<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
------------
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- -----
Exchange Act of 1934 For the quarterly period ended June 30, 1996.
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
- -----
Exchange Act of 1934 For the transition period from to
----- -----
COMMISSION FILE NUMBER: 0-27774
PRISM SOLUTIONS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0282704
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 HAMLIN COURT
SUNNYVALE, CA 94089
(Address of principal executive offices, including zip code)
TELEPHONE NUMBER (408) 752-1888
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
----- -----
As of August 6, 1996, there were 13,213,931 shares of the Registrant's
Common Stock outstanding.
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<PAGE> 2
PRISM SOLUTIONS, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE NO.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets
December 31, 1995 and June 30, 1996 . . . . . . . . . . . . . . 3
Consolidated Statements of Operations Three months ended June
30, 1995 and June 30, 1996 and
six months ended June 30, 1995 and June 30, 1996 . . . . . . . .4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1995 and 1996 . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . 13
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . .15
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
PRISM SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------------ -------------
ASSETS (AUDITED) (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,861 $ 32,605
Short-term investments -- 2,995
Accounts receivable, net 6,813 6,866
Other receivables 23 123
Prepaid expenses and other current assets 369 661
------------------ -------------
Total current assets 9,066 43,250
Property and equipment, net 1,298 1,589
Deposits 129 154
------------------ -------------
Total assets $ 10,493 $ 44,993
================== =============
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 432 $ --
Accounts payable 632 913
Accounts payable to related party 94 10
Accrued payroll and related 1,306 1,910
Deferred revenue 4,775 3,566
Other accrued liabilities 923 1,143
------------------ -------------
Total current liabilities 8,162 7,542
Long-term debt, less current portion 271 --
Other liabilities 6 19
------------------ -------------
Total liabilities 8,439 7,561
------------------ -------------
STOCKHOLDERS' EQUITY
Convertible preferred stock 8 --
Common stock 3 13,229
Additional paid-in capital 13,611 36,085
Receivables from stockholders (129) (102)
Accumulated deficit (11,439) (11,780)
------------------ -------------
Total stockholders' equity 2,054 37,432
------------------ -------------
Total liabilities and stockholders' equity $ 10,493 $ 44,993
================== =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
PRISM SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- -----------------------
1995 1996 1995 1996
----------- ---------- ----------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
License $ 2,337 $ 4,718 $ 4,931 $ 9,115
Services and other 915 3,000 1,717 6,010
----------- ---------- ----------- ---------
Total revenues 3,252 7,718 6,648 15,125
----------- ---------- ----------- ---------
Cost of revenues:
License 49 124 78 257
Services and other 643 1,543 1,181 3,167
----------- ---------- ----------- ---------
Total costs of revenues 692 1,667 1,259 3,424
----------- ---------- ----------- ---------
Gross margin 2,560 6,051 5,389 11,701
----------- ---------- ----------- ---------
Costs and expenses:
Sales and marketing 2,749 4,581 5,323 8,802
Research and development 846 1,240 1,718 2,289
General and administrative 584 777 1,272 1,415
----------- ---------- ----------- ---------
Total operating expenses 4,179 6,598 8,313 12,506
----------- ---------- ----------- ---------
Loss from operations (1,619) (547) (2,924) (805)
Interest income, net 70 491 59 552
Other income (expense), net 1 (43) 1 (58)
----------- ---------- ----------- ---------
Loss before income taxes (1,548) (99) (2,864) (311)
Provision for income taxes 8 24 9 30
----------- ---------- ----------- ---------
Net loss $ (1,556) $ (123) $ (2,873) $ (341)
=========== ========== =========== =========
Net loss per share $ (.54) $ (.01) $ (1.01) $ (.04)
=========== ========== =========== =========
Shares used in per share calculation 2,864,156 12,738,439 2,842,445 9,018,093
Pro forma net loss per share $ (.14) $ (.01) $ (.27) $ (.03)
=========== ========== =========== =========
Pro forma shares used in per share calculation 10,854,973 12,738,439 10,833,262 12,258,813
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
PRISM SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------------
1995 1996
------------------ ----------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net cash used in operating activities $ (861) $ (495)
------------- ----------------
Cash flows from investing activities:
Purchases of property and equipment (603) (783)
Purchases of short-term investments -- (2,995)
------------- ----------------
Net cash used in investing activities (603) (3,778)
------------- ----------------
Cash flows from financing activities:
Payments received on receivable from stockholder 1,031 --
Proceeds from initial public offering -- 35,634
Repayment on long-term debt 448 (703)
Other 60 86
------------- ----------------
Net cash provided by financing activities 1,539 35,017
------------- ----------------
Net increase in cash and cash equivalents 75 30,744
Cash and cash equivalents at beginning of year 3,205 1,861
------------- ----------------
Cash and cash equivalents at end of quarter $ 3,280 $ 32,605
============= ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
PRISM SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements at June 30, 1996 are unaudited and reflect
all adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The consolidated
financial statements should be read in conjunction with the notes thereto,
together with management's discussion and analysis of financial condition and
results of operations for the fiscal year ended December 31, 1995 and the three
months ended March 31, 1996. The results of operations for the three and six
months ended June 30, 1996 are not necessarily indicative of the results for the
entire year ending December 31, 1996.
2. NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE
The net loss per share, on a historical basis, is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the period. Common equivalent shares are excluded from the computation as
their effect is antidilutive, except that, pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, common and common equivalent
shares issued at prices below the public offering price during the 12 months
immediately preceding the initial filing date have been included in the
calculation as if they were outstanding for all periods presented (using the
treasury stock method and the initial public offering price). Pro forma net loss
per share assumes the common shares issued upon conversion of the outstanding
convertible preferred stock had been outstanding during such period.
3. INITIAL PUBLIC OFFERING
In March 1996, the Company completed its initial public offering of Common
Stock. The Company sold 2,325,500 shares of Common Stock at a price to the
public of $17.00 per share, resulting in net proceeds to the Company (after
deducting underwriting discounts and commissions and offering expenses) of
approximately $35.6 million. Proceeds from the offering were invested in cash
equivalents and short-term investments consisting primarily of high grade
commercial paper, with $703,000 used to retire the Company's outstanding
long-term debt.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
In addition to historical information contained herein, Management's Discussion
and Analysis contains forward-looking statements. The forward-looking statements
contained herein are subject to certain risks and uncertainties that could cause
actual results to differ materially from those reflected herein; including those
discussed below; from those in the Company's Prospectus dated March 14, 1996 and
from those in the Form 10-Q for the period ended March 31, 1996. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company undertakes
no obligation to publicly revise any forward-looking statements in order to
reflect events or circumstances after the date hereof.
OVERVIEW
Prism designs, develops, markets and supports data warehouse management
software that assists customers in developing, managing and maintaining data
warehouses. The Company was incorporated in California in March 1991 and
reincorporated in Delaware in February 1996. The Company began shipping its
principal product, Prism Warehouse Manager, in December 1992, and two subsequent
products, Prism Directory Manager and Prism Change Manager, in April 1995 and
February 1996, respectively.
The following table sets forth operating results as a percentage of total
revenues for the three month and six month periods ended June 30, 1995 and 1996:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1995 1996 1995 1996
---------- ---------- ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
License 72% 61% 74% 60%
Services and other 28 39 26 40
---------- ---------- ----------- ----------
Total revenues 100 100 100 100
Cost of revenues:
License 1 2 1 2
Services and other 20 20 18 21
---------- ---------- ----------- ----------
Total costs of revenues 21 22 19 23
---------- ---------- ----------- ----------
Gross margin 79 78 81 77
---------- ---------- ----------- ----------
Costs and expenses:
Sales and marketing 85 59 80 58
Research and development 26 16 26 15
General and administrative 18 10 19 9
---------- ---------- ----------- ----------
Total operating expenses 129 85 125 82
---------- ---------- ----------- ----------
Loss from operations (50) (7) (44) (5)
Interest income, net 2 6 1 3
Other income, net 0 0 0 0
---------- ---------- ----------- ----------
Loss before income taxes (48) (1) (43) (2)
Provision for income taxes 0 0 0 0
---------- ---------- ----------- ----------
Net loss (48)% (1)% (43)% (2)%
========== ========== =========== ==========
</TABLE>
7
<PAGE> 8
The following table sets forth the percent change in operating results for the
three and six month periods ended June 30, 1995 and 1996:
<TABLE>
<CAPTION>
PERIOD TO PERIOD PERCENT INCREASE (DECREASE)
--------------------------------------------
THREE MONTHS ENDED, SIX MONTHS ENDED
6/30/96 VS. 6/30/95 6/30/96 VS. 6/30/95
------------------- -------------------
<S> <C> <C>
Revenues:
License 102% 85%
Services and other 228 250
------------------- -------------------
Total revenues 137 128
Cost of revenues:
License 153 229
Services and other 140 168
------------------- -------------------
Total cost of revenues 141 172
------------------- -------------------
Gross margin 136 117
------------------- -------------------
Costs and expenses:
Sales and marketing 67 65
Research and development 47 33
General and administrative 33 11
------------------- -------------------
Total operating expenses 58 50
------------------- -------------------
Loss from operations (66) (72)
Interest income, net 601 836
Other income (expense), net (4400) (5900)
------------------- -------------------
Loss before income taxes (94) (89)
Provision for income taxes 200 233
------------------- -------------------
Net loss (92)% (88)%
=================== ===================
</TABLE>
Revenues
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------------- --------------------------------------
1995 1996 CHANGE 1995 1996 CHANGE
------------ ------------ -------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
License $ 2,337 $ 4,718 102% $ 4,931 $ 9,115 85%
Percentage of total revenues 72% 61% 74% 60%
Services and other $ 915 $ 3,000 228% $ 1,717 $ 6,010 250%
Percentage of total revenues 28% 39% 26% 40%
Total revenues $ 3,252 $ 7,718 137% $ 6,648 $ 15,125 128%
</TABLE>
The Company's revenues are derived from license fees for its software
products and fees for services complementing its products, including software
maintenance and support, implementation, consulting and training.
License Revenues. The increases in license revenues from the second
quarter of 1995 to the same period of 1996 and from the first half of 1995 to
the same period of 1996 were primarily attributable to growing acceptance of the
Company's products, particularly Prism Directory Manager, which was introduced
in April 1995. The average selling price of Prism Warehouse Manager declined
slightly from
9
<PAGE> 9
the first half of 1995 to the first half of 1996 due to a large transaction
recorded in the first quarter of 1995 at a higher than average selling price.
However, the average selling price of Prism Warehouse Manager, as well as the
total units licensed, was higher in the second quarter of 1996 as compared to
the same period of 1995.
Services and Other Revenues. The growth from the second quarter and
first half of 1995 to the same periods of 1996 was the result primarily of an
increase in the number and size of consulting engagements and, to a lesser
extent, of increased licensing activity causing an increase in the maintenance
base as well as yearly maintenance renewals. A majority of services and other
revenues in 1996 came from consulting revenue. In addition, in the second
quarter of 1996 the Company recognized revenue from several engineering projects
that had been completed.
Cost of Revenues
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------------- --------------------------------------
1995 1996 CHANGE 1995 1996 CHANGE
------------ ------------ -------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Cost of license $ 49 $ 124 153% $ 78 $ 257 229%
Percentage of total revenues 2% 2% 1% 2%
Cost of services and other $ 643 $ 1,543 140% $ 1,181 $ 3,167 168%
Percentage of total revenues 20% 20% 18% 21%
Total cost of revenues $ 692 $ 1,667 141% $ 1,259 $ 3,424 172%
</TABLE>
Cost of License Revenues. Cost of license revenues consists primarily
of the costs of royalties paid to third-party vendors, product media and
duplication, shipping expenses, manuals and packaging materials.
The increases from the second quarter of 1995 to the same period of
1996 and from the first half of 1995 to the first half of 1996 were due
primarily to increased distribution costs and media and duplication costs as
well as payments to marketing partners for their assistance in consummating
licensing transactions. The Company expects that the cost of license revenues
will increase both in absolute dollars and as a percentage of license revenues
as the Company licenses additional technology and products from third parties
for inclusion in its product line and as the Company pays more referral fees to
its marketing partners.
Cost of Services and Other. Cost of services and other revenues
consists primarily of personnel-related costs incurred in providing consulting
and implementation services, telephone support and training to customers. The
dollar amount of cost of services and other revenues increased significantly
from the second quarter of 1995 to the same period of 1996 and from the first
half of 1995 to the same period of 1996 primarily because of increased
personnel-related costs as the Company continued to expand its consulting,
customer support and training organizations to support an increase in sales. The
percentage increase in cost of services and other revenues from 1995 to 1996
compared to total revenue was primarily due to increased consulting personnel
costs, partially offset by economies of scale related to maintenance and support
services.
9
<PAGE> 10
Operating Expenses
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------------- --------------------------------------
1995 1996 CHANGE 1995 1996 CHANGE
------------ ------------ -------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing $ 2,749 $ 4,851 76% $ 5,323 $ 8,802 65%
Percentage of total revenues 85% 63% 80% 58%
Research and development $ 846 $ 1,240 47% $ 1,718 $ 2,289 33%
Percentage of total revenues 26% 16% 26% 15%
General and administrative $ 584 $ 777 33% $ 1,272 $ 1,415 11%
Percentage of total revenues 18% 10% 19% 9%
</TABLE>
The growth in operating expenses occurred primarily as a result of
increases in salaries and benefits, resulting from higher staffing levels, and
the expansion of facilities.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses paid to sales and marketing personnel and
promotional expenses. The increases in dollar amounts in sales and marketing
expenses from the second quarter and first half of 1995 to the same periods of
1996 were primarily due to the expansion of the Company's sales operations and
increased marketing activities, including trade shows and promotional expenses.
The decreases in sales and marketing expenses as a percentage of total revenues
resulted primarily from increases in productivity as sales personnel became more
productive. The Company expects that sales and marketing expenses will continue
to increase in absolute dollars but decrease as a percentage of total revenues
if the Company's annual revenues continue to increase.
Research and Development. Research and development expenses consist
primarily of salaries paid to the engineering staff. The increases in dollar
amounts in research and development expenses from the second quarter of 1995 to
the same period of 1996 and from the first half of 1995 to the first half of
1996 are primarily attributable to increased staffing and associated support for
software engineers required to expand and enhance the Company's product line.
Software development costs have been expensed in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." Under this standard,
capitalization of software development costs begins upon the establishment of
technological feasibility and ends when a product is available for general
release to customers. To date, costs incurred after establishment of
technological feasibility have been immaterial and, as a result, all research
and development costs have been expensed as incurred. The Company believes that
a significant level of investment for research and development is required to
remain competitive and, accordingly, the Company anticipates that research and
development expenses will increase in absolute dollars. In addition, the Company
expects research and development expenses to rise as a percentage of revenues in
the next twelve months due to anticipated staffing and third party consulting
expenses relating to projects to improve the supportability, reliability, and
maintainability of the products, to increase integration between products and to
support new product development.
General and Administrative. General and administrative expenses consist
primarily of salary expenses for administration and executive staff. These
expenses increased in absolute dollars from the second quarter 1995 to the same
period of 1996 and from the first half of 1995 to the first half of 1996 as the
Company increased its finance and information systems department staffing. The
Company expects that its general and administrative expenses will increase in
absolute dollars and decline slightly as a percentage of revenues if the
Company's annual revenues continue to increase.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased to $32,605,000 as of
June 30, 1996, due primarily to the Company's initial public offering in the
first quarter of 1996. During the first quarter of 1996, the Company repaid its
long-term debt and made $2,995,000 in short-term investments, which are
classified as available for sale.
The Company expects that its capital expenditures will remain constant
or increase in absolute dollars as the Company's employee base grows. As of June
30, 1996, the Company had no material commitments to make capital expenditures.
The Company's principal commitments consisted of non-cancelable operating leases
on its facilities.
To date, the Company has not invested in derivative securities or any
other financial instruments that involve a high level of complexity or risk.
Management expects that, in the future, cash in excess of current requirements
will be invested in short-term, interest-bearing, investment grade securities.
The Company also has available a $2,000,000 revolving bank line of
credit under an agreement that expires in November 1996, which is collateralized
by all of the assets of the Company (other than copyrights) and permits
borrowing of 80% of eligible accounts receivable. Eligible accounts receivable
include accounts receivable that have been outstanding less than 90 days from
the date of invoice (excluding related party, disputed receivables, government,
contra and intercompany accounts). At June 30, 1996, the maximum amount was
available and there were no borrowings outstanding under the line of credit.
The Company believes its current cash balances, cash available under
its line of credit and cash flow from operations, if any, will be sufficient to
meet its working capital and capital expenditure requirements for at least the
next 12 months. Although operating activities may provide cash in certain
periods, to the extent the Company experiences growth in the future, the Company
anticipates that its operating and investing activities may use cash.
Consequently, any such future growth may require the Company to obtain
additional equity or debt financing, which may not be available or may be
dilutive.
ADDITIONAL FACTORS THAT MIGHT AFFECT FUTURE RESULTS
The Company's limited operating history makes the prediction of future
operating results difficult. Although the Company has experienced significant
growth in revenues in recent periods, the Company does not believe that this
growth rate is sustainable or indicative of future operating results. The
Company has never been profitable on an annual basis and currently believes that
it could experience operating losses in the third quarter of 1996. Future
operating results will depend on many factors, including the growth of the
emerging data warehousing market, demand for the Company's products, transaction
size, the level of product and price competition, the Company's success in
expanding its direct sales force and indirect distribution channels, the ability
of the Company to support and maintain existing products, develop and market new
products and control costs, general economic conditions and other factors.
Recently, the Company has experienced a longer sales cycle than in
previous quarters. The Company believes the longer sales cycle is due to
increased competition and longer contract negotiations. If the longer sales
cycle persists or becomes longer, the Company's future financial performance
could be adversely affected.
Substantially all of the Company's revenues to date have been
attributable to licenses for Prism Warehouse Manager and related services.
Although licenses of Prism Directory Manager are now significant, the Company
currently expects that revenues attributable to Prism Warehouse Manager,
including maintenance and consulting services, will continue to account for a
majority of the Company's
11
<PAGE> 12
total revenues in 1996. A decline in demand for or failure to achieve broad
market acceptance of Prism Warehouse Manager or Prism Directory Manager as a
result of competition, technological change or otherwise, would have a material
adverse effect on the business, operating results and financial condition of the
Company. A decline in license revenues from these products would also have a
material adverse effect on sales of other Company products. The Company's future
financial performance will depend in part on the successful development,
introduction and customer acceptance of new releases of Prism Warehouse Manager
and market acceptance of the Company's meta data architecture and related
products, such as Prism Directory Manager and Prism Change Manager. There can be
no assurance that the Company will continue to be successful in marketing Prism
Warehouse Manager, Prism Directory Manager, Prism Change Manager or any new or
enhanced products.
The market for the Company's products is highly competitive, and the
Company may experience increasing pricing pressures from its current competitors
and new market entrants. Any material reduction in the price of the Company's
products or in the size of an average transaction would materially adversely
affect the Company's business, operating results and financial condition if the
Company were unable to increase unit sales.
Throughout the remainder of 1996, the Company will continue to invest
more in customer services, marketing and research and development, and make
personnel additions to the Company's sales force worldwide. These additional
expenses may adversely affect the Company's operating margin in 1996 if there
are no offsetting increases in revenues or reductions in other operating
expenses.
The Company's stock price may be subject to significant volatility
particularly on a quarterly basis. Any shortfall in revenue or earnings from
levels expected by securities analysts or others could have an immediate and
significant adverse effect on the trading price of the Company's common stock in
any given period. Additionally, as is common in the industry, a disproportionate
amount of the Company's license revenue is derived from transactions that close
in the last few weeks of a quarter making quarterly revenues difficult to
forecast. The Company may not learn of, or be able to confirm, revenue or
earnings shortfalls until the end of each quarter, which could result in an even
more immediate and adverse effect on the trading price of the Company's common
stock. Finally, the Company participates in a highly dynamic industry, which
often results in significant volatility of the Company's common stock price.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed as part of this Form 10-Q:
11.01 Computation of Net Loss per Share
27.01 Financial Data Schedule (EDGAR version only)
99.01 Report of Independent Accountants
(b) Reports on Form 8-K. No reports were filed during the quarter ended
June 30, 1996.
13
<PAGE> 14
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.
DATED: August 6, 1996
PRISM SOLUTIONS, INC.
(Registrant)
By: /s/ James W. Ashbrook
--------------------------------
James W. Ashbrook
President and Chief Executive Officer
Chairman of the Board
By: /s/ Samuel M. Hedgpeth III
--------------------------------
Samuel M. Hedgpeth III
Vice President, Finance and Administration
Chief Financial Officer
14
<PAGE> 15
PRISM SOLUTIONS, INC.
INDEX TO EXHIBITS
EXHIBIT
-------
11.01 COMPUTATION OF NET LOSS PER SHARE
27.01 FINANCIAL DATA SCHEDULE (EDGAR VERSION ONLY)
99.01 REPORT OF INDEPENDENT ACCOUNTANTS
15
<PAGE> 1
EXHIBIT 11.01
PRISM SOLUTIONS, INC.
COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- ------------------------------
1995 1996 1995 1996
-------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Weighted average shares outstanding 2,864,156 12,738,439 2,842,445 8,505,734
Common equivalent shares
pursuant to SAB No. 83 -- -- -- 512,359
Net effect of dilutive stock options and warrants -- -- -- --
-------------- ------------- ------------- -------------
Average common and common stock equivalent
shares outstanding 2,864,156 12,738,439 2,842,445 9,018,093
============== ============= ============= =============
Net loss $ (1,556) $ (123) $ (2,873) $ (341)
=============== ============= ============= =============
Net loss per share $ (0.54) $ (0.01) $ (1.01) $ (0.04)
============== ============= ============= =============
</TABLE>
NOTE: THERE IS NO DIFFERENCE BETWEEN PRIMARY AND FULLY DILUTED NET LOSS PER
SHARE FOR ALL PERIODS PRESENTED. FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
1995 AND 1996, CONVERSION OF COMMON STOCK EQUIVALENTS WAS NOT ASSUMED BECAUSE
THE EFFECT IS ANTI-DILUTIVE.
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 32605
<SECURITIES> 2995
<RECEIVABLES> 6866
<ALLOWANCES> 0
<INVENTORY> 0
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0
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<OTHER-EXPENSES> 12506
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<INTEREST-EXPENSE> (552)
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<PAGE> 1
EXHIBIT 99.01
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Prism Solutions, Inc.
Sunnyvale, California
We have reviewed the accompanying consolidated balance sheet, statement
of operations and cash flows of Prism Solutions, Inc. and subsidiaries as of
June 30, 1996, and for the three-month and six month periods then ended. These
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying consolidated financial statements for
them to be in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Jose, California
July 12, 1996
17
