<PAGE> 1
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 September 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 November 7, 1996, there were 13,252,043 shares of the
Registrant's Common Stock outstanding.
<PAGE> 2
PRISM SOLUTIONS, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets
December 31, 1995 and September 30, 1996 . . . . . . . . . . . . . . 3
Consolidated Statements of Operations
Three months ended September 30, 1995 and September 30, 1996
and nine months ended September 30, 1995 and September 30, 1996 . . . 4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 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 . . . . . . . . . . . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
PRISM SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
ASSETS (AUDITED) (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,861 $ 30,796
Short-term investments -- 4,530
Accounts receivable, net 6,813 5,297
Other receivables 23 103
Prepaid expenses and other current assets 369 626
-------- --------
Total current assets 9,066 41,352
Property and equipment, net 1,298 1,931
Deposits 129 156
-------- --------
Total assets $ 10,493 $ 43,439
======== ========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 432 $ --
Accounts payable 632 833
Accounts payable to related party 94 19
Accrued payroll and related 1,306 1,795
Deferred revenue 4,775 3,415
Other accrued liabilities 923 963
-------- --------
Total current liabilities 8,162 7,025
Long-term debt, less current portion 271 --
Other liabilities 6 17
-------- --------
Total liabilities 8,439 7,042
-------- --------
STOCKHOLDERS' EQUITY
Convertible preferred stock 8 --
Common stock 3 14,153
Additional paid-in capital 13,611 35,718
Receivables from stockholders (129) (104)
Accumulated deficit (11,439) (13,370)
-------- --------
Total stockholders' equity 2,054 36,397
-------- --------
Total liabilities and stockholders' equity $ 10,493 $ 43,439
======== ========
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ --------------------------------
1995 1996 1995 1996
----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
License $ 3,711 $ 3,540 $ 8,642 $ 12,655
Services and other 1,071 2,461 2,788 8,471
----------- ------------ ------------ ------------
Total revenues 4,782 6,001 11,430 21,126
----------- ------------ ------------ ------------
Cost of revenues:
License 59 118 137 375
Services and other 831 1,385 2,012 4,552
----------- ------------ ------------ ------------
Total costs of revenues 890 1,503 2,149 4,927
----------- ------------ ------------ ------------
Gross margin 3,892 4,498 9,281 16,199
----------- ------------ ------------ ------------
Costs and expenses:
Sales and marketing 2,638 4,102 7,961 12,904
Research and development 755 1,608 2,473 3,897
General and administrative 470 793 1,742 2,208
----------- ------------ ------------ ------------
Total operating expenses 3,863 6,503 12,176 19,009
----------- ------------ ------------ ------------
Income (loss) from operations 29 (2,005) (2,895) (2,810)
Interest income, net 46 478 105 1,030
Other income (expense), net 3 (23) 4 (81)
----------- ------------ ------------ ------------
Income (loss) before income taxes 78 (1,550) (2,786) (1,861)
Provision for income taxes 23 40 32 70
----------- ------------ ------------ ------------
Net income (loss) $ 55 $ (1,590) $ (2,818) $ (1,931)
=========== ============ ============ ============
Net income (loss) per share $ .01 $ (.12) $ (.96) $ (.19)
=========== ============ ============ ============
Shares used in per share calculation 11,354,043 12,847,105 2,942,438 10,374,598
Pro forma net income (loss) per share $ .01 $ (.12) $ (.26) $ (.15)
=========== ============ ============ ============
Pro forma shares used in per share calculation 11,354,043 12,847,105 10,933,255 12,475,887
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1995 1996
--------- ---------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net cash used in operating activities $(1,499) $ (611)
------- --------
Cash flows from investing activities:
Purchases of property and equipment (874) (1,438)
Purchases of short-term investments -- (4,530)
------- --------
Net cash used in investing activities (874) (5,968)
------- --------
Cash flows from financing activities:
Payments received on receivable from stockholder 1,031 --
Proceeds from employee stock purchase plan -- 491
Proceeds from initial public offering -- 35,634
Repayment on long-term debt 456 (703)
Other 215 92
------- --------
Net cash provided by financing activities 1,702 35,514
------- --------
Net increase in cash and cash equivalents (671) 28,935
Cash and cash equivalents at beginning of period 3,205 1,861
------- --------
Cash and cash equivalents at end of period $ 2,534 $ 30,796
======= ========
</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 September 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.
The results of operations for the three and nine months ended September 30, 1996
are not necessarily indicative of the results for the entire year ending
December 31, 1996.
2. NET INCOME (LOSS) PER SHARE AND PRO FORMA NET INCOME (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 up to the effective date of the Company's registration statement 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 periods ended March 31, 1996 and June 30,
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 nine month periods ended September 30, 1995 and
1996:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
--------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1995 1996 1995 1996
------- ------- -------- ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
License 78% 59% 76% 60%
Services and other 22 41 24 40
--- ---- ---- ----
Total revenues 100 100 100 100
Cost of revenues:
License 1 2 1 1
Services and other 18 23 18 22
--- ---- ---- ----
Total costs of revenues 19 25 19 23
--- ---- ---- ----
Gross margin 81 75 81 77
--- ---- ---- ----
Costs and expenses:
Sales and marketing 55 68 70 61
Research and development 16 27 22 18
General and administrative 10 13 15 11
--- ---- ---- ----
Total operating expenses 81 108 107 90
--- ---- ---- ----
Income (loss) from operations 0 (33) (26) (13)
Interest income, net 1 7 1 4
Other income, net 0 0 0 0
--- ---- ---- ----
Income (loss) before income taxes 1 (26) (25) (9)
Provision for income taxes 0 (1) 0 0
--- ---- ---- ----
Net income (loss) 1% (27)% (25)% (9)%
=== ==== ==== ====
</TABLE>
7
<PAGE> 8
Revenues
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------- ----------------------------------
1995 1996 CHANGE 1995 1996 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
License $ 3,711 $ 3,540 (5)% $ 8,642 $ 12,655 46%
Percentage of total revenues 78% 59% 76% 60%
Services and other $ 1,071 $ 2,461 130% $ 2,788 $ 8,471 204%
Percentage of total revenues 22% 41% 24% 40%
Total revenues $ 4,782 $ 6,001 25% $ 11,430 $ 21,126 85%
</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 decrease in license revenues from the third quarter of
1995 to the same period of 1996 was primarily due to lower-than-anticipated
license revenue from one of the Company's geographic sales regions due to sales
execution problems. The increase in license revenues from the first nine months
of 1995 to the same period of 1996 was 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 somewhat from the third quarter and first nine months of 1995
to the same periods in 1996 due mainly to the smaller configuration of systems
licensed to customers in the third quarter of 1996.
Services and Other Revenues. The growth from the third quarter and first nine
months of 1995 to the same periods of 1996 was the result primarily of an
increase in the number and size of consulting engagements as the Company's
consulting organization has grown 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.
Cost of Revenues
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------ ----------------------------------
1995 1996 CHANGE 1995 1996 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Cost of license $ 59 $ 118 100% $ 137 $ 375 174%
Percentage of total revenues 1% 2% 1% 1%
Cost of services and other $831 $ 1,385 67% $2,012 $4,552 126%
Percentage of total revenues 18% 23% 18% 22%
Total cost of revenues $890 $ 1,503 69% $2,149 $4,927 129%
</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 third quarter of 1995 to the same period of 1996 and
from the first nine months of 1995 to the first nine months 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.
8
<PAGE> 9
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 third quarter of 1995 to the same period of 1996 and from
the first nine months 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 as well as lower utilization rates in the consulting
organization in the third quarter of 1996 The lower utilization rates were
caused by delays in certain large projects and a decision therefore to
temporarily redeploy some members of the consulting organization to development
efforts for the Iterations methodology product. This increase was partially
offset by economies of scale related to maintenance and support services.
Operating Expenses
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------- ----------------------------------
1995 1996 CHANGE 1995 1996 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing $2,638 $4,102 55% $7,961 $12,904 62%
Percentage of total revenues 55% 68% 70% 61%
Research and development $ 755 $1,608 113% $2,473 $ 3,897 58%
Percentage of total revenues 16% 27% 22% 18%
General and administrative $ 470 $ 793 69% $1,742 $ 2,208 27%
Percentage of total revenues 10% 13% 15% 11%
</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 third quarter and first nine months 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 increase in sales and marketing expenses as a
percentage of total revenues for the three month period was principally caused
by the shortfall in revenue in the third quarter in 1996. The decrease in sales
and marketing expenses as a percentage of total revenues in the nine month
period 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.
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 third quarter of 1995 to
the same period of 1996 and from the first nine months of 1995 to the first nine
months of 1996 are primarily attributable to increased staffing and associated
support for software engineers required to expand and enhance the Company's
product line. The increase in research and development expenses as a percentage
of total revenues for the three month period was principally caused by the
shortfall in revenue in the third quarter in 1996. The decrease in research and
development expenses as a percentage of total revenues for the nine month period
was primarily due to the increase in total revenues during the same period.
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." To date, costs incurred
after establishment of technological feasibility have been immaterial and, as a
result, all research and development costs have
9
<PAGE> 10
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 third quarter of 1995 to the
same period of 1996 and from the first nine months of 1995 to the first nine
months of 1996 as the Company increased its finance and information systems
department staffing. The increase in general and administrative expenses as a
percentage of total revenues for the three month period was principally caused
by the shortfall in revenue in the third quarter in 1996. The decrease in
general and administrative as a percentage of total revenues for the nine month
period was primarily due to the increase in total revenues during the same
period. 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.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's cash and cash equivalents increased to $30,796,000 as of
September 30, 1996 from $1,861,000 as of December 31, 1995, due primarily to the
Company's initial public offering in the first quarter of 1996. During the first
nine months of 1996, the Company repaid $703,000 of long-term debt. As of
September 30, 1996, the Company had $4,530,000 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
September 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. The Company anticipates renewing the
revolving bank line of credit. 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 September 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. For
10
<PAGE> 11
example, in the third quarter of 1996, license revenues declined when compared
to the third quarter of 1995. The Company has never been profitable on an annual
basis and currently believes that it could experience operating losses through
at least the fourth quarter of 1996. Future operating results will depend on
many factors, including the growth of the data warehousing market, the length of
the sales cycle, the level of product and price competition, demand for the
Company's products, transaction size, 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, the ability to recruit software engineers and other
key personnel, general economic conditions and other factors.
In the second and third quarters of 1996, the Company 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 continues to lengthen, 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
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.
Recently, the Company has experienced some decrease in its average
transaction size. The average transaction size may be affected by changes in
product configuration, especially any increase in configurations that include
UNIX-based source and target modules. In addition, the market for the Company's
products is highly competitive, and the Company may experience increasing
pricing pressures from both 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 has been and may continue to 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.
11
<PAGE> 12
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 Income (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
September 30, 1996.
12
<PAGE> 13
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: November 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
13
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PRISM SOLUTIONS, INC.
INDEX TO EXHIBITS
EXHIBIT
-------
11.01 COMPUTATION OF NET INCOME (LOSS) PER SHARE
27.01 FINANCIAL DATA SCHEDULE (EDGAR VERSION ONLY)
99.01 REPORT OF INDEPENDENT ACCOUNTANTS
14
<PAGE> 1
EXHIBIT 11.01
PRISM SOLUTIONS, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1995 1996 1995 1996
-------------- ------------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Weighted average shares outstanding 11,354,043 12,847,105 2,942,438 10,033,026
Common equivalent shares
pursuant to SAB No. 83 -- -- -- 341,572
Net effect of dilutive stock options and warrants -- -- -- --
----------- ------------ ----------- ------------
Average common and common stock equivalent
shares outstanding 11,354,043 12,847,105 2,942,438 10,374,598
=========== ============ =========== ============
Net income (loss) $ 55 $ (1,590) $ (2,818) $ (1,931)
=========== ============ =========== ============
Net income (loss) per share $ .01 $ (.12) $ (.96) $ (.19)
=========== ============ =========== ============
</TABLE>
NOTE: THERE IS NO DIFFERENCE BETWEEN PRIMARY AND FULLY DILUTED NET LOSS PER
SHARE FOR ALL PERIODS PRESENTED. FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 1995 AND 1996, CONVERSION OF COMMON STOCK EQUIVALENTS WAS NOT ASSUMED
BECAUSE THE EFFECT IS ANTI-DILUTIVE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 30,796
<SECURITIES> 4,530
<RECEIVABLES> 5,297
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41,352
<PP&E> 1,931
<DEPRECIATION> 0
<TOTAL-ASSETS> 43,439
<CURRENT-LIABILITIES> 7,025
<BONDS> 0
0
0
<COMMON> 14,153
<OTHER-SE> 22,244
<TOTAL-LIABILITY-AND-EQUITY> 43,439
<SALES> 21,126
<TOTAL-REVENUES> 21,126
<CGS> 4,927
<TOTAL-COSTS> 4,927
<OTHER-EXPENSES> 19,009
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,030)
<INCOME-PRETAX> (1,861)
<INCOME-TAX> 70
<INCOME-CONTINUING> (1,931)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,931)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
<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
September 30, 1996, and for the three-month and nine 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
October 11, 1996
