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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to .
Commission File Number 0-22521
NETSPEAK CORPORATION
(Exact Name of Registrant
as Specified in Its Charter)
Florida 65-0627616
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
902 Clint Moore Road, Suite 104
Boca Raton, Florida 33487
561-998-8700
(Address, including zip code, and telephone
number (including area code) of registrant's
principal executive office)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the last 90 days. [X] YES [ ] NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares Outstanding at April 30, 1998
- ---------------------------- ------------------------------------
Common Stock, $.01 par value 12,332,997
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<PAGE>
NETSPEAK CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Page No.
--------
Condensed Consolidated Balance Sheets as of December 31, 1997
and March 31, 1998......................................................3
Condensed Consolidated Statements of Operations for the three
months ended March 31, 1997 and 1998....................................4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1998..............................5
Notes to Condensed Consolidated Financial Statements.......................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................9
PART II - OTHER INFORMATION
Other Information.........................................................14
Signatures................................................................15
2
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NETSPEAK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
-------------------- --------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,718 $ 43,027
Short-term investments 14,336 10,323
Accounts receivable, net 898 1,894
Prepaid and other current assets 521 723
Deferred tax asset 33 18
----------------- ------------------
Total current assets 20,506 55,985
Property and equipment, net 2,178 2,868
Other assets 517 430
----------------- ------------------
$ 23,201 $ 59,283
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 676 $ 1,143
Accrued compensation 687 735
Other accrued expenses 474 679
Unearned revenue 256 121
----------------- ------------------
Total current liabilities 2,093 2,678
----------------- ------------------
Commitments and contingencies - -
Shareholders' equity:
Preferred stock: 1,000,000 shares of $.01 par value
authorized; no shares issued or outstanding
Common stock: 25,000,000 shares of $.01 par value
authorized; 10,554,721 and 12,289,375 issued
and outstanding at December 31, 1997 and
March 31, 1998, respectively 106 123
Additional paid-in capital 29,590 67,282
Unrealized gain on investments - 23
Accumulated deficit (8,588) (10,823)
----------------- ------------------
Total shareholders' equity 21,108 56,605
----------------- ------------------
$ 23,201 $ 59,283
================= ==================
</TABLE>
See accompanying notes to consolidated financial statements.
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NETSPEAK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
Three months ended
March 31,
-----------------------
1997 1998
---------- ----------
Net revenues $ 904 $ 2,413
Operating expenses:
Cost of revenues 44 667
Research and development 1,147 1,833
Sales and marketing 399 1,536
General and administrative 312 716
--------- ----------
Total operating expenses 1,902 4,752
Loss from operations (998) (2,339)
Interest and other income 57 502
Other charges - (383)
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Loss before income taxes (941) (2,220)
Income taxes 44 15
--------- ----------
Net loss $ (985) $ (2,235)
========= ==========
Net loss per share (basic and diluted) $ (0.13) $ (0.19)
========= ==========
Weighted-average shares outstanding 7,699 11,548
========= ==========
See accompanying noted to condensed consolidated financial statements.
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NETSPEAK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1997 1998
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (985) $ (2,235)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation 112 247
Deferred taxes (1) 15
Changes in assets and liabilities:
Accounts receivable, net 103 (996)
Prepaid and other current assets (53) (202)
Other assets (43) 87
Accounts payable 112 467
Accrued compensation 304 48
Other accrued expenses 98 205
Unearned revenue (646) (135)
---------- ----------
Net cash used in operating activities (999) (2,499)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (377) (937)
Purchase of short-term investments - (2,335)
Maturities and sales of short-term investments - 6,371
---------- ----------
Net cash provided by (used in) investing activities (377) 3,099
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock - 36,753
Proceeds from exercises of employee stock options - 956
Deferred offering costs paid (49) -
---------- ----------
Net cash provided by (used in) financing activities (49) 37,709
---------- ----------
Net increase (decrease) in cash and cash equivalents (1,425) 38,309
Cash and cash equivalents, beginning of period 6,295 4,718
---------- ----------
Cash and cash equivalents, end of period $ 4,870 $ 43,027
========== ==========
SUPPLEMENTAL INFORMATION:
Cash paid for income taxes $ 30 $ -
---------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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NETSPEAK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The interim condensed consolidated financial statements as of March 31,
1998 and for the three months ended March 31, 1997 and 1998 are unaudited. Such
interim condensed consolidated financial statements have been prepared on the
same basis as the audited consolidated financial statements and, in the opinion
of management, reflect all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial position, results
of operations and cash flows for the interim periods presented. The results of
operations for the interim periods presented are not necessarily indicative of
the results to be expected for the full year. The interim consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto, contained in the Company's 1997 Form 10-K.
2. SALES OF COMMON STOCK
On January 5, 1998, the Company entered into joint development and
stock purchase agreements with Bay Networks, Inc. ("Bay Networks"). In
conjunction with the agreement, on February 3, 1998, the Company issued
1,334,171 shares of common stock to Bay Networks, raising $36,753,000, net of
offering costs.
On March 18, 1998, NetSpeak entered into a joint development and a
technology license agreement with Motorola, Inc. ("Motorola") which included a
$30 million multi-year minimum purchase commitment for the Company's products.
In conjunction with the agreement, Motorola announced a cash tender offer for
3.0 million shares of the Company's Common Stock at a price of $30.00 per share.
On April 22, 1998, Motorola consummated its tender offer, acquiring 2,686,470
shares of the Company's Common Stock, increasing its ownership to 31.7% of the
total outstanding common shares of the Company. Motorola also purchased 35,000
shares from two officers at the tender offer price, upon the consummation of the
tender offer.
3. NET LOSS PER SHARE
The Company computes net loss per share under Statement of Financial
Accounting Standards ("SFAS") No. 128 which requires a dual presentation of
basic and diluted earnings per share on the face of the income statement. Basic
earnings per share excludes dilution and is computed by dividing income or loss
attributable to common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were converted into common stock, but such securities or contracts
are excluded if their effects are anti-dilutive. The Company excluded stock
options and warrants to purchase 2,523,424 common shares from the
weighted-average number of shares outstanding calculation for the three months
ended March 31, 1998 as their effect was anti-dulitive.
4. COMMITMENTS AND CONTINGENCIES
The Company may, from time to time, be involved in certain legal
actions arising in the ordinary course of business. In the opinion of
management, the outcome of such actions known to date will not have a material
adverse effect on the Company's financial position or results of operations.
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Elk Industries has asserted, in a letter to the Company, just prior to
the November 1996 expiration of U.S. Patent No. 4,128,773, owned by Elk
Industries, that the Company's WebPhone client software product infringed the
now expired patent. The Company sought advice of counsel relating to the
infringement allegations, which Elk Industries has asserted against other
software concerns, and believes, based upon an opinion of counsel, the Company's
WebPhone client software product does not infringe the asserted patent.
Accordingly, the Company believes that this matter will not have a material
effect on its financial position and results of operations.
In May 1997, the Company received a letter from e-Net, Inc. ("e-Net")
alleging that the Company's WebPhone product infringes U.S. Patent No. 5,526,353
owned by e-Net. Although, there can be no assurance of the outcome of this
uncertainty, following an analysis of the subject patent and the WebPhone
product, management believes the allegations are without merit and that any
potential liability related to e-Net's allegations will not have a material
effect on the Company's financial position and results of operations.
At present, there are few laws or regulations that specifically address
access to or commerce on the Internet. The increasing popularity and use of the
Internet, however, enhance the risk that the governments of the United States
and other countries in which the Company sells or expects to sell its products
will seek to regulate computer telephony and the Internet with respect to, among
other things, user privacy, pricing and the characteristics and quality of
products and services. The Company is unable to predict the impact, if any, that
future legislation, legal decisions or regulations may have on its business,
financial condition or results of operations.
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year, consequently,
in the year 2000 such systems may be unable to accurately process certain
date-based information. The Company can potentially be affected by this issue in
two separate areas, through the internal computer applications on which it
relies as well as the software which it develops and sells. NetSpeak is in
process of reviewing all significant third party applications which it utilizes
and obtaining documentation from the manufacturers which certify Year 2000
compliance. The Company also is in process of examining the architecture of its
products, as well as documentation on the third party components which are
integrated into the Company's software products, and believes that its products
are Year 2000 compliant. The Company is also developing a test plan, for both
internal applications and software which the Company develops, to validate the
results of its initial review. Should the Company find any items which are not
Year 2000 compliant in the course of its testing, the Company will take the
necessary actions to correct the matter. The Company expects that its testing
procedures and any required Year 2000 compliance activities will be completed by
December 31, 1998. The Company does not anticipate that Year 2000 compliance
activities will have a material effect on the Company's business, financial
position or results of operations. However, there can be no assurance that the
Company's systems and products are Year 2000 compliant until the successful
completion of its testing procedures. Additionally, there can be no assurance
that the systems of other companies on which the Company relies will be Year
2000 compliant which could result in a material adverse effect on the Company.
5. RECENT ACCOUNTING PRONOUNCEMENT
The Company adopted American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP") 97-2, "Software Revenue Recognition," in
the first quarter of 1998. This SOP supersedes SOP 91-1, providing guidance as
to when revenue should be recognized and in what amounts for licensing, selling,
leasing or otherwise marketing computer software. The adoption of SOP 97-2 did
not have a material effect on the Company's financial position and results of
operations.
7
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6. COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." Total comprehensive income (loss) for the three months
ended March 31, 1998 and 1997, respectively, was $(2,212,000) consisting of net
loss and unrealized gain on investments, and $(985,000) consisting of net loss.
8
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NetSpeak Corporation ("NetSpeak" or the "Company") cautions readers
that certain important factors may affect the Company's actual results and could
cause such results to differ materially from any forward-looking statements
which may be deemed to have been made in this report or which are otherwise made
by or on behalf of the Company. For this purpose, any statements contained in
this report that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may", "will", "expect", believe", "anticipate", "intend",
"could", "would", "estimate", or "continue" or the negative other variations
thereof or comparable terminology are intended to identify forward-looking
statements. Factors which may affect the Company's results include, but are not
limited to, the Company's limited operating history, the need for ongoing
product development in an environment of rapidly changing technology, the
uncertainty of acceptance of the Company's products in the marketplace, the
uncertainty of the Internet and its use as a means for real-time voice and video
communications, the uncertainty of future governmental regulation, the highly
competitive nature of the industry and the Company's ability to compete
successfully, the Company's ability to successfully enter into new, and maintain
existing, strategic relationships, the Company's ability to develop a recurring
revenue stream, manage growth, obtain patent protection, obtain additional funds
and other risks discussed in this Report and in the Company's other filings with
the Securities and Exchange Commission.
INTRODUCTION
NetSpeak develops, markets, licenses and supports a suite of
intelligent software modules which provide business solutions for concurrent,
real-time interactive voice, video and data communications over packetized data
networks such as the Internet and Local Area Networks and Wide Area Networks.
NetSpeak's technologies allow organizations to build voice and video-enabled
communications networks, or to add these communications capabilities to their
existing packetized data networks.
The Company released its first product in February 1996 and, for
accounting purposes, emerged from the development stage during 1996. The Company
generates revenues from the sale of products, licenses and fees for services.
The Company's products are licensed primarily to service providers, including
telecommunications carriers, cable companies and other common carriers, business
enterprises, original equipment manufacturers, systems integrators, value-added
resellers and directly to individual client software end-users. Service revenues
consist of customer support, maintenance and engineering fees.
Product and license revenues are generally recognized upon shipment,
provided that there are no significant post-delivery obligations and that
payment is due within one year. If customer acceptance is required, revenues are
recognized upon customer acceptance. Customer support revenues are recognized
over the term of the support period, which is typically one year. Engineering
fees are recognized upon customer acceptance or over the period in which
services are provided if customer acceptance is not required. All research and
development costs to date have been expensed as incurred.
The Company has only a limited operating history upon which an
evaluation of the Company and its prospects can be based. As of March 31, 1998,
the Company had an accumulated net loss of $10.8 million. The limited operating
history of the Company makes its future results of operations difficult to
predict. The Company's operating results may fluctuate significantly in the
future as a result of a variety of factors such as the introduction of new
products or services by the Company or its competitors, the effectiveness of the
sales and marketing efforts of the Company's strategic partners of it products,
the amount and timing of capital expenditures and other costs relating to the
expansion of the Company's operations, the budgeting cycles of potential
customers, the timing in the deployment of the Company's
9
<PAGE>
products by customers, technical difficulties with respect to product
development or the use of products developed by the Company and general economic
conditions.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Net revenues for the three months ended March 31, 1998 were $2.4
million as compared to $904,000 for the three months ended March 31, 1997.
For the three months ended March 31, 1998, the Company's sales mix
primarily consisted of gateway systems and IP telephony network management
products, representing 81% of net revenues for the quarter as compared to 7% for
the comparable quarter in 1997. The majority of net revenues generated from
gateway systems represented the sale of fully integrated "turn-key" systems,
where the Company integrates third party computer hardware and software
components with its gateway software. Net revenues generated from IP telephony
network management products primarily consisted of software based solutions. The
increase in gateway system and IP telephony network management software revenues
was due to the additional commercial deployment by customers as well as the
addition of new and expanded customer trial evaluations. The Company's primary
customers for these products are equipment suppliers and service providers,
including traditional and next generation telephone companies as well as other
common carriers.
Net revenues from client software represented 6% and 45% of net
revenues for the three months ended March 31, 1998 and 1997, respectively.
Client software revenues for the three months ended March 31, 1998, were
primarily related to sales of the Company's WebPhone client software, while the
majority of client software revenues for the comparable period in 1997 were due
to a product license and distribution agreement with Creative Technology Ltd.
entered into in June 1996. The Company expects that revenues generated from
client software will continue to decrease as a percentage of revenues, and its
sales mix will continue to be concentrated in future periods on the sale of
gateway systems, IP telephony network management products and call center
systems.
The Company currently generates a significant percentage of its
revenues through a select number of its strategic partners. As a result, the
Company is highly dependent upon the sales and marketing activities by these
strategic partners for its products and systems. Although the Company is working
to diversify its customer base, the Company believes that its dependence on its
strategic partners will continue for the foreseeable future.
Cost of revenues for the three months ended March 31, 1998 was
$667,000, or 28% of net revenues, as compared to $44,000, or 5% of net revenues,
for the three months ended March 31, 1997. The increase in cost of revenues was
primarily due to the shift in the Company's sales mix towards the sale of fully
integrated "turn-key" gateway systems. The Company currently sells fully
integrated "turn-key" systems as a short-term means of expediting the
distribution of its technology as well as addressing customers' demands in the
marketplace. NetSpeak anticipates that sales of fully integrated systems will
continue to represent a significant portion of the Company's sales mix in the
near term, but depending on the mix between integrated and software based
products, cost of revenues as a percentage of net revenues may fluctuate from
the current period. However, the Company believes that cost of revenues will
decrease in the longer term as the Company expects that system integration will
increasingly be performed by its partners and, as a result, the Company
anticipates its sales mix will shift toward a larger percentage of
software-based solutions in the long term. Should the Company elect to
manufacture and sell certain specialized computer hardware components that it is
currently developing, cost of revenues may increase as a percentage of net
revenues.
10
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Research and development expenses for the three months ended March 31,
1998 were $1.8 million as compared to $1.1 million for the three months ended
March 31, 1997. The increase in research and development expenses were primarily
due to the expansion of the Company's research and development staff, resulting
in greater personnel costs and additional equipment depreciation expense. All
research and development costs have been expensed as incurred. The Company
intends to continue to significantly increase research and development expenses
in future periods to perform product enhancements and new product development in
order to establish and maintain a competitive advantage.
Sales and marketing expenses for the three months ended March 31, 1998
were $1.5 million as compared to $399,000 for the three months ended March 31,
1997. The increase in sales and marketing expenses was primarily due to the
expansion of the Company's sales and marketing staff and sales activities,
resulting in greater personnel costs and direct sales related expenses. The
Company intends to continue to intensify and expand its sales and marketing
activities and, as a result, expects sales and marketing expenses to
significantly increase in future periods.
General and administrative expenses for the three months ended March
31, 1998 were $716,000 as compared to $312,000 for the three months ended March
31, 1997. The increase in general and administrative expenses was due to the
expansion of the Company's corporate infrastructure primarily through the
addition of personnel and greater operating expenses as a result thereof. The
Company expects general and administrative expenses to increase in future
periods as it continues to expand its corporate infrastructure.
Interest and other income for the three months ended March 31, 1998 and
1997 was $502,000 and $57,000, respectively. The increase in interest income is
the result of interest earned on excess funds attributable to the net proceeds
from the Bay Networks, Inc. ("Bay Networks") investment completed in February
1998 as described below and the Company's initial public offering ("IPO") in May
1997.
Income taxes for the three months ended March 31, 1998 and 1997 were
$15,000 and $44,000, respectively. Such taxes were the result of income taxes
paid to the Singapore government related to license fees received pursuant to
agreements with Creative.
In connection with the expansion of its strategic partnership with
Motorola, Inc. ("Motorola") in March 1998, the Company entered into a joint
development and technology license agreement with Motorola which includes a
$30.0 million multi-year minimum purchase commitment for the Company's products.
Motorola also increased its equity ownership in the Company through a cash
tender offer, in which it purchased 2,686,470 shares of NetSpeak Common Stock at
$30.00 per share. Motorola also purchased 35,000 shares from two officers at the
same price, upon the consummation of the tender offer. These transactions were
completed in April 1998. The Company incurred $383,000 in other charges as a
result of the cash tender offer by Motorola. Such expenses were primarily the
result of professional fees incurred in connection with the tender offer.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently does not have any available lines of credit. The
Company has financed its operations through sales of equity securities. Prior to
completion of the IPO, the Company raised approximately $8.7 million, net of
offering costs, from private sales of securities. In February 1998, the Company
issued 1.3 million shares of Common Stock to Bay Networks in a private
transaction, raising $36.8 million, net of offering costs. As of March 31, 1998,
the Company had $53.4 million in cash, cash equivalents and short-term
investments.
11
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Net cash used in operating activities during the three months ended
March 31, 1998 and 1997 was $2.5 million and $1.0 million, respectively. Net
cash used in operating activities primarily related to the Company's continued
expansion of its research and development and sales and marketing efforts.
Net cash provided by investing activities during the three months ended
March 31, 1998 was $3.1 million. Net cash provided by investing activities
reflects $4.0 million in net sales of short-term investments which was
reinvested in cash equivalents and $937,000 primarily related to purchases of
computer equipment. Net cash used in investing activities during the three
months ended March 31, 1997 was $377,000 and primarily related to purchases of
equipment.
Net cash provided by financing activities for the three months ended
March 31, 1998 was $37.7 million which included the net proceeds of $36.8
million from the sale of 1.3 million shares of Common Stock to Bay Networks. The
Company also received proceeds of $956,000 from exercises of employee stock
options for 400,483 shares of common stock during the period. Net cash used in
financing activities during the three months ended March 31, 1997 was $49,000
and related to deferred offering costs paid prior to the consummation of the
IPO.
The Company has no material commitments other than those under office
and equipment leases. The Company expects to significantly increase its capital
expenditures in future periods as a result of its anticipated growth, primarily
through the purchase of computer-related equipment for use in research and
development activities. The Company anticipates that, based on its present plans
and assumptions, the current cash balances will be sufficient to enable it to
maintain its current and planned operations for a period of at least the next 12
months. If the Company's estimates or assumptions prove to be incorrect, the
Company may require additional capital. Additional funding, whether obtained
through public or private debt or equity financing, or from strategic alliances,
may not be available when needed or may not be available on terms acceptable to
the Company. Failure to secure needed additional financing, if and when needed,
may have a material adverse effect on the Company's business, financial
condition and results of operations.
RECENT ACCOUNTING PRONOUNCEMENT
The Company adopted American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP") 97-2, "Software Revenue Recognition," in
the first quarter of 1998. This SOP supersedes SOP 91-1, providing guidance as
to when revenue should be recognized and in what amounts for licensing, selling,
leasing or otherwise marketing computer software. The adoption of SOP 97-2 did
not have a material effect on the Company's financial position and results of
operations.
YEAR 2000 MATTERS
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year, consequently,
in the year 2000 such systems may be unable to accurately process certain
date-based information. The Company can potentially be affected by this issue in
two separate areas, through the internal computer applications on which it
relies as well as the software which it develops and sells. NetSpeak is in
process of reviewing all significant third party applications which it utilizes
and obtaining documentation from the manufacturers which certify Year 2000
compliance. The Company also is in process of examining the architecture of its
products, as well as documentation on the third party components which are
integrated into the Company's software products, and believes that its products
are Year 2000 compliant. The Company is also developing a test plan, for both
internal applications and software which the Company develops, to validate the
results of its initial review. Should the Company find any items which are not
Year 2000 compliant in the course of its testing, the Company will take the
necessary actions to correct the matter. The Company expects that its
12
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testing procedures and any required Year 2000 compliance activities will be
completed by December 31, 1998. The Company does not anticipate that Year 2000
compliance activities will have a material effect on the Company's business,
financial position or results of operations. However, there can be no assurance
that the Company's systems and products are Year 2000 compliant until the
successful completion of its testing procedures. Additionally, there can be no
assurance that the systems of other companies on which the Company relies will
be Year 2000 compliant which could result in a material adverse effect on the
Company.
13
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PART II - OTHER INFORMATION
Item 2. Changes in Securities
(a) Use of Proceeds
On May 29, 1997, the U.S. Securities and Exchange Commission
declared effective the Company's Registration Statement of Form S-1
(SEC File Number 333-22123). The offering of the securities (the "IPO")
registered pursuant to the Registration Statement also commenced on May
29, 1997. The IPO terminated after the sale of 2,400,000 shares of the
Company's Common Stock for $8.75 per share. The managing underwriters
for the public offering of the Company's Common Stock were Josephthal,
Lyon & Ross Incorporated and Cruttenden Roth, Inc.
The Company incurred expenses of approximately $1.6 million in
connection with the IPO. These expenses represented direct payments to
others and not direct or indirect payments to directors or officers of
the Company or to persons owning more than 10% of any class of
securities of the Company. Net proceeds from the IPO were $17.9
million. Through March 31, 1998, the Company has used approximately
$2.2 million for the purchase of equipment, approximately $1.5 million
to increase the Company's research and development and sales, marketing
and administrative staff, and approximately $6.0 million for working
capital. None of the payments from the use of proceeds were made to
officers, directors or persons owning more than 10% of any class of
securities of the Company. The Company invested the remaining of
proceeds of $8.2 million from the IPO in short-term, investment-grade,
interest-bearing securities.
(b) Unregistered Sales of Securities
On January 5, 1998, the Company entered into joint development
and stock purchase agreements with Bay Networks. Pursuant to the stock
purchase agreement, on February 3, 1998, the Company issued 1,334,171
shares of common stock to Bay Networks, raising $36.8 million,
net of offering costs. Such shares were issued pursuant to the
exemption from registration afforded by Section 4(2) under the
Securities Act of 1933, as amended, as a transaction by an issuer not
involving a public offering, Bay Networks having delivered appropriate
investment representations to the Company with respect thereto and
having consented to the imposition of a restrictive legend upon the
certificates evidencing the shares. No commissions were paid in
connection with the issuance of the shares.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule.
(b) Reports on Form 8-K. None.
14
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NETSPEAK CORPORATION
--------------------
(Registrant)
Date: May 15, 1998 By: /s/ Stephen R. Cohen
-----------------------------------------
Chairman of the Board and Chief Executive
Officer (Principal Executive Officer)
By: /s/ John W. Staten
-------------------------------------------
Chief Financial Officer (Principal Financial
and Accounting Officer)
15
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
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<PERIOD-END> MAR-31-1998
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<CURRENT-ASSETS> 55,985
<PP&E> 2,868
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<BONDS> 0
0
0
<COMMON> 123
<OTHER-SE> 56,482
<TOTAL-LIABILITY-AND-EQUITY> 59,283
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<CGS> 667
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<EPS-PRIMARY> (0.19)
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</TABLE>
