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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(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, 1997.
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 October 30, 1997, there were 14,737,585 shares of the Registrant's Common
Stock outstanding.
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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, 1996 and September 30, 1997....................... 3
Consolidated Statements of Operations
Three months ended September 30, 1996 and September
30, 1997 and nine months ended September 30,
1996 and September 30, 1997.................................... 4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1996 and September 30, 1997.... 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 1. LEGAL PROCEEDINGS.............................................. 11
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................... 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................... 13
SIGNATURES..................................................... 14
INDEX TO EXHIBITS.............................................. 15
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
PRISM SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,844 $ 7,682
Short-term investments 20,052 15,935
Accounts receivable, net 8,392 10,360
Other receivables 151 559
Prepaid expenses and other assets 836 1,308
-------- --------
Total current assets 44,275 35,844
Property and equipment, net 1,861 2,612
Other assets 163 3,004
-------- --------
Total assets $ 46,299 $ 41,460
======== ========
LIABILITIES
Current liabilities:
Accounts payable $ 1,326 $ 2,480
Notes payable -- 38
Accrued commissions 703 1,033
Accrued payroll and related 1,726 1,560
Deferred revenue 4,752 4,569
Other accrued liabilities 1,270 3,260
-------- --------
Total current liabilities 9,777 12,940
Other liabilities 14 142
-------- --------
Total liabilities 9,791 13,082
-------- --------
Contingencies (Note 3)
STOCKHOLDERS' EQUITY
Common stock 14 14
Additional paid-in capital 49,876 54,158
Unrealized holding gains (losses) -- 18
Receivables from stockholders (104) (90)
Accumulated deficit (13,278) (25,722)
-------- --------
Total stockholders' equity 36,508 28,378
-------- --------
Total liabilities and
stockholders' equity $ 46,299 $ 41,460
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
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PRISM SOLUTIONS, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues:
License $ 3,540 $ 4,885 $ 12,655 $ 16,625
Services and other 2,461 5,935 8,471 14,601
-------- -------- -------- --------
Total revenues 6,001 10,820 21,126 31,226
-------- -------- -------- --------
Cost of revenues:
License 118 323 375 891
Services and other 1,385 3,709 4,552 8,955
-------- -------- -------- --------
Total cost of revenues 1,503 4,032 4,927 9,846
-------- -------- -------- --------
Gross margin 4,498 6,788 16,199 21,380
-------- -------- -------- --------
Costs and expenses:
Sales and marketing 4,102 5,925 12,904 16,469
Research and development 1,608 2,590 3,897 6,099
General and administrative 793 1,263 2,208 3,840
Purchased -in-process
technology -- 8,558 -- 8,558
-------- -------- -------- --------
Total operating expenses 6,503 18,336 19,009 34,966
-------- -------- -------- --------
Loss from operations (2,005) (11,548) (2,810) (13,586)
Interest income, net 478 385 1,030 1,323
Other income (expense), net (23) 38 (81) (95)
-------- -------- -------- --------
Loss before income taxes (1,550) (11,125) (1,861) (12,358)
Provision for income taxes (40) (15) (70) (85)
-------- -------- -------- --------
Net loss $ (1,590) $(11,140) $ (1,931) $(12,443)
======== ======== ======== ========
Net loss per share $ (0.12) $ (0.79) $ (0.19) $ (0.92)
======== ======== ======== ========
Shares used in per share
Calculation 12,847 14,128 10,375 13,540
======== ======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
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PRISM SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1997
-------- --------
<S> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net cash used in operating activities $ (611) $ (5,805)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (1,438) (2,049)
Purchase of in-process technology, net -- (2,466)
of cash
(Purchases) maturities of short-term
investments, net (4,530) 4,118
-------- --------
Net cash used in investing
activities (5,968) (397)
-------- --------
Cash flows from financing activities:
Payments received on receivable from
stockholder -- 14
Proceeds from employee stock purchase plan 491 856
Proceeds from initial public offering 35,634 --
Repayment on long-term debt (703) --
Proceeds from the exercise of employee
stock options -- 176
Repurchase of common stock -- (2,014)
Other 92 8
-------- --------
Net cash provided by (used in)
financing activities 35,514 (960)
-------- --------
Net increase (decrease) in cash and cash
equivalents 28,935 (7,162)
Cash and cash equivalents at beginning of year 1,861 14,844
-------- --------
Cash and cash equivalents at end of period $ 30,796 $ 7,682
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS.
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PRISM SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements at September 30, 1997 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, 1996
and the nine months ended September 30, 1997. The results of operations for the
three and nine months ended September 30, 1997 are not necessarily indicative of
the results for the entire year ending December 31, 1997. The previous year
end's balance sheet data was derived from audited financial statements but does
not include all disclosures required by generally accepted accounting
principles.
2. 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 if
their effect is antidilutive.
3. CONTINGENCIES
On March 5, 1997, a complaint styled Adler et al., v. Prism Solutions, Inc. et
al., Case No. CV764547, was filed by the law firm of Milberg Weiss Bershad Hynes
& Lerach LLP in Superior Court of the State of California, County of Santa
Clara, against the Company and several of its current and former officers and
directors and the investment banks which underwrote its initial public offering.
The complaint, a putative class action, was filed on behalf of those persons who
purchased or otherwise acquired the common stock of the Company from March 14
through October 14, 1996, and alleges that the defendants artificially inflated
the demand for the common stock prior to and after the initial public offering.
The complaint seeks damages in an unspecified amount. The Company believes the
complaint has no merit and intends to vigorously defend the action.
4. RECENT ACCOUNTING PRONOUNCEMENTS
During February 1997, the Financial Accounting Standards Board issued Statement
No. 128 (FAS 128), "Earnings per Share," which specifies the computation,
presentation and disclosure requirements for earnings per share. FAS 128
supersedes Accounting Principles Board Opinion No. 15 and is effective for
financial statements issued for periods ending after December 15, 1997. FAS 128
requires restatement of all prior period earnings per share data presented after
the effective date. The Company does not believe that FAS 128 will have a
material impact on the Company's financial position, results of operations or
cash flows.
During June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (FAS 130), "Reporting Comprehensive
Income." This statement establishes requirements for disclosure of comprehensive
income and becomes effective for the Company for fiscal years beginning after
December 15, 1997, with reclassification of earlier financial statements for
comparative purposes. Comprehensive income generally represents all changes in
stockholders' equity except those resulting from investments or contributions by
stockholders. The Company is evaluating alternative formats for presenting this
information, but does not expect this pronouncement to materially impact the
Company's results of operations.
During October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2 (SOP 97-2), "Software Revenue Recognition."
This statement establishes requirements for revenue recognition for software
companies for fiscal years beginning after December 15, 1997. The Company does
not believe that SOP 97-2 will have a material impact on the Company's financial
position, results of operations or cash flows.
5. ACQUISITIONS
During July of 1997, the Company completed three acquisitions which were
accounted for as purchases. The acquisitions of QDB Solutions, and technology
developed by Peregrine Bridge Transfer Corporation added data quality and
replication technology,
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respectively, to Prism's product line. Additionally Prism purchased Object
Software, a leading warehouse consulting organization in Australia and New
Zealand and a former Prism distributor.
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 within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. The forward-looking statements contained
herein are subject to certain risks and uncertainties including those discussed
below that could cause actual results to differ materially from those reflected
herein, or those in the Company's Form 10-K dated December 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. Through the end of 1992, the Company was in the
development stage and was engaged primarily in research and development and the
establishment of a sales and marketing infrastructure. The Company began
shipping its principal products, Prism Warehouse Manager and Prism Directory
Manager, in December 1992 and April 1995, respectively. In December 1996, Prism
Warehouse Manager and Prism Directory Manager were replaced with Prism Warehouse
Executive and Prism Warehouse Directory, respectively, as the Company's next
generation software. In the fourth quarter of 1996, Prism also completed the
first transactions for Iterations, its consulting methodology. The majority of
the Company's total revenues to date have been derived from software license
revenues, which accounted for 61% of total revenues in 1996 and 53% of total
revenues in the first nine months of 1997. Services and other revenues accounted
for the remaining revenues in 1996 and the first nine months of 1997. The
Company expects that license revenues will continue to account for a significant
portion of the Company's revenues for the foreseeable future.
During June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (FAS 130), "Reporting Comprehensive
Income." This statement establishes requirements for disclosure of comprehensive
income and becomes effective for the Company for fiscal years beginning after
December 15, 1997, with reclassification of earlier financial statements for
comparative purposes. Comprehensive income generally represents all changes in
stockholders' equity except those resulting from investments or contributions by
stockholders. The Company is evaluating alternative formats for presenting this
information, but does not expect this pronouncement to materially impact the
Company's results of operations.
During February 1997, the Financial Accounting Standards Board issued Statement
No. 128 (FAS 128), "Earnings per Share," which specifies the computation,
presentation and disclosure requirements for earnings per share. FAS 128
supersedes Accounting Principles Board Opinion No. 15 and is effective for
financial statements issued for periods ending after December 15, 1997. FAS 128
requires restatement of all prior period earnings per share data presented after
the effective date. The Company does not believe that FAS 128 will have a
material impact on the Company's financial position, results of operations or
cash flows.
During October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2 (SOP 97-2), "Software Revenue Recognition."
This statement establishes requirements for revenue recognition for software
companies for fiscal years beginning after December 15, 1997. The Company does
not believe that SOP 97-2 will have a material impact on the Company's financial
position, results of operations or cash flows.
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The following table sets forth operating results as a percentage of total
revenues for the three month and nine month periods ended September 30, 1996 and
1997:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES PERCENTAGE OF TOTAL REVENUES
--------------- ---------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
License 59% 45% 60% 53%
Services and other 41 55 40 47
---- ---- ---- ----
Total revenues 100 100 100 100
---- ---- ---- ----
Cost of revenues:
License 2 3 1 3
Services and other 23 34 22 29
---- ---- ---- ----
Total cost of revenues 25 37 23 32
---- ---- ---- ----
Gross margin 75 63 77 68
---- ---- ---- ----
Costs and expenses:
Sales and marketing 68 55 61 53
Research and development 27 24 18 20
General and administrative 13 12 11 12
Purchased-in-process technology -- 79 -- 27
---- ---- ---- ----
Total operating expenses 108 170 90 112
---- ---- ---- ----
Loss from operations (33) (107) (13) (44)
Interest income, net 7 4 4 4
Other expense, net -- -- -- --
---- ---- ---- ----
Loss before income taxes (26) (103) (9) (40)
Provision for income taxes 1 -- -- --
---- ---- ---- ----
Net loss (27)% (103)% (9)% (40)%
==== ==== ==== ====
</TABLE>
REVENUES
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 increase in license revenues from the third quarter of
1996 to the same period of 1997 and from the first nine months of 1996 to the
same period of 1997 was primarily due to an increased number of license
transactions, the addition of new customers and an increase in sales to the
existing customer base.
Services and Other Revenues. The growth in services and other revenues from the
third quarter and first nine months of 1996 to the same periods of 1997 was the
result primarily of an increase in the number and scope of consulting
engagements as the Company's consulting organization has grown to meet customer
demand. The majority of services and other revenues in both periods came from
consulting revenues.
COST OF REVENUES
Cost of License Revenues. Cost of license revenues consists primarily of
royalties paid to third-party vendors, and expenses incurred for product media
and duplication, shipping expenses, printing of manuals and packaging materials.
Cost of license revenues increased from the third quarter of 1996 to the same
period of 1997 and from the first nine months of 1996 to the first nine months
of 1997 primarily because of increases in certain reserves, distribution costs,
and media and duplication costs as well as royalty payments and payments to
marketing partners for their assistance in consummating licensing transactions.
The Company expects that the cost of license revenues will increase in absolute
dollars as the Company licenses technology and products from third parties for
which royalties are owed.
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<PAGE> 9
Cost of Services and Other Revenues. 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 from the third
quarter of 1996 to the same period of 1997 and from the first nine months of
1996 to the first nine months of 1997 primarily due to increased costs related
to personnel as the Company continued to expand its consulting, customer support
and training organizations. The Company expects that the costs of services and
other revenues will increase in absolute dollars.
OPERATING EXPENSES
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 as well as
promotional expenses. The increases in dollar amount in sales and marketing
expenses from the third quarter of 1996 to the same period of 1997 and from the
first nine months of 1996 to the same period of 1997 were primarily due to the
expansion of the Company's sales operations and increased commissions due to
revenue growth year over year. In addition, marketing activities, including
trade shows and promotional expenses, increased from the same periods for 1996.
The percentage decrease from 1996 to 1997 in sales and marketing expenses
compared to total revenues resulted primarily from the economies of scale
associated with the increase in total revenues. The Company expects that sales
and marketing expenses will continue to increase in absolute dollars but
slightly decrease as a percentage of total revenues if the Company's total
revenues continue to increase.
Research and Development. Research and development expenses consist primarily of
salaries paid to the engineering staff. The increases in research and
development expenses from the third quarter of 1996 to the same period of 1997
and from the first nine months of 1996 to the first nine months of 1997 were
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." 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 but slightly decrease as a percentage of total revenues if the Company's
total revenues continue to increase.
General and Administrative. General and administrative expenses consist
primarily of salary expenses for administrative and executive staff. These
expenses increased from the third quarter of 1996 to the same period of 1997 and
from the first nine months of 1996 to the first nine months of 1997 primarily
due to the Company's increased finance and information systems department
staffing. The decrease from Q3 1996 to Q3 1997 in general and administrative
expenses as a percentage of total revenues were principally caused by the
realization of economies of scale, despite legal fees related to the shareholder
lawsuit and costs related to management turnover, in particular recruiting and
severance costs. The Company expects that its general and administrative
expenses will increase in absolute dollars and decrease as a percentage of
revenues if the Company's total revenues continue to increase.
Purchased-in-process technology. During the third quarter of 1997, the Company
incurred a one time charge of $8.5 million for the write-off of
purchased-in-process technology related to the aforementioned acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments decreased to
$23,617,000 as of September 30, 1997 from $34,896,000 as of December 31, 1996,
due primarily to the stock repurchase program of $2,014,000 completed in May,
payment of prepaid royalties to third-party vendors and to fund operations.
Additionally, cash was used to fund the aforementioned acquisitions. As of
September 30, 1997, the Company had $7,682,000 in cash and cash equivalents and
$15,935,000 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, 1997, the Company had no material commitments to make capital
expenditures. The Company's principal commitments consisted of non-cancelable
operating leases on its facilities.
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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 believes its current cash balances 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 RISK FACTORS THAT MIGHT AFFECT FUTURE RESULTS
Limited Operating History; History of Losses
The Company's limited operating history makes the forcast of future operations
difficult. Although the Company has experienced significant growth in revenues
in recent periods, the Company does not believe that this growth rate is
indicative of future operating results. The Company has never been profitable on
an annual basis and currently believes that it could continue to experience
operating losses in 1997. 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 and retain software engineers and other key
personnel, general economic conditions and other factors.
Through the remainder of 1997, 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 if there are no offsetting
increases in revenues or reductions in other operating expenses.
Management of Growth
The Company is currently experiencing a period of rapid growth that has placed
and is expected to continue to place a strain on the Company's administrative,
financial and operational resources. Further increases in the number of
employees are anticipated during the remainder of 1997. The Company's ability to
manage its staff and facilities growth effectively will require it to continue
to improve its operational, financial and management controls, reporting systems
and procedures, and to train, motivate and manage its employees. If the
Company's management is unable to manage growth effectively and new employees
are unable to achieve performance levels, the Company's business, operating
results and financial condition could be adversely affected. The Company
recently made acquisitions of other smaller software and consulting companies.
Such acquisitions are expected to place further strains on the Company's
administrative, financial and operational resources as the acquired technology
and personnel are integrated into the Company. If the Company's management is
unable to effectively integrate and assimilate such acquisitions, the Company's
business, operating results and financial condition could be adversely affected.
Lengthy Sales Cycle
The licensing of the Company's products by its customers typically involves a
significant technical evaluation and commitment of capital and other resources,
with the attendant delays frequently associated with customers' internal
procedures to approve large capital expenditures and to test and accept new
technologies that affect key operations. For these and other reasons, the sales
cycle associated with the licensing of the Company's products is typically
lengthy and subject to a number of significant risks, including customers'
budgetary constraints and internal acceptance reviews, that are beyond the
Company's control. During 1996, the Company began to experience longer sales
cycles, which have continued through the third quarter of 1997. The Company
believes the longer sales cycles are due to increased competition. If the longer
sales cycle persists or continues to lengthen, the Company's future financial
performance could be adversely affected.
Competition
The data warehouse market is intensely competitive and subject to rapid change.
Competitors vary in size and in the scope of the products and services they
offer. The Company encounters competition from a number of sources, including
management information systems departments of customers and potential customers.
The most active competitors to the Company's Prism Scaleable Enterprise and
Prism Scaleable Warehouse packages are Evolutionary Technologies International,
Apertus Carleton Corporation, and PLATINUM Technology. The most active
competitor to the Company's Prism Scaleable Data Mart package is Informatica and
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several other small, private companies. The Company expects to experience
additional competition from other established and emerging software companies,
including some of the Company's current marketing partners. Increased
competition has resulted in the lengthening of sales cycles and price
reductions, and could result in reduced transaction sizes, fewer customer
orders, reduced gross margins and loss of market share, any of which could have
a material adverse effect on the Company's business, operating results and
financial condition.
Product Concentration
Substantially all of the Company's revenues to date have been attributable to
licenses for Prism Warehouse Manager (replaced by Prism Warehouse Executive),
Prism Directory Manager (replaced by Prism Warehouse Directory) and related
services. The Company currently expects that revenues attributable to Prism
Warehouse Executive and Prism Warehouse Directory, including maintenance and
consulting services, will continue to account for a majority of the Company's
total revenues. A decline in demand for or failure to achieve broad market
acceptance of these products 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 Executive and Prism Warehouse Directory, including
new versions incorporating a new code base which is currently being written.
There can be no assurance that the Company will continue to be successful in
these or any new or enhanced products.
Dependence on Key Personnel
The Company's future success will depend in large part upon its ability to
attract, retain and motivate highly skilled employees. There is significant
competition for employees with the skills required to perform the services
offered by the Company, particularly for software development engineers, and
there can be no assurance that the Company will be able to continue to attract
and retain sufficient numbers of highly skilled employees. The loss of a
significant number of the Company's senior management or other key research,
development, sales and marketing personnel, particularly if lost to competitors,
could have a material adverse effect on the Company's business, operating
results and financial condition, including its ability to attract employees.
Risks Associated with International Operations
The Company intends to continue to expand its operations in Europe and into Asia
and Latin America, which will require significant management attention and
financial resources. There can be no assurance that the Company's efforts to
develop international sales and support channels will be successful, and the
failure of such efforts could have a material adverse effect on the Company's
business, operating results and financial condition. International sales are
subject to a number of risks, including longer payment cycles, unexpected
changes in regulatory requirements, import and export restrictions and tariffs,
difficulties in staffing and managing foreign operations, the burden of
complying with a variety of foreign laws, greater difficulty in accounts
receivable collection, potentially adverse tax consequences, currency
fluctuations and political and economic instability.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 5, 1997, a complaint styled Adler et al., v. Prism Solutions, Inc. et
al., Case No. CV764547, was filed by the law firm of Milberg Weiss Bershad Hynes
& Lerach LLP in Superior Court of the State of California, County of Santa
Clara, against the Company and several of its current and former officers and
directors and the investment banks which underwrote the Company's initial public
offering. The complaint, a putative class action, was filed on behalf of those
persons who purchased or otherwise acquired the common stock of the Company from
March 14 through October 14, 1996, and alleges that the defendants artificially
inflated the demand for the common stock prior to and after the initial public
offering. The complaint seeks damages in an unspecified amount. The Company
believes the complaint has no merit and intends to vigorously defend the action.
11
<PAGE> 12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Sale of Equity Securities
On July 1, 1997, the Company issued an aggregate of 258,621 shares of its Common
Stock to Object Software Pty. Limited ("Object") in connection with the
acquisition by a wholly-owned Australian subsidiary of the Company of certain of
Object's assets pursuant to an Asset Purchase Agreement entered into on July 1,
1997 between the Company, the Company's wholly-owned Australian subsidiary,
Object and Mark Rankovic, the chief executive officer of Object and the
controller of Object's major shareholder.
On July 21, 1997, the Company issued an aggregate of 1,143,613 shares of its
Common Stock and paid an aggregate of $617,000 to three individuals in
connection with the acquisition by the Company of QDB Solutions, Inc., a
Massachusetts corporation ("QDB"), through the merger of a wholly-owned
subsidiary of the Company with and into QDB pursuant to an Agreement and Plan of
Reorganization entered into on July 21, 1997 between the Company, the Company's
wholly-owned subsidiary, QDB and the shareholders of QDB.
Use of Proceeds from Initial Public Offering
On March 14, 1996, the Company's registration statement on Form SB-2 (File No.
333-1180-LA) related to the initial public offering of the Company's Common
Stock (the "Registration Statement") was declared effective by the Securities
and Exchange Commission. The net offering proceeds to the Company after expenses
was $35,718,369 (the "Offering Proceeds"). From the effective date of the
Registration Statement to September 30, 1997, the Offering Proceeds have been
used for the purposes listed below:
<TABLE>
<CAPTION>
Direct or indirect payments to Direct or indirect payments to others
directors, officers, general
partners of the
Company or their associates; to
persons
owning ten (10) percent or more
of any class
of equity securities of the
Company; and to
affiliates of the Company
<S> <C> <C>
Construction of plant, building and facility ____ $ 59,572
Purchase and installation of
machinery and equipment ____ 3,421,482
Repayment of indebtedness ____ 611,450
Acquired Businesses ____ 2,466,000
Working capital ____ 8,200,865
Purchase of short-term liquid securities ____ 20,959,000
-----------
$35,718,369
===========
</TABLE>
12
<PAGE> 13
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)
(b) Reports on Form 8-K. No reports were filed during the quarter ended
September 30, 1997.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment No.1 to this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DATED: November 7, 1997
PRISM SOLUTIONS, INC.
(Registrant)
By: /S/ WARREN M. WEISS
-------------------------------
Warren M. Weiss
President and Chief Executive Officer
By: /S/ EARL C. CHARLES
-------------------------------
Earl C. Charles
Chief Financial Officer
14
<PAGE> 15
PRISM SOLUTIONS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
-------
<S> <C>
11.01 COMPUTATION OF NET LOSS PER SHARE
27.01 FINANCIAL DATA SCHEDULE (EDGAR VERSION ONLY)
</TABLE>
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Weighted average shares
outstanding 12,847,105 14,128,485 10,033,026 13,539,809
Common equivalent shares
pursuant to SAB No. 83 -- -- 341,572 --
------------ ------------ ------------ ------------
Average common and common
stock equivalent shares
outstanding 12,847,105 14,128,485 10,374,598 13,539,809
============ ============ ============ ============
Net income (loss) $ (1,590) $ (11,140) $ (1,931) $ (12,443)
============ ============ ============ ============
Net income (loss) per share $ (0.12) $ (0.79) $ (0.19) $ (0.92)
============ ============ ============ ============
</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, 1996 AND 1997, CONVERSION OF COMMON STOCK EQUIVALENTS WAS NOT ASSUMED
BECAUSE THE EFFECT IS ANTI-DILUTIVE.
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,682
<SECURITIES> 15,935
<RECEIVABLES> 10,360
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,844
<PP&E> 2,612
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,460
<CURRENT-LIABILITIES> 12,940
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 28,364
<TOTAL-LIABILITY-AND-EQUITY> 41,460
<SALES> 31,226
<TOTAL-REVENUES> 31,226
<CGS> 9,846
<TOTAL-COSTS> 9,846
<OTHER-EXPENSES> 34,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,323)
<INCOME-PRETAX> (12,358)
<INCOME-TAX> 85
<INCOME-CONTINUING> (12,443)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,443)
<EPS-PRIMARY> (0.92)
<EPS-DILUTED> (0.92)
</TABLE>
