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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 July 2, 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 August
11, 1999 was 10,654,343.
Transitional Small Business Disclosure Format (check one):
Yes /_/ No /X/
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of July 2, 1999 and
December 31, 1998.................................................. 3
Condensed Consolidated Statements of Income for the three and six
months ended July 2, 1999 and July 3, 1998 ........................ 4
Condensed Consolidated Statements of Cash Flows for the six
months ended July 2, 1999 and July 3, 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
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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JULY 2, DECEMBER 31,
1999 1998
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ASSETS
Current assets:
Cash and cash equivalents $ 4,002 $ 6,421
Accounts receivable, net 2,773 2,122
Inventories 89 65
Prepaid expenses and other current assets 297 437
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Total current assets 7,161 9,045
Property and equipment, net 1,275 1,354
Third party licenses, net 727 934
Purchased Software, net 2,947 3,142
Trademark, net 911 951
Goodwill, net 318 437
Other long term assets 103 133
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Total assets $13,442 $15,996
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,264 $ 2,046
Deferred revenue 504 346
Current portion of long-term debt 25 11
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Total current liabilities 2,793 2,403
Long term debt, net of current portion 2 23
Other long term liabilities 600 1,155
Total stockholders' equity 10,047 12,415
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Total liabilities and stockholders' equity $13,442 $15,996
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See Notes to Condensed Consolidated Financial Statements.
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WHITE PINE SOFTWARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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Three Months Ended Six Months Ended
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July 2, July 3, July 2, July 3,
1999 1998 1999 1998
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Revenue:
Software license fees $ 2,352 $ 1,479 $ 4,538 $ 3,273
Services and other 269 222 542 434
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Total revenue 2,621 1,701 5,080 3,707
Cost of revenue 623 307 1,137 720
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Gross profit 1,998 1,394 3,943 2,987
Operating expenses:
Sales and marketing 1,724 2,133 3,322 3,956
Research and development 1,096 1,327 2,273 2,611
General and administrative 514 699 1,029 1,270
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Total operating expenses 3,334 4,159 6,624 7,837
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Loss from operations (1,336) (2,765) (2,681) (4,850)
Other income (expense):
Interest income (expense) 41 167 110 357
Other, net (22) (16) (50) (26)
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19 151 60 331
Net loss before provision for income taxes (1,317) (2,614) (2,621) (4,519)
Provision for income taxes -- -- -- 5
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Net loss $ (1,317) $ (2,614) $ (2,621) $ (4,524)
------------ ------------ ------------ ------------
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Net loss per share: Basic: $ (0.12) $ (0.28) $ (0.25) $ (0.49)
------------ ------------ ------------ ------------
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Diluted: $ (0.12) $ (0.28) $ (0.25) $ (0.49)
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Weighted average number of common
And common equivalent shares outstanding 10,577,400 9,339,527 10,528,480 9,322,940
------------ ------------ ------------ ------------
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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)
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SIX MONTHS ENDED
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JULY 2, 1999 JULY 3, 1998
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OPERATING ACTIVITIES
Net loss $ (2,621) $ (4,524)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 226 271
Amortization of intangible assets 561 242
Changes in operating assets and liabilities:
Accounts receivable (648) 776
Inventories (24) 4
Prepaid expenses 105 364
Other assets 58 (11)
Accounts Payable 4 (66)
Accrued Expenses and other accrued liabilities (305) (420)
Deferred revenue 160 (46)
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Net cash used in operating activities (2,484) (3,410)
INVESTING ACTIVITIES
Purchase of property and equipment, net (162) (285)
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Net cash used in investing activities (162) (285)
FINANCING ACTIVITIES
Principal payments on long-term debt and third-party licenses
(5) (5)
Proceeds from common stock issued upon exercise of stock options
144 57
Proceeds from common stock issued under Employee Stock Purchase Plan
41 39
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Net cash provided by financing activities 180 91
Currency translation effect on cash and cash equivalents 47 (18)
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Net decrease in cash and cash equivalents (2,419) (3,622)
Cash and cash equivalents at beginning of period 6,421 14,704
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Cash and cash equivalents at end of period $ 4,002 $ 11,082
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See Notes to Condensed Consolidated Financial Statements.
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WHITE PINE SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 2, 1999
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
White Pine develops, markets and supports multiplatform desktop
multimedia software that facilitates worldwide video and audio communication and
data collaboration across the Internet, intranets, extranets and other networks
using the Internet protocol.
White Pine's group conferencing software products, CU-SeeMe and
MeetingPoint, create a client-server solution that allows users to participate
in real-time, multipoint, multimedia conferences from the users' desktop
computers, using existing Internet, intranet and extranet connections. The
Company's ClassPoint product is a MeetingPoint add-on providing an additional
layer of features and functionality related to distance learning and training
environments. 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 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 $3,156,000
and $5,432,000 at July 2, 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 AND CLASSPOINT 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 six months ended
July 2, 1999 and July 3, 1998.
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Three Months Ended Six Months Ended
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July 2, July 3, July 2, July 3,
1999 1998 1999 1998
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Revenue:
Software license fees 89.7% 86.9% 89.3% 88.3%
Services and other 10.3% 13.1% 10.7% 11.7%
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Total revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenue 23.8% 18.1% 22.4% 19.4%
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Gross profit 76.2% 81.9% 77.6% 80.6%
Operating expenses:
Sales and marketing 65.8% 125.4% 65.4% 106.7%
Research and development 41.8% 78.0% 44.8% 70.4%
General and administrative 19.6% 41.1% 20.2% 34.3%
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Total operating expenses 127.2% 244.5% 130.4% 211.4%
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Loss from operations (51.0%) (162.6%) (52.8%) (130.8%)
Other income (expense), net 0.7% 8.9% 1.2% 8.9%
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Net loss before provision for income taxes (50.3%) (153.7%) (51.6%) (121.9%)
Provision for income taxes 0.0% 0.0% 0.0% 0.1%
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Net loss (50.3%) (153.7%) (51.6%) (122.0%)
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REVENUE. Total revenue increased by 54% to $2,621,000 in the three
months ended July 2, 1999 from $1,701,000 in the three months ended July 3,
1998. The increase resulted from a 50% increase in conferencing revenues, and a
45% increase in legacy connectivity revenues. The server portion of conferencing
revenue grew 62% year-over-year, and the client portion of conferencing revenue
grew 37% year-over-year. Conferencing revenue comprised 77% of total revenue at
July 2, 1999 in contrast to 79% at July 3, 1998.
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For the six months ended July 2, 1999, total revenue increased 37% to
$5,080,000 as compared to $3,707,000 in the same period in the prior year.
Conferencing revenue increased 49% and connectivity revenue increased 1% versus
the comparable period in the prior year. The server portion of conferencing
revenue increased 70% as compared with the six months ended July 3, 1998, and
the client portion increased 31% compared with the six months ended July 3,
1998. Conferencing server revenue represented 41% of total revenue in the six
months ended July 2, 1999, compared with 33% in the comparable period of the
prior year.
The revenue growth in CU-SeeMe, White Pine's conferencing client
software, was primarily due to the introduction of White Pine's latest
conferencing client offering, CU-SeeMe Pro, which began shipping in late March
1999. Conferencing client revenue represented 34% of total revenue in the
quarter ended July 2, 1999 compared to 38% in the comparable quarter of prior
year. For the six months ended July 2, 1999, conferencing client revenue
represented 36% compared with 38% in the comparable period of the prior year.
The increase in server revenue in the quarter was largely attributable
to shipment of MeetingPoint 4.0, which began shipping in June 1999. In
conjunction with the MeetingPoint 4.0 release, White Pine introduced the new
features of continuous presence and streaming media integration, offered as
add-ons to MeetingPoint. 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.
White Pine 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 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 or
deployment of ClassPoint as an operational long-distance learning program.
White Pine's legacy connectivity product revenue is expected to decline
gradually as fewer resources are focused on these older product lines. Legacy
connectivity revenue increased by 45% to $660,000 in the quarter ended July 2,
1999 from $455,000 in the quarter ended July 3, 1998. This increase was
primarily due to product demand based on customers' Y2K requirements and White
Pine's ability to provide Y2K compliant products. White Pine anticipates that
this growth is short-term in nature and will subside as customers satisfy their
Y2K requirements in the next few months. The percentage of total revenue
represented by revenue from legacy connectivity products decreased to 25% in the
quarter ended July 2, 1999 from 27% in the quarter ended July 3, 1998. For the
six months ended July 2, 1999, legacy connectivity revenue declined to 24% of
total revenue from 32% in the corresponding period of the prior year.
White Pine believes that continued but minimal additional investment in
the legacy connectivity products in future quarters 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, however, that White Pine will continue to be successful in generating
server revenue in an amount sufficient to offset declines in revenue from its
conferencing client and 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 increased to 24% of total revenue in the quarter
ended July 2, 1999 from 18% in the quarter ended July 3, 1998. For the six
months ended July 2, 1999, cost of revenue increased to 22% from 19% in the
corresponding period of the prior year. The increase in cost was attributable to
a combination of 1) higher volume of camera bundles which carry a higher cost
than software-only products, and 2) lower margins on MeetingPoint, due largely
to the overlap of amortization of White Pine's T.120 whiteboarding technology
with royalty payments to a third party for their T.120 technology. Both were
shipped within the quarter.
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 19% to
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$1,724,000 in the quarter ended July 2, 1999 from $2,133,000 in the respective
period in the prior year. For the six months ended July 2, 1999, sales and
marketing expense declined 16% to $3,322,000 from $3,956,000 in the respective
period of the prior year. The decreases were predominantly due to a significant
reduction in marketing programs and travel and living expense. White Pine
expects sales and marketing expense to increase slightly in the third and fourth
fiscal quarters, driven primarily by increased 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 17% to $1,096,000 in the quarter ended July 2, 1999, from
$1,327,000 in the comparable period in the previous year. For the six months
ended July 2, 1999, research and development expense declined 13% to $2,273,000
from $2,611,000 from the comparable period in the prior year. The decreases were
principally attributable to lower headcount and associated expenses in the 1999
periods. Research and development headcount at July 2, 1999 was 41, as compared
to 45 on July 3, 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 27% to $514,000 from $699,000 and by 19% to $1,029,000 from
$1,270,000 in the three and six month periods ended July 2, 1999 and July 3,
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 six
months ended July 2, 1999 and July 3, 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 $572,000 in the three months ended July 2,
1999, as compared with $1,987,000 cash used in the three months ended July 3,
1998. Cash used in the three months ended July 2, 1999 was comprised largely of
the net loss of $1,317,000, offset in large part by the noncash impact of
depreciation and amortization of $396,000, deferred revenue of $167,000, and
proceeds from sales of common stock in the amount of $160,000. This compares
with $1,987,000 of cash used in the same quarter of the prior year, consisting
of $2,614,000 in net loss offset in part by depreciation and amortization of
$263,000, reduction in accounts receivable of $203,000, and decrease in prepaid
expenses of $129,000.
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
and a separate term loan in the initial principal amount of $53,000. The Company
expects to initiate a new line of credit with a new lending bank during the
second half of fiscal 1999.
At July 2, 1999, White Pine had cash and cash equivalents of $4,002,000
and working capital of $4,368,000. White Pine believes that its current cash and
cash equivalents and funds generated from operations (if any) will be sufficient
to fund the Company'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
significant 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 is developing contingency plans to help alleviate
potential problems resulting from vendor Year 2000 readiness issues. These plans
are scheduled to be completed by the end of the third fiscal quarter of 1999.
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 beginning in
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 98-9, MODIFICATION 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 98-9, 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
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
11.1 Statement re computation of earnings per share
27.1 Financial Data Schedule for fiscal quarter ended July 2,
1999
</TABLE>
(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 August 16, 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 Six Months Ended
---------------------------- ----------------------------
July 2, 1999 July 3, 1998 July 2, 1999 July 3, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 10,577,400 9,339,527 10,528,480 9,322,940
------------ ------------ ------------ ------------
Total shares 10,577,400 9,339,527 10,528,480 9,322,940
------------ ------------ ------------ ------------
Net Loss $ (1,316,858) $ (2,613,562) $ (2,620,714) $ (4,523,800)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net Loss per share: Basic $ (0.12) $ (0.28) $ (0.25) $ (0.49)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted $ (0.12) $ (0.28) $ (0.25) $ (0.49)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001006591
<NAME> WHITE PINE SOFTWARE, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUL-02-1999
<EXCHANGE-RATE> 1
<CASH> 4,002,155
<SECURITIES> 0
<RECEIVABLES> 2,907,681
<ALLOWANCES> 134,343
<INVENTORY> 89,198
<CURRENT-ASSETS> 296,234
<PP&E> 2,440,860
<DEPRECIATION> (1,165,671)
<TOTAL-ASSETS> 13,442,188
<CURRENT-LIABILITIES> 2,792,853
<BONDS> 0
0
0
<COMMON> 106,393
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,442,188
<SALES> 0
<TOTAL-REVENUES> 5,079,504
<CGS> 0
<TOTAL-COSTS> 1,136,479
<OTHER-EXPENSES> 6,624,381
<LOSS-PROVISION> (9,878)
<INTEREST-EXPENSE> 828
<INCOME-PRETAX> (2,620,714)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,620,714)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,620,714)
<EPS-BASIC> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
