipment, net (217) (327)
Purchase of third-party licenses, net -- (216)
Purchase of Purchased Software -- (2,642)
------- --------
Net cash used in investing activities (217) (3,185)
FINANCING ACTIVITIES
Principal payments on long-term debt and third-party
licenses (23) (52)
Proceeds from common stock issued upon exercise of stock
options 204 57
Proceeds from common stock issued under Employee Stock
Purchase Plan 41 39
Market value of common stock issued under purchase of
intangible assets -- 1,828
------- --------
Net cash provided by financing activities 222 1,872
Currency translation effect on cash and cash equivalents 52 (18)
------- --------
Net decrease in cash and cash equivalents (2,908) (6,457)
Cash and cash equivalents at beginning of period 6,421 14,704
------- --------
Cash and cash equivalents at end of period $ 3,513 $ 8,247
======= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
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WHITE PINE SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 1, 1999
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
WHITE PINE DEVELOPS SOFTWARE SOLUTIONS THAT FACILITATE WORLDWIDE VIDEO AND
AUDIO COMMUNICATION AND DATA COLLABORATION ACROSS THE INTERNET AND OTHER
NETWORKS USING THE INTERNET PROTOCOL (IP). WHITE PINE'S CU-SEEME-Registered
Trademark- WEB PROVIDES THE INDUSTRY'S FIRST MULTIPOINT VIDEO INSTANT
MESSAGING OVER THE INTERNET. WHITE PINE'S CU-SEEME-Registered Trademark- PRO
AND MEETINGPOINT-TM- CREATE A CLIENT-SERVER SOLUTION THAT ALLOWS MULTIPLE
USERS TO PARTICIPATE SIMULTANEOUSLY IN CONFERENCES OVER THE INTERNET,
INTRANET AND EXTRANET CONNECTIONS. CLASSPOINT-TM- IS A MEETINGPOINT-TM-
ADD-ON THAT PROVIDES A COMPLETE SOLUTION FOR CORPORATE TRAINING AND DISTANCE
LEARNING. MEETINGPOINT, WHITE PINE'S FLAGSHIP PRODUCT, SUPPORTS MULTIPLE
PLATFORMS, INCLUDING WINDOWS 95/98, NT, SUN SOLARIS, AND RED HAT-Registered
Trademark-LINUX. BY DEVELOPING MULTIMEDIA CONFERENCING PRODUCTS THAT REQUIRE
NO PROPRIETARY HARDWARE, WHITE PINE IS ABLE TO OFFER MULTIMEDIA CONFERENCING
AT A SUBSTANTIALLY LOWER PRICE THAN VENDORS OF TRADITIONAL HARDWARE-BASED
SYSTEMS AND THEREBY ENCOURAGE BUSINESSES AND OTHERS TO ADOPT MULTIMEDIA
CONFERENCING AS A MASS COMMUNICATION MEDIUM.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of White Pine
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, consisting of cash on hand and investments in
high-grade commercial paper having maturities of three months or less when
purchased, totaled 3,089,000 and $5,432,000 at October 1, 1999 and December 31,
1998, 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
White Pine's revenue is derived from software license fees and fees for
services related to its software products, primarily software maintenance fees.
During fiscal 1997, White Pine recognized revenue in accordance with the
American Institute of Certified Public Accountants Statement of Position No.
91-1, "Software Revenue Recognition." Beginning in fiscal 1998, White Pine
recognized 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 White Pine remain outstanding and
collection of the related receivable is deemed probable by
management. An allowance for product returns is recorded by White
Pine 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.
- Software license fees, consulting fees and training fees that have
been prepaid or invoiced but that do not yet qualify for recognition
as
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revenue under White Pine's policy, and prepaid maintenance fees not
yet recognized as revenue, are reflected as deferred revenue.
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 TO DIFFER MATERIALLY FROM THOSE INDICATED BY THE FORWARD-LOOKING
STATEMENTS. THESE FACTORS INCLUDE (1) WHITE PINE'S NEED TO RAISE CAPITAL IN
FISCAL 1999, (2) INTENSE COMPETITION FROM MANY PARTICIPANTS IN THE GROUP
CONFERENCING INDUSTRY, (3) UNCERTAINTIES ASSOCIATED WITH WHITE PINE'S MARKETING
OF ITS MEETINGPOINT PRODUCTS, (4) FLUCTUATIONS IN WHITE PINE'S QUARTERLY REVENUE
AND OPERATING RESULTS, (5) RISKS FROM INTERNATIONAL OPERATIONS AND (6) CHANGING
ECONOMIC CONDITIONS.
RESULTS OF OPERATIONS
The following table sets forth line items from White Pine's statement of
operations as percentages of total revenue for the three and nine months ended
October 1, 1999 and October 2, 1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------- ----------------
October October October October
1, 1999 2, 1998 1, 1999 2, 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Software license fees 88.9% 91.0% 89.2% 89.2%
Services and other 11.1% 9.0% 10.8% 10.8%
----- ----- ----- -----
Total revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenue 19.0% 19.3% 21.1% 19.4%
----- ----- ----- -----
Gross profit 81.0% 80.7% 78.9% 80.6%
Operating expenses:
Sales and marketing 64.9% 88.9% 65.2% 100.6%
Research and development 37.8% 64.3% 42.2% 68.3%
General and administrative 18.3% 30.5% 19.6% 33.0%
----- ----- ----- -----
Total operating expenses 121.0% 183.7% 127.0% 201.9%
----- ----- ----- -----
Loss from operations -40.0% -103.0% -48.1% -121.3%
Other income (expense), net 0.3% 5.3% 0.8% 7.7%
----- ----- ----- -----
Net loss before provision for income taxes -39.7% -97.7% -47.3% -113.6%
Provision for income taxes 0.0% 0.0% 0.0% 0.1%
----- ----- ----- -----
Net loss -39.7% -97.7% -47.3% -113.7%
===== ===== ===== =====
</TABLE>
REVENUE. Total revenue increased by 50% to $2,909,000 in the three
months ended October 1, 1999 from $1,934,000 in the three months ended October
2, 1998. The growth was primarily due to a 100% increase in conferencing server
revenues, which grew to $1,718,000 in the three months ended October 1, 1999
from $857,000 in the corresponding quarter of the prior year. Total revenue
increased 42%, from $5,641,000 to $7,989,000 in the nine month periods ended
October 2, 1998 and October 1, 1999, respectively. For the nine month periods
ended October 2, 1998 and October 1, 1999,
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conferencing server revenues increased 83% from $2,078,000 to $3,799,000,
respectively. Conferencing server revenue growth resulted from a combination of
i) price increases effective in the last week of the 1998 fiscal quarter ended
October 2, 1998, ii) sales of MeetingPoint 4.0 and its associated add-ons,
Continuous Presence, Streaming Integration, and ClassPoint, all of which began
shipping in the second quarter of 1999, and iii) increased sales of the
MeetingPoint server. Continuous Presence enables non-White Pine conferencing
clients to display four video feeds where they previously viewed one. Streaming
media integration enables a real-time videoconference to be broadcast to a large
audience of nonparticipants.
Conferencing client revenues increased 25% in the three months ended
October 1, 1999, to $785,000 from $627,000 in the comparable quarter of the
prior year. For the nine months ended October 2, 1998 and October 1, 1999,
conferencing client revenues increased 29%, from $2,031,000 to $2,625,000.
Conferencing client revenue growth was predominantly due to the release of White
Pine's most recent version of its CU-SeeMe client, CU-SeeMe Pro, which began
shipping in March 1999. The release of CU-SeeMe Pro also increased sales over
White Pine's website, growing 67% year over year from $712,000 in the nine
months ended October 2, 1998 to $1,191,000 in the nine months ended October 1,
1999.
White Pine is experiencing relatively lengthy, two-step sales cycles
for its MeetingPoint 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 second step extends 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.
White Pine's legacy connectivity product revenues have continued to
decline, experiencing a sharp drop in the quarter ended October 1, 1999 as a
result of purchasing delays associated with customer Y2K budgets. Legacy
connectivity revenue decreased by 31% to $300,000 in the quarter ended October
1, 1999 from $434,000 in the quarter ended October 2, 1998. The percentage of
total revenue represented by revenue from legacy connectivity products decreased
to 10% in the quarter ended October 1, 1999 from 22% in the quarter ended
October 2, 1998. For the nine months ended October 1, 1999, legacy connectivity
revenue declined 7% to $1,495,000 or 19% of total revenue from $1,613,000 or 29%
in the corresponding period of the prior year.
White Pine continues to invest minimally in the legacy connectivity
products, but believes that White Pine is no longer dependent on the revenue
streams generated by these product lines. There can be no assurance, however,
that White Pine will continue to be successful in generating server revenue in
an amount sufficient to offset declines in revenue from its legacy connectivity
products, or at all. The actual amount of revenue generated by White Pine's
server products may vary significantly depending on a number of factors,
including the unproven market status and acceptability of the products and
significant and increasing competition for those products.
COST OF REVENUE. Cost of revenue consists principally of royalties and
associated amortization of paid license fees relating to third-party software
included in White Pine's products, and costs of product media, manuals,
packaging materials, product localization for international markets, duplication
and shipping. Cost of revenue was 19% of total revenue in the quarter ended
October 1, 1999 and the quarter ended October 2, 1998. For the nine months ended
October 1, 1999, cost of revenue increased to 21% from 19% in the corresponding
period of the prior year. The increase in cost was attributable to the higher
volume of camera bundles which carry a higher cost than software-only products.
The cost of revenue is expected to be lower in the future as the result of
significantly lower royalty payments to a third party for their T.120
technology.
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
increased by 10% to $1,887,000 in the quarter ended October 1, 1999 from
$1,719,000 in the respective period in the prior year. For the nine months ended
October 1, 1999, sales and marketing expense declined 8% to $5,209,000 from
$5,675,000 in the respective period of the prior year. The increase in sales and
marketing expense in the third quarter was driven primarily by increased trade
show activity, marketing programs, and commission expense on higher sales
volume.
RESEARCH AND DEVELOPMENT. Research and development expense consists
primarily of costs of personnel and equipment. Research and development expense
decreased by 12% to $1,100,000 in the quarter ended October 1, 1999, from
$1,244,000 in the comparable period in the previous year. For the nine months
ended October 1, 1999, research and
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development expense declined 13% to $3,373,000 from $3,855,000 from the
comparable period in the prior year. The quarter-to-quarter decline was
primarily due to the reduction of contractors. The year-to-year decline was
principally attributable to lower headcount, contractors, and associated
expenses in the 1999 period. Research and development headcount increased in the
three months ended October 1, 1999; total research and development headcount was
41, as compared to 40 on October 2, 1998.
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
decreased by 10% to $533,000 from $590,000 and by 16% to $1,562,000 from
$1,860,000 in the three and nine month periods ended October 1, 1999 and October
2, 1998, respectively. The year-over-year declines were primarily due to reduced
telephone and communications expense, reduced rent, and lower supplies and
freight expenses, all reflective of cost control measures in effect throughout
1999.
PROVISION FOR INCOME TAXES. White Pine's provision for income taxes
consists of federal alternative minimum taxes and state and foreign income
taxes. White Pine made no provision for income taxes for the three and nine
months ended October 1, 1999 and October 2, 1998 as the result of White Pine's
net losses incurred during those periods and White Pine's expectation that it
will incur a net loss for the fiscal year ending December 31, 1999. White Pine
expects that its effective tax rate for the foreseeable future will be lower
than the combined federal and state statutory rate primarily as a result of the
realization of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
White Pine used cash of $489,000 in the three months ended October 1,
1999, as compared with $2,835,000 cash used in the three months ended October 2,
1998. Cash used in the three months ended October 1, 1999 was comprised largely
of the net loss of $1,155,000, offset in large part by the noncash impact of
depreciation and amortization of $506,000, and a reduction in accounts
receivable of $157,000. This compares with $2,835,000 of cash used in the same
quarter of the prior year, consisting of $1,889,000 in net loss, approximately
$700,000 in cash paid out in conjunction with the Labtam asset purchase, and
$216,000 in third party software license purchases.
Cash used in the nine months ended October 1, 1999 was $2,908,000,
compared with $6,457,000 in the comparable quarter of the prior year. The
$2,908,000 was comprised primarily of the net loss of $3,776,000 and an increase
in accounts receivable of $475,000, offset in part by the noncash impact of
depreciation and amortization in the amount of $1,276,000. Cash used in the nine
months ended October 2, 1998 consisted of the net loss of $6,413,000,
approximately $700,000 in cash paid out in conjunction with the Labtam asset
purchase, $543,000 in purchases of property, equipment, and third party software
licenses, offset in part by the noncash effect of depreciation, amortization,
and provision for bad debt of $830,000, and an increase in prepaid expenses of
$284,000.
On March 31, 1999, White Pine terminated its commercial loan agreement
with Fleet Bank-NH, which had provided for a $1,000,000 revolving line of
credit. White Pine maintains a separate term loan with Fleet Bank-NH that had a
balance of approximately $10,000 at October 1, 1999.
At October 1, 1999, White Pine had cash and cash equivalents of
$3,513,000 and working capital of $3,703,000. White Pine believes that its
current cash and cash equivalents and funds generated from operations (if any)
will be sufficient to fund White Pine's operations and capital expenditures
through fiscal 1999. Thereafter, White Pine'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.
White Pine expects that it will need to raise capital in fiscal 1999,
either through a private or public offering of debt or equity or as part of a
strategic partnership or joint venture. White Pine continues to experience a
negative cash flow each quarter. No assurance can be given that financing will
be available on acceptable terms or at all. If White Pine is unable to raise
funds, it may be unable to support its projected operations and may be required
to defer, for a period of time or indefinitely, its research and development
activities or its continued roll-out of new products and product versions. White
Pine has effected two focused personnel reductions during the past two fiscal
years in order to control costs, and it may be required to effect further
reductions if it is unsuccessful in raising additional capital during fiscal
1999. White Pine's capital requirements may vary materially from those it now
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anticipates depending on a number of factors, including:
- the level of its research and development activities;
- the rate of market acceptance of its software offerings; and
- the success of its sales, marketing and distribution strategy.
If White Pine does not meet its goals with respect to revenue or if its
costs are higher than anticipated, substantial additional funds may be required.
YEAR 2000 COMPLIANCE
White Pine has formed a Year 2000 readiness team to evaluate all of its
systems, including its information technology systems. White Pine's internal
team has compiled a list of all computer applications and infrastructure to
determine Year 2000 compliance. White Pine has identified and tested its seven
mission-critical software programs and has determined those systems to be Year
2000 compliant. These software programs represent White Pine's mail server, the
web server (electronic storefront), ftp server, the joint support/customer
service/sales system, the accounting and manufacturing system, the source code
monitoring system, and credit card authentication system. White Pine has
received Year 2000 readiness statements from a majority of its vendors. These
vendors will be required to address compliance issues and to ensure these issues
are resolved in a timely manner. In the event that White Pine's vendors are not
fully year 2000 compliant prior to December 31, 1999, White Pine could
experience disruption and delays that could have a material adverse impact on
operations. White Pine has developed contingency plans to help alleviate
potential problems resulting from vendor Year 2000 readiness issues.
In addition, White Pine has tested its multimedia conferencing and legacy
connectivity products for Year 2000 compliance. It has determined that its
conferencing products and most of its connectivity products are Year 2000
compliant. A few older connectivity products are not Year 2000 compliant. White
Pine has no plans to update the code on these older connectivity products and
will not market these products in 2000. White Pine has offered to sell the code
for these older products to customers in the installed base, in order to allow
the customers to choose to fix the code or to migrate to a new software package.
The revenue amount related to selling these older non-compliant connectivity
products is not material.
To date, White Pine has not engaged any outside support to assist in the
Year 2000 compliance process. Its out-of-pocket expenses for this process have
totaled less than $25,000 to date and have related principally to the purchase
of testing equipment and software. White Pine expects that resources and future
out-of-pocket expenses will not exceed an additional $25,000.
INFLATION
Although certain of White Pine's expenses increase with general
inflation in the economy, inflation has not had a material impact on White
Pine's financial condition or results of operations to date.
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RECENT ACCOUNTING PRONOUNCEMENTS
White Pine adopted Statement of Financial Accounting Standards No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("SFAS
131"), in fiscal 1998. SFAS 131 establishes standards for reporting information
regarding operating segments in annual financial statements and requires
selected information for those segments to be presented in interim financial
reports issued to stockholders. SFAS 131 also establishes standards for related
disclosures about products and services and geographic areas. Operating segments
are identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision making group, in making decisions how to allocate
resources and assess performance. White Pine's chief decision maker, as defined
under SFAS 131, is Killko Caballero, White Pine's Chief Executive Officer and
President. To date, White Pine has viewed its operations as principally one
segment, software sales and associated services. As a result, the financial
information disclosed in White Pine's consolidated financial statements
materially represents all of the financial information related to White Pine's
principal operating segment.
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"), 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 133 is effective for fiscal
years beginning after June 15, 2000. The adoption of SFAS 133 is not expected to
have a material impact on the financial position or results of operations of
White Pine.
Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE, requires companies to capitalize
qualifying computer software costs that are incurred during the application
development stage and amortize them over the estimated useful life of the
software. Statement of Position 98-1 is effective for White Pine as of January
1, 1999. The adoption of Statement of Position 98-1 has not had a material
impact on the financial position or results of operations of White Pine.
Statement of Position 98-4, DEFERRRAL OF THE EFFECTIVE DATE OF A PROVISION
OF SOP 97-2, SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO CERTAIN TRANSACTIONS,
modifies certain provisions of Statement of Position 97-2. White Pine's
accounting policy on software revenue recognition currently is in compliance
with Statement of Position 97-2, as amended by Statement of Position 98-4, and
adoption of this Statement of Position, as currently issued, has not had a
material impact on the financial position or results of operations of White
Pine.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
White Pine is a defendant in two lawsuits pending in New York federal
court (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 that are alleged to have been defectively designed. The
keyboards were supplied, and possibly designed and manufactured, by Ontel. The
assets of Ontel were purchased in 1982 by Visual Technology, a predecessor of
White Pine. The RSI Suits, which seek money damages, were brought by employees
of New York Telephone, which purchased the keyboards from Lockheed Electronics.
One or more of Visual Technology, Ontel, Lockheed Electronics and Key Tronics, a
subcontractor for certain of the keyboards, are named as co-defendants in a
number of suits, including the RSI Suits. Neither of the RSI Suits has reached
trial.
White Pine has established a reserve for legal fees and losses that could
arise from the RSI Suits and a number of similar actions against White Pine. The
amount of this reserve is based upon White Pine's belief that (1) the RSI Suits
may be covered by product liability insurance, (2) White Pine is contractually
indemnified by Lockheed Electronics and Key Tronics against all or a portion of
the damages to which White Pine may be subject and (3) White Pine has defenses
to substantially all of the claims under the RSI Suits. White Pine reduced this
reserve from $291,000 to $51,000 as of December 31, 1998, in recognition of the
fact that four similar lawsuits had been resolved at no expense to White Pine.
Although White Pine believes that its reserve for the RSI Suits is adequate,
there can be no assurance that White Pine's liabilities under the RSI Suits will
not substantially exceed the reserve.
From time to time, White Pine has received and may receive in the
future notice of claims of infringement of other parties' proprietary rights.
Although White Pine 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 White Pine
or that any infringement claims will not be successful.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Description
11.1 Statement re computation of earnings per share
27.1 Financial Data Schedule for fiscal quarter ended October 1,
1999
(b) Reports on Form 8-K
None.
13
<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 15, 1999.
WHITE PINE SOFTWARE, INC.
By: /s/ KILLKO A. CABALLERO
-----------------------------
Killko A. Caballero
Chief Executive Officer and
President (Principal Executive
Officer)
By: /s/ CHRISTINE J. COX
-----------------------------
Christine J. Cox
Chief Financial Officer and
Vice President - Finance
(Principal Financial and
Accounting Officer)
14
<PAGE>
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11.1
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ---------------------------
October 1, October 2, October 1, October 2,
1999 1998 1999 1998
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 10,654,947 10,223,672 10,570,482 9,621,000
------------ ------------ ------------ -----------
Total shares 10,654,947 10,223,672 10,570,482 9,621,000
------------ ------------ ------------ -----------
Net Loss $ (1,155,498) $ (1,889,206) $ (3,776,212) $(6,413,006)
============ ============ ============ ===========
Net Loss per share: Basic $ (0.11) $ (0.18) $ (0.36) $ (0.67)
============ ============ ============ ===========
Diluted $ (0.11) $ (0.18) $ (0.36) $ (0.67)
============ ============ ============ ===========
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> OCT-01-1999
<CASH> 3,513,011
<SECURITIES> 0
<RECEIVABLES> 2,744,446
<ALLOWANCES> 128,195
<INVENTORY> 84,541
<CURRENT-ASSETS> 336,741
<PP&E> 2,516,512
<DEPRECIATION> (1,285,173)
<TOTAL-ASSETS> 12,402,426
<CURRENT-LIABILITIES> 2,848,134
<BONDS> 0
0
0
<COMMON> 106,677
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,402,426
<SALES> 0
<TOTAL-REVENUES> 7,989,026
<CGS> 0
<TOTAL-COSTS> 1,688,639
<OTHER-EXPENSES> 10,144,899
<LOSS-PROVISION> (15,721)
<INTEREST-EXPENSE> 2,405
<INCOME-PRETAX> (3,776,212)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,776,212)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,776,212)
<EPS-BASIC> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
