<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-27886
WORLDTALK COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0303581
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5155 OLD IRONSIDES DRIVE
SANTA CLARA, CALIFORNIA 95054
(Address of principal executive offices)
(408) 567-1500
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Sections 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.
(1) Yes X No
----- -----
(2) Yes X No
----- -----
As of July 31, 1996, there were 9,641,490 shares of the Registrant's common
stock outstanding.
================================================================================
<PAGE> 2
FORM 10-Q
WORLDTALK COMMUNICATIONS CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
PART I FINANCIAL INFORMATION NUMBER
------
<S> <C>
ITEM 1: Financial Statements
Condensed Balance Sheets as of June 30, 1996 and December 31, 1995........... 3
Condensed Statements of Operations for the three and six months ended
June 30, 1996 and 1995................................................... 4
Condensed Statements of Cash Flows for the six months ended June 30,
1996 and 1995............................................................ 5
Notes to Condensed Financial Statements...................................... 6
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 8
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings............................................................ 21
ITEM 2: Change in Securities......................................................... 21
ITEM 3: Defaults Upon Senior Securities.............................................. 21
ITEM 4: Submission of Matters to a Vote of Security Holders.......................... 21
ITEM 5: Other Information............................................................ 21
ITEM 6: Exhibits and Reports on Form 8-K............................................. 21
Signature.................................................................... 22
Exhibits..................................................................... 23
</TABLE>
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WORLDTALK COMMUNICATIONS CORPORATION
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
1996 DECEMBER 31,
(UNAUDITED) 1995
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 10,497 $ 984
Restricted cash ............................................. -- 2,000
Investments ................................................. 5,465 --
Accounts receivable, net of allowance for doubtful accounts
of $150 and $150, respectively ........................... 2,799 1,567
Prepaid expenses ............................................ 302 115
-------- --------
Total current assets ........................................ 19,063 4,666
Property and equipment, net ..................................... 1,267 707
Other assets .................................................... 315 354
-------- --------
$ 20,645 $ 5,727
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK,
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ............................................ $ 899 $ 679
Current portion of capital lease obligations ................ 177 254
Accrued expenses ............................................ 2,685 1,927
Deferred revenue ............................................ 1,807 1,005
-------- --------
Total current liabilities .............................. 5,568 3,865
Capital lease obligations, less current portion ................. 200 266
Other liabilities ............................................... 100 185
Notes payable ................................................... 250 --
-------- --------
6,118 4,316
-------- --------
Redeemable convertible preferred stock........................... -- 12,816
Commitments and contingencies
Stockholders' equity (deficit):
Common stock..................................................... 97 15
Additional paid-in capital ...................................... 27,471 670
Stockholder notes receivable .................................... (262) (194)
Deferred compensation ........................................... (153) (175)
Accumulated deficit ............................................. (12,626) (11,721)
-------- --------
Total stockholders' equity (deficit) ................... 14,527 (11,405)
-------- --------
$ 20,645 $ 5,727
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 4
WORLDTALK COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- ----------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Software licenses ................................. $ 2,222 $ 681 $ 4,164 $ 1,665
Maintenance, installation, and training ........... 1,050 459 1,817 810
Software development contracts .................... -- 16 -- 166
------- ------- ------- -------
Total revenues ............................. 3,272 1,156 5,981 2,641
Cost of revenues:
Software licenses ................................. 296 52 441 99
Maintenance, installation, and training ........... 556 270 1,030 479
Software development contracts .................... -- 73 -- 362
------- ------- ------- -------
Total cost of revenues ..................... 852 395 1,471 940
Operating expenses:
Product development ............................... 852 659 1,676 1,184
Sales and marketing ............................... 1,644 1,085 3,050 2,124
General and administrative ........................ 385 306 831 573
------- ------- ------- -------
Total operating expenses ................... 2,881 2,050 5,557 3,881
Operating loss ...................................... (461) (1,289) (1,047) (2,180)
Other income, net ................................... 135 32 142 22
------- ------- ------- -------
Net loss ............................................ $ (326) $(1,257) $ (905) $(2,158)
======= ======= ======= =======
Pro forma net loss per share ........................ $ (0.03) $ (0.17) $ (0.11) $ (0.28)
------- ------- ------- -------
Shares used in computing pro forma net loss per share 9,429 7,597 8,511 7,583
------- ------- ------- -------
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 5
WORLDTALK COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................................. $ (905) $ (2,158)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ......................................... 206 125
Amortization of deferred compensation ................................. 22 --
Changes in operating assets and liabilities:
Accounts receivable ................................................. (1,232) (29)
Prepaid expenses .................................................... (187) (34)
Accounts payable .................................................... 220 (135)
Accrued expenses .................................................... 758 417
Deferred revenue .................................................... 802 103
Other liabilities ................................................... (85) 136
-------- --------
Net cash used in operating activities ............................ (401) (1,575)
-------- --------
Cash flows from investing activities:
Restricted cash .......................................................... 2,000 --
Purchase of property and equipment ....................................... (756) (79)
Purchase of available-for-sale securities................................. (5,465) --
Other assets ............................................................. 29 (231)
-------- --------
Net cash used in investing activities .............................. (4,192) (310)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock ............................... 14,067 --
Issuance of notes receivable from shareholders ........................... (68) --
Net proceeds from issuance of convertible secured promissory notes ....... -- 1,000
Net proceeds from issuance of redeemable preferred stock ................. -- 2,753
Proceeds from bank borrowings ............................................ 250 --
Principal payments under capital lease obligations ....................... (143) (103)
-------- --------
Net cash provided in financing activities .......................... 14,106 3,650
-------- --------
Net increase in cash and cash equivalents ................................... 9,513 1,765
Cash and cash equivalents at beginning of period ............................ 984 198
-------- --------
Cash and short-term investment at end of period ............................. $ 10,497 $ 1,963
======== ========
Supplemental disclosures:
Cash paid during the period:
Interest ............................................................... $ 40 $ 20
Non cash investing and financing activities:
Equipment acquired under capital lease agreements ...................... $ -- $ 63
Conversion of convertible preferred stock to common stock .............. $ 12,816 $ --
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE> 6
WORLDTALK COMMUNICATIONS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) THE COMPANY AND BASIS OF PRESENTATION
The Company
Worldtalk Communications Corporation, a Delaware corporation doing
business as Worldtalk Corporation (the "Company"), develops software products
that enable information technology managers to extend business communications
and collaboration applications from the work group level to the enterprise and
across wide area networks such as the Internet. These Network Application Router
products: (a) solve the problem of cross-communication in large and/or
heterogeneous e-mail and groupware systems environments, (b) enable centralized
management and control of these environments and (c) provide control of Internet
access.
The interim financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring accruals) that, in the opinion
of management, are necessary for a fair presentation of the results for the
interim periods. The results of operations for current interim periods are not
necessarily indicative of results to be expected for the current year or any
other period.
These financial statements should be read in conjunction with the
Company's Registration Statement on Form S-1 declared effective by the
Securities and Exchange Commission on April 11, 1996 (File No. 333-1482).
Pro Forma Net Loss Per Share
Net loss per share is computed using net loss and is based on the
weighted average number of shares of common stock outstanding, convertible
preferred stock, on an "as if converted" basis, using the exchange rate in
effect at the initial public offering date and common equivalent shares from
stock options and warrants outstanding using the treasury stock method.
Reclassifications
Certain reclassifications were made in the 1995 financial statements to
conform with 1996 presentation.
(2) SIGNIFICANT EVENT
On April 17, 1996, the Company completed the initial public offering of
2,100 shares of its Common Stock, of which 2,000 shares were issued and sold by
the Company, and 100 shares were sold by a selling stockholder. On May 8, 1996,
an additional 315 shares were sold by selling stockholders upon exercise of the
underwriters' over-allotment option. Net proceeds to the Company aggregated
approximately $14.0 million. The proceeds have been invested in accordance with
the Company's Board of Directors approved investment policy. As of the closing
date of the offering all of the mandatorily redeemable convertible Preferred
Stock outstanding prior to such offering was automatically converted into an
aggregate of 6,025 shares of Common Stock.
6
<PAGE> 7
(3) LITIGATION
See part II, item 1 of this form 10-Q for a description of legal
proceedings.
(4) CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, short-term
investments, consisting of U.S. government securities, corporate securities and
certificates of deposit, are stated at fair market value and are considered to
be available-for-sale. Unrealized gains and unrealized losses, which are
considered to be temporary, are reported as a separate component of
stockholders' equity. Realized gains and losses and the amortized cost basis of
investments are determined by specific identification.
The following is a summary of available-for-sale securities at June 30,
1996 (in thousands):
<TABLE>
<S> <C>
Cash equivalents:
Money market funds $ 102
Government agency discount notes 3,784
Commercial paper 5,880
-------
9,766
-------
Short-term investments:
U.S. Government Securities 5,465
-------
$15,231
=======
</TABLE>
As of June 30, 1996, the Company's investments are scheduled to mature as
follows (in thousands):
<TABLE>
<S> <C>
Due in less 1 year $ 9,766
Due in 1 to 1-1/2 years 5,465
-------
$15,231
=======
</TABLE>
As of June 30, 1996, the difference between the fair value and the
amortized cost of available-for-sale securities was insignificant; therefore, no
valuation allowance was recorded in shareholders' equity.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion in this Report contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in "Risk
Factors That May Affect Future Results" as well as those discussed in this
section and elsewhere in this Report, and the risks discussed in the "Risk
Factors" section included in the Company's Registration Statement on Form S-1 as
declared effective by the Securities and Exchange Commission on April 11, 1996
(Reg. No. 333-1482).
RESULTS OF OPERATIONS
STATEMENT OF OPERATIONS DATA
The following table sets forth each item from the consolidated
statements of operations as a percentage of total revenue for the periods
indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------ -----------------
1996 1995 1996 1995
------ -------- ------ ------
<S> <C> <C> <C> <C>
Revenue:
Software 67.9% 58.9% 69.6% 63.0%
Maintenance, installation, and training 32.1 39.7 30.4 30.7
Software development contracts -- 1.4 -- 6.3
----- ------ ----- -----
Total revenues 100.0 100.0 100.0 100.0
Cost of revenue:
Software 9.1 4.5 7.4 3.8
Maintenance, installation, and training 17.0 23.3 17.2 18.1
Software development contracts -- 6.3 -- 13.7
----- ------ ----- -----
Total cost of revenues 26.1 34.1 24.6 35.6
Operating expense:
Product development 26.0 57.0 28.0 44.8
Sales and marketing 50.2 93.9 51.0 80.4
General and administrative 11.8 26.5 13.9 21.7
----- ------ ----- -----
Total operating expenses 88.0 177.4 92.9 146.9
Operating loss (14.1) (111.5) (17.5) (82.5)
Other income, net 4.1 2.8 2.4 0.8
----- ------ ----- -----
Net loss (10.0)% (108.7)% (15.1)% (81.7)%
===== ====== ===== =====
</TABLE>
Revenues
The Company's revenues are derived primarily from license fees for its
software and charges for services, including maintenance, consulting and
training. License revenues consist of revenues received by the Company from both
the initial license of its software products as well as subsequent purchases to
expand capacity or add additional functionality. Maintenance, installation and
training revenues are received by the Company for support contracts and
8
<PAGE> 9
consulting and training services. Software development contracts consist
principally of custom product development and non-recoverable engineering
charges for product integration and customization. Revenues from software
licenses are generally recognized upon shipment of software. Revenues from
maintenance contracts are recognized over the contract term, which generally is
one year, while installation and training revenues are recognized when the
services are performed. Software development contract revenues are recognized
using the percentage of completion method. Revenues from international
operations in the quarter ended June 30, 1996 was 30.6% and in prior quarters
ranged from 15% to 25% of revenue.
The Company's total revenues for the three and six months ended June
30,1996 were $3.3 million and $6.0 million respectively, an increase of $2.1
million and $3.3 million when compared with the comparable periods last year and
an increase of $563,000 when compared with the immediately preceding quarter
ended March 31, 1996. Software license and software development revenues for the
quarter ended June 30, 1996 were $2.2 million as compared with $697,000 for the
comparable year-ago quarter, and $1.9 million for the immediately preceding
quarter ended March 31, 1996. Software license and software development revenues
for the six months ended June 30, 1996 and 1995 were $4.2 million and $1.8
million, respectively. The increase in software license and software development
revenues from the comparable year-ago quarter and the comparable six months
period last year was due primarily to increased market acceptance of the
Company's existing products, the introduction of enhanced products and the
expansion of the Company's direct sales force. Maintenance, installation and
training revenues for the quarter ended June 30, 1996 were $1.1 million as
compared with $459,000 for the comparable year-ago quarter, and $767,000 for the
immediately preceding quarter ended March 31, 1996. Maintenance, installation
and training revenues for the six months ended June 30 , 1996 and 1995 were $1.8
million and $810,000, respectively. The three and six month increase was
primarily attributable to maintenance contracts associated with new software
licenses and the renewal of maintenance contracts by existing customers. The
Company expects that maintenance, installation and training revenues will
continue to increase in absolute amounts as its customer base grows. In 1995,
the Company formed its Professional Services organization to assume the
responsibility for providing installation, training, and consulting services to
its customer base. Revenues for consulting services are included in maintenance,
installation and training revenues.
Future growth in revenues will be dependent on several factors including
the following: the Company's ability to add enhanced features and functionality
to its NetJunction on Hewlett Packard products, growth of both direct and
indirect sales resources, market acceptance of the NetConnex product, and the
Company's ability to successfully port its NetJunction products to the Window NT
operation system on a timely basis. The latter two factors are directly related
to the increasing popularity of the Window NT operating system.
Cost of Revenues
The Company's total cost of revenues for the three and six months ended
June 30,1996 were $852,000 and $1,471,000 respectively, an increase of $457,000
and $531,000 when compared with the comparable periods last year and an increase
of $233,000 when compared with the immediately preceding quarter ended March 31,
1996. Software license costs, which primarily consist of media and
documentation, increased from $52,000 in the second quarter of 1995, and from
$145,000 in the first quarter of 1996 to $296,000 in the second quarter of 1996.
The increases in software license costs were due to higher sales volume. Costs
were lower in the first six months of 1995 due to the granting of customer site
licenses where product costs are minimal as the customer purchases one product
master of the software and documentation. Maintenance, installation and training
costs, which consist primary of labor and overhead, increased from $270,000 in
the second quarter of 1995 and from $474,000 in the first quarter of 1996 to
9
<PAGE> 10
$556,000 in the second quarter of 1996. The increases in maintenance,
installation and training costs were due primarily to the increase in the number
of customer support and training personnel, and related overhead costs necessary
to support a larger installed customer base and product upgrades. The Company
recognizes software development costs as incurred, while related revenue is
recognized as contract milestones are achieved. Gross margin as a percentage of
total revenues was 74.0% and 75.4% for the three and six months ended June 30,
1996, respectively, compared with 65.8% and 64.4% for the comparable periods
last year and 77.2% for the immediately preceding quarter. The increase in gross
margin as a percentage of total revenues from the comparable year-ago periods
was a result of the change in revenue mix towards software licensing, which has
higher gross margins. The decrease in gross margin as a percentage of total
revenues from the immediately preceding quarter was due primarily to increased
costs associated with the expansion of the professional services organization.
Product Development
Product development expenses associated with the development of new
products, enhancements of existing products and quality assurance activities,
consist principally of personnel costs, consultants, overhead costs relating to
occupancy, equipment depreciation and supplies. Costs related to research,
design and development of products are charged to product development expense as
incurred. Product development expenses for the three and six months ended June
30, 1996 were $852,000 and $1,676,000 respectively, an increase of $193,000 and
$492,000 when compared with the comparable periods last year and an increase of
$28,000 when compared with the immediately preceding quarter ended March 31,
1996. Product development expenses represented 26.0% and 28.0% of total revenues
for the three and six months ended June 30, 1996 compared with 57.0% and 44.8%,
respectively, for the comparable year-ago periods and 30.4% for the immediately
preceding quarter. The increase in absolute dollars in product development
expenses occurred as the Company built its product development organization and
was comprised of additional expenses relating to headcount. The decrease in
product development expenses as a percentage of total revenues is attributable
to the increase in revenues and the fact that product development expenses do
not fluctuate in direct proportion to total revenues. The Company believes that
a significant level of investment for product development is required to remain
competitive and, accordingly, the Company anticipates that, for the foreseeable
future, these expenses will continue to increase in absolute dollars but should
decline as a percentage of total revenues.
Sales and Marketing
Sales and marketing expenses consist primarily, of salaries, sales
commissions and promotional expenses. Sales and marketing expenses for the three
and six months ended June 30, 1996 were $1,644,000 and $3,050,000 respectively,
an increase of $559,000 and $926,000 when compared with the comparable periods
last year and an increase of $238,000 when compared with the immediately
preceding quarter ended March 31, 1996. Sales and marketing expenses represented
50.2% and 51.0% of total revenues for the three and six months ended June 30,
1996 compared with 93.9% and 80.4%, respectively, for the comparable year-ago
periods and 51.9% for the immediately preceding quarter. The increase in
absolute dollars reflected the hiring of additional sales and marketing
personnel in connection with the building of the Company's direct sales force,
higher sales commissions associated with increased sales volume and increased
promotional expenses. The decrease in sales and marketing expenses as a
percentage of total revenues is attributable to the increase in revenues and the
fact that sales and marketing expenses do not fluctuate in direct proportion to
total revenues. In the near future, the Company expects to continue hiring
additional sales and marketing personnel, increase promotion and advertising
10
<PAGE> 11
efforts and to expand internationally through a combination of distributors,
VARs and direct sales personnel.
General and Administrative
General and administrative expenses consist primarily of salaries and
occupancy costs for administrative, executive and finance personnel. General and
administrative expenses for the three and six months ended June 30, 1996 were
$385,000 and $831,000 respectively, an increase of $79,000 and $258,000 when
compared with the comparable periods last year and a decrease of $61,000 when
compared with the immediately preceding quarter ended March 31, 1996. General
and administrative expenses represented 11.8% and 13.9% of total revenues for
the three and six months ended June 30, 1996 compared with 26.5% and 21.7%,
respectively, for the comparable year-ago periods and 16.5% for the immediately
preceding quarter. The decrease in general and administrative expenses as a
percentage of total revenues is attributable to the increase in revenues and the
fact that general and administrative expenses do not fluctuate in direct
proportion to total revenues. The Company believes that general and
administrative expenses will increase in absolute dollar amounts for the near
term as the Company expands its administrative staff, adds infrastructure and
incurs additional costs related to being a public company.
As of June 30, 1996, the Company had deferred compensation of $153,000
for the difference between the grant price and the deemed fair value of the
Company's Common Stock for shares subject to options granted during the last two
months of 1995. The deferred compensation is being amortized over the four-year
vesting period of the options.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and met its
capital expenditure requirements primarily from proceeds of private sales of
Preferred Stock and Common Stock. Through June 30, 1996, the Company had raised
$27.3 million from the sale of Preferred Stock and Common Stock. At June 30,
1996, the Company had $16.0 million in cash and cash equivalents. In April and
May 1996, the Company closed its initial public offering with net proceeds to
the Company of approximately $14.0 million.
The Company has a $750,000 bank credit facility that expires on October
15, 1998 and is comprised of a $500,000 line of credit and a $250,000 term loan
facility. As of June 30, 1996, the Company had borrowed $250,000 of the term
loan facility.
Net cash used from operating activities was $1,575,000 and $401,000 in
the first six months of 1995 and 1996, respectively. The net cash used during
these periods was primarily due to net losses and increases in accounts
receivable, which were partially offset by increases in accrued liabilities, and
accounts payable. Investing activities used net cash of $310,000 and $4,192,000
in the six months ended June 30, 1995 and 1996, respectively, primarily to
purchase property, equipment and non-current investments. Financing activities
generated cash of $3.7 million and $14.1 million in 1995 and 1996, respectively,
from the issuance of Preferred Stock, Common Stock and promissory notes that
were later converted into capital stock and from capital leases and bank
borrowings.
11
<PAGE> 12
As of June 30, 1996, the company's principal commitments consisted of
obligations under operating and capital leases, comprised of $4.5 million and
$477,000, respectively.
Capital expenditures have been, and near-term future expenditures are
anticipated to be, primarily for facilities and equipment to support expansion
of the Company's operations and management information systems. While the
Company currently has no material capital commitments, the Company anticipates
that its planned purchases of capital equipment for the remainder of 1996 will
require additional expenditures of approximately $500,000.
The Company believes that the net proceeds from its initial offering,
together with its cash balance, credit facilities and cash flow generated from
future operations, will be sufficient to meet its anticipated cash needs for
working capital, capital expenditures and business expansion for at least the
next twelve months. Thereafter, if cash generated from operations is
insufficient to satisfy the Company's liquidity requirements, the Company may
seek to sell additional equity or convertible debt securities or obtain
additional credit facilities. The sale of additional equity or convertible debt
securities could result in additional dilution to the Company's stockholders and
may not be available on terms favorable to the Company if at all.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks. These risks should be read in
conjunction with the "Risk Factors" section included in the Company's
Registration Statement on Form S-1 as declared effective by the Securities and
Exchange Commission on April 11, 1996 (Reg. No. 333-1482).
LIMITED OPERATING HISTORY; CUMULATIVE LOSSES
The Company was founded in February 1992, and its first product shipped
in May 1992. The Company has incurred operating losses in each of its fiscal
years since inception and had an accumulated deficit of $12.6 million as of June
30, 1996. The Company expects to continue to incur such losses through 1996, and
there can be no assurance that the Company will reach and sustain profitability
on an annual or quarterly basis. The Company's prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in the early stage of development, particularly companies in new and
rapidly evolving markets. To address these risks, the Company must, among other
things, continue to upgrade its technologies, commercialize products and
services incorporating such technologies, continue to attract, retain and
motivate qualified persons and respond to competitive developments. There can be
no assurance that the Company will be successful.
12
<PAGE> 13
QUARTERLY FLUCTUATIONS
The Company's quarterly and annual operating results have, in the past,
and may, in the future, vary significantly, depending on many factors. The
Company generally ships products as orders are received and, therefore, has
little or no backlog. Historically, a substantial portion of the Company's
revenues has been recognized in the last month of the quarter as a result of
many customers purchasing practices and the Company's compensation practices for
its sales personnel. During the second half 1995, the Company changed its sales
force compensation practices to encourage a more even distribution of revenues
throughout the quarter. However, the inability of the Company to recognize
expected revenues during the last month of the quarter, particularly due to
delay in the timing of large orders, could result in substantial fluctuations
from period to period. Additional factors that may affect operating results
include the timing of customers' decision-making processes, the timing of
expenses incurred by the Company in anticipation of product releases or
increased revenue, the timing of product enhancements and product introductions
by the Company and its competitors, market acceptance of new and enhanced
versions of the Company's products, changes in pricing policies of the Company
and its competitors, variations in the mix of products the Company licenses, the
mix of direct and indirect sales, personnel changes and general economic
factors. Any unfavorable changes in these or other factors could have a material
adverse effect on the Company's business, financial condition and results of
operations.
FUTURE OPERATING RESULTS UNCERTAIN
Although the Company has recently begun to experience a significant
increase in its revenue growth rate, such growth should not be considered
indicative of future revenue growth, if any, or of future operating results.
There can be no assurance that the Company's revenue will grow or be sustained
in future periods or that the Company will be profitable in any future period.
Revenues depend primarily on the volume and timing of orders received during the
period, which are difficult to forecast. Licenses of the Company's NetJunction
products, which accounted for a substantial portion of the Company's revenues to
date, generally involve a significant commitment of capital by prospective
customers, with the attendant delays frequently associated with customers'
internal procedures to approve large capital expenditures and lengthy
decision-making processes. For these and other reasons, the sales cycle
associated with the license of the Company's NetJunction products is lengthy
(typically three to six months) and subject to a number of significant risks,
including customers' budgetary constraints and internal acceptance reviews, over
which the Company has little or no control. The timing and outcome of such
decision-making processes have affected the Company's historical financial
performance and are expected to impact future results. Although the Company
anticipates that revenues relating to new products, such as the recently
introduced NetConnex product, will increase in the future, there can be no
assurance that the Company's expectations of increased revenues from its new
products will be realized.
The Company's expense levels are based, in part, on its expectation of
future revenues, which are difficult to predict. If revenue levels are below
expectations due to delays associated with customers' decision-making processes
or for any other reason, operating results are likely to be materially adversely
affected. Net income may be disproportionately affected by a reduction in
revenue because a large portion of the Company's expenses is related to
headcount that cannot be easily reduced without adversely affecting the
Company's business. In addition, the Company currently intends to increase its
funding of research and product development, increase its sales and marketing
and customer support operations and expand distribution channels. To the extent
such expenses precede or are not subsequently followed by increased revenues,
the Company's business, operating results and financial condition could be
materially and adversely affected.
13
<PAGE> 14
Due to the foregoing and other factors, it is likely that in some future
period the Company's revenue or operating results will be below the expectations
of public market analysts and investors. In such event, the price of the
Company's Common Stock would likely be materially adversely affected.
RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT
The Company's industry is characterized by extremely rapid technological
change, frequent new product introductions and enhancements, evolving industry
standards and rapidly changing customer requirements. The Company's future
operating results will depend in part upon its ability to enhance its current
products and develop and introduce new products that keep pace with
technological advancements and address the increasingly sophisticated needs of
its customers. Development of new and enhanced products depends, in part, on the
timely availability of published interfaces with the application software the
Company's products support. If developers of such software discontinue making
such interfaces available to the Company, it may be more difficult for the
Company to keep pace with changes in these target environments. There can be no
assurance that the Company will be successful in developing and marketing
product enhancements or new products that respond to technological change,
evolving industry standards and changing customer requirements, that the Company
will not experience difficulties that could delay or prevent the successful
development, introduction and marketing of these products or product
enhancements, or that its new products and product enhancements will adequately
meet the requirements of the marketplace and achieve any significant degree of
market acceptance. Failure of the Company, for technological or other reasons,
to develop and introduce new products and product enhancements in a timely and
cost-effective manner or to anticipate and respond adequately to changing market
conditions, as well as any significant delay in product development or
introduction, could cause customers to delay or decide against purchases of the
Company's products.
In addition, the introduction or even announcement by the Company, or by
one or more of its competitors, of products embodying new technologies or
features could render the Company's existing products obsolete or unmarketable.
The introduction or announcement of new product offerings by the Company or one
or more of its competitors could also cause customers to defer or cancel
purchases of existing Company products.
Software products as complex as those offered by the Company may contain
defects or failures when introduced or when new versions are released. The
Company has, in the past, discovered software defects in certain of its products
and may experience delays or lost revenue to correct such defects in the future.
Although the Company has corrected known material defects in its current
products and has not experienced material adverse effects resulting from any
such defects to date, there can be no assurance that, despite testing by the
Company, errors will not be found in new products or releases after commencement
of commercial shipments, resulting in, among other consequences, loss of market
share or failure to achieve market acceptance.
DEPENDENCE ON KEY PERSONNEL
The Company's future depends in large part on the continued service of
its key technical personnel and its ability to continue to attract and retain
highly skilled technical personnel. Certain key technical personnel have an
in-depth knowledge of the Company's software and the actions necessary to
maintain and enhance the Company's products. The Company is particularly
dependent upon such personnel to continually respond to changes in the
application software that the Company's products interconnect. Moreover, there
14
<PAGE> 15
are only a limited number of qualified software engineers with relevant industry
experience. The competition for such personnel in the software industry in
general, and the data communications market in particular, is intense, and there
can be no assurance that the Company will retain its key technical personnel or
locate and attract such personnel in the future. The Company has at times
experienced and continues to experience difficulty in recruiting qualified
technical personnel, and the Company anticipates experiencing such difficulties
in the future. Generally, the Company's employees are not bound by employment or
noncompetition agreements or covered by key man life insurance policies. In
addition, competitors may attempt to recruit the Company's key employees. The
loss of any key technical personnel or the failure to successfully recruit such
personnel in the future could have a material adverse effect on the Company's
business, financial condition and results of operations.
MANAGEMENT OF GROWTH
If the Company continues to grow, it will be required to recruit
additional key sales and marketing and technical personnel. An increase in
engineering staff will be required to rapidly develop the full line of Windows
NT-based products currently being planned and to design new features for the
Company's NetJunction products. The Company's product marketing strategy in the
future will place greater reliance on distribution by VARs and distributors to
supplement a direct sales model, which will require the addition of personnel
with channel experience to the Company's sales and marketing force. Moreover,
the number and size of the Company's annual maintenance contracts are expected
to increase as sales and the installed base of the Company's products increase,
resulting in pressure to increase customer service and support personnel.
Additional customer service and support personnel will also be needed to support
the Company's Windows NT-based products. These products are expected to be
purchased by customers with little computer knowledge and experience who
increasingly rely upon the Company's customer service personnel to provide
extensive telephone support, often involving software and hardware problems
unrelated to the Company's products. The Company's ability to assimilate new
personnel will be critical to the Company's performance, and there can be no
assurance that the administrative, financial and operational systems and
controls currently in place will be adequate if the Company continues to grow or
that the Company will be able to implement additional systems and controls
successfully, and in a timely manner.
Moreover, the increase in the number of the Company's employees and the
Company's market diversification and product development activities have
resulted in increased responsibility for management. The inability of the
Company's management to manage its growth, to respond to changing business
conditions, or to adapt its operational, management and financial systems and
controls to accommodate its growth, could have a material adverse effect on the
Company's business, financial condition and results of operations.
RELIANCE ON THE NETJUNCTION PRODUCTS; MARKET ACCEPTANCE OF WINDOWS NT-BASED
PRODUCTS
Since its inception, the Company has derived a substantial portion of its
revenues from its products. Revenues from these products accounted for
approximately 70% of the Company's revenues from software licenses in the
quarter ending June 30, 1996. The Company's future operating results are
significantly dependent upon continued market acceptance and continued
enhancement of its NetJunction products. Today's businesses use e-mail and
groupware for messaging and critical file transfers within their own
organizations, as well as to conduct electronic information transfer with other
organizations over the Internet. The market for the
15
<PAGE> 16
Company's NetJunction products is in large part due to the proliferation of
numerous disparate e-mail systems and LAN environments, and the fact that, to
date, no single vendor has dominated this market. Standardization of messaging
systems could reduce demand for the connectivity feature of the Company's
products. There can be no assurance that the NetJunction products will continue
to be adequately enhanced to achieve continued market acceptance or that
competitive developments out of the Company's control may not substantially
reduce or eliminate the Company's principal market.
The Company's future also depends upon the successful completion,
introduction and market acceptance of its Windows NT-based products. NetConnex,
the first product in this proposed line of products, was introduced in September
1995; however, the remainder of this product line is currently under
development. There can be no assurance that the Windows NT platform itself will
continue to claim market acceptance, that Microsoft Corporation ("Microsoft")
will continue to improve and enhance Windows NT so that it remains a viable
product, or that the Company's emphasis on Windows NT for future product
development will prove justified. Significant development work must be completed
on the Company's Windows NT-based products to adequately address the perceived
market for these products. The Company may not be successful in marketing this
line of products or any of their new or enhanced products.
The Company believes that a number of factors must be addressed for its
products to achieve broad market acceptance. These factors include throughput
performance, functionality, interoperability with existing systems, price and
the customer's assessment of the Company's technical, managerial, service and
support expertise and capability. Failure to succeed with respect to any of
these factors could result in the Company failing to achieve broad market
acceptance of its products. The market for the Company's products has only
recently begun to develop and is rapidly evolving. As is typical in the case of
such markets, demand and market acceptance are subject to a high level of
uncertainty. The industry, especially the portions of the market relating to
Windows NT and the Internet, is young and has few proven products. Accordingly,
it is difficult to predict the future growth rate, if any, the size of the
market and the potential acceptance of the Company's products. Failure of the
Company's products to achieve broad market acceptance as a result of
competition, technological change or other factors, and any factor adversely
affecting the e-mail and groupware markets or viability of the Internet, could
have a material adverse effect on the Company's business, financial condition
and results of operations
DEPENDENCE ON THE INTERNET
License of the Company's products will depend in part upon a robust
industry and infrastructure for providing Internet access and carrying Internet
traffic. The Internet may not prove to be a viable commercial marketplace
because of inadequate development of the necessary infrastructure, such as a
reliable network backbone and adequate bandwidth, or timely development of
complementary products, such as high speed modems. Because global commerce and
on-line exchange of information on the Internet and other similar open wide area
networks ("WANs") are new and evolving, it is difficult to predict with any
assurance whether the Internet will prove to be a viable commercial marketplace.
Failure of such a commercial marketplace to develop or, if developed, to be
viable, or Failure of the Company's products to adequately address
communications between organizations over the Internet could have a material
adverse effect on the Company's business, financial condition and results of
operations.
COMPETITION
16
<PAGE> 17
The market for the Company's products is intensely competitive and
subject to rapid change. In the LAN environment, the Company primarily
encounters competition from large public systems vendors, including Control Data
Systems ("CDS"), Digital Equipment Corporation ("DEC") and International
Business Machines Corporation ("IBM"). Additionally, many companies offer
alternative solutions with point-to-point gateway connectivity products. The
Company also anticipates competition in the future from companies in related
markets, such as database vendors, internetworking vendors and value-added
network or Internet service providers. Because there are relatively low barriers
to entry in the software market, the Company expects additional competition from
other established and emerging companies if the e-mail connectivity, intelligent
directory and application router markets continue to develop and expand. The
Company believes that the competitive factors affecting the market for the
Company's products and services include product functionality and product
quality, performance and price, ease of product integration with disparate
e-mail, groupware, LAN and WAN environments, quality of customer support
services, customer training and documentation, hardware platforms supported and
vendor and product reputation. The relative importance of each of these factors
depends upon the specific customer environment. Although the Company believes
that its products and services currently compete favorably with respect to such
factors, there can be no assurance that the Company can maintain its competitive
position against current and potential competitors.
Many of the Company's current and potential competitors have longer
operating histories, significantly greater financial, technical, product
development and marketing resources, greater name recognition and larger
customer bases than the Company. The Company's present or future competitors may
be able to develop products comparable or superior to those developed by the
Company, adapt more quickly than the Company to new technologies, evolving
industry trends or customer requirements, or devote greater resources to the
development, promotion and license of their products than the Company.
Accordingly, there can be no assurance that competition will not intensify or
that the Company will be able to compete effectively in its market.
The Company expects that it will face increasing pricing pressures from
its current competitors and new market entrants. The Company's competitors may
engage in pricing practices that reduce the average selling prices of the
Company's products. To offset declining average selling prices, the Company
believes that it must successfully introduce and license new products on a
timely basis and develop new products that incorporate features that can be sold
at higher average selling prices. To the extent that new products are not
developed in a timely manner, do not achieve customer acceptance or do not
generate higher average selling prices, the Company's gross margins may decline.
RISKS ASSOCIATED WITH NEW DISTRIBUTION CHANNELS
The Company anticipates that its marketing strategy for its Windows
NT-based products will in the future place greater reliance on distribution by
VARs and distributors to supplement its direct sales model. The Company lacks a
breadth of experience in distributor channel management. There can be no
assurance that expansion of the Company's channel sales efforts will succeed or
that such expansion will result in increased sales. The use of VARs and
distributors can result in less control and visibility by the Company over its
end-users. In addition, dependence on third-party distribution channels results
in lower margins than direct sales. If the channel sales efforts fail, the
Company's revenues could be materially and adversely affected.
17
<PAGE> 18
RISKS ASSOCIATED WITH ACQUISITIONS
While no acquisitions are currently in process, the Company may, in the
future, pursue acquisitions of complimentary companies or technologies to
further strategic corporate objectives. Such acquisitions could result in a
significant use of cash and earnings per share dilution caused by reduced
interest income and/or the issuance of additional stock. Additionally, future
operating costs associated with the acquisition of companies or technologies
could materially impact future operating results. Further, such acquisitions
could result in the immediate write-off of research and development in process
and expenses relating to acquisition and integration costs. Accordingly,
accounting charges related to such transactions could result is significant loss
in one or more fiscal quarter.
INCREASING DEPENDENCE ON SYSTEMS INTEGRATORS
The Company utilizes systems integrators to assist in the deployment and
project management of its NetJunction products. These systems integrators help
the Company's customers design and implement complex computer communication
networks, which often consist of both hardware and software from a variety of
vendors. The Company anticipates that future sales of its NetJunction products
will be increasingly dependent upon the continued viability and financial
stability of these systems integrators. Since these computer communication
projects involve customers with varying degrees of sophistication, effective
systems integrator representatives must possess sufficient technical, marketing
and sales resources and must devote these resources to a lengthy sales cycle,
customer training and product service and support. Systems integrators may
recommend products of several different companies, including, in some cases,
products that are competitive with the Company's products. There can be no
assurance that any of the Company's systems integrators will be able to market,
deploy or support the Company's products effectively, that economic conditions
or industry demand will not adversely affect these companies, or that any of
these systems integrators will not devote greater resources to marketing and
supporting products of other companies. The loss of any of the Company's systems
integrators could have a material adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE ON STRATEGIC RELATIONSHIPS
The Company may be dependent on the technical, manufacturing, marketing,
financial and other resources of third parties with which it has established or
is attempting to establish strategic relationships for certain joint product
development and marketing programs. Third parties with which the Company
establishes strategic relationships are not necessarily contractually obligated
to perform any of the activities on which the Company depends in order to meet
its business objectives. These third parties may choose to discontinue their
strategic relationships with the Company, develop or market products or
technologies that compete directly with the Company's products or establish
relationships with the Company's competitors.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's future success is dependent upon its proprietary software
technology. The Company does not currently have any patents and relies
principally on trade secret, copyright and trademark laws, nondisclosure and
other contractual agreements and technical measures to protect its technology.
The Company also believes that factors such as the technological and creative
18
<PAGE> 19
skills of its personnel and new product developments and enhancements are
essential to establishing and maintaining a technology leadership position. The
Company generally enters into confidentiality and/or license agreements with its
employees, distributors and customers, and limits access to and distribution of
its software, documentation and other proprietary information. Much of the
Company's software is shipped with a software security lock which initially
limits software access to authorized users. In addition, the Company restricts
third-party access to its source code, except in connection with source code
escrow arrangements. There can be no assurance that the steps taken by the
Company will prevent misappropriation of its technology, and such protections do
not preclude competitors from developing products with functionality or features
similar to the Company's products. Furthermore, there can be no assurance that
third parties will not independently develop competing technologies that are
substantially equivalent or superior to the Company's technologies. The Company
and Microsoft co-own part of the source code for NetConnex that was jointly
developed under an agreement. Microsoft is not restricted in the use it may make
of the source code and could develop products competitive with the Company's
products in the future. In addition, effective copyright and trade secret
protection may be unavailable or limited in certain foreign countries. Any
failure by or inability of the Company to protect its proprietary technology
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Although the Company has not received any notice that its products
infringe the proprietary rights of any third party, there can be no assurance
that infringement claims will not be asserted against the Company or its
customers in the future. As the number of software products in the industry
increases and the functionality of these products further overlaps, the Company
believes that software developers may become increasingly subject to
infringement claims as well. Furthermore, the Company may initiate claims or
litigation against third parties for infringement of the Company's proprietary
rights or to establish the validity of the Company's proprietary rights.
Litigation, either as plaintiff or defendant, would cause the Company to incur
substantial costs and divert management resources from productive tasks, whether
or not such litigation is resolved in the Company's favor and whether or not any
claims against the Company have merit. Parties making claims against the Company
could secure substantial damages, as well as injunctive or other equitable
relief, which could effectively block the Company's ability to license its
products in the United States or abroad. If it appears necessary or desirable,
the Company may seek licenses to intellectual property that it is allegedly
infringing. However, there can be no assurance that licenses could be obtained
on commercially reasonable terms, if at all, or that the terms of any offered
licensed will be acceptable to the Company. There are currently no pending
claims that the Company's products, trademarks or other proprietary rights
infringe upon the proprietary rights of third parties and the Company has not
brought any similar type of action against any other person or entity.
INTERNATIONAL SALES
Although international sales accounted for 30.6% of the Company's total
revenues in the quarter ended June 30, 1996, it is expected that revenues from
the licensing and support of the Company's products in international markets
will increase in the future. International sales involve a number of risks,
including the impact of possible recessionary environments in economies outside
the United States, longer receivables collection periods and greater difficulty
in accounts receivable collection, unexpected changes in regulatory
requirements, reduced protection for intellectual property rights in some
countries, tariffs and other trade barriers, foreign currency exchange rate
fluctuations, difficulties in staffing and managing foreign operations, the
burdens of complying with a variety of foreign laws, potentially adverse tax
consequences and political and economic instability. Because licenses of the
Company's
19
<PAGE> 20
products are denominated in United States dollars, an increase in the value of
the dollar could increase the price in local currencies of the Company' products
in foreign markets and make the Company's products relatively more expensive
than competitive products denominated in local currencies. There can be no
assurance that the foregoing factors will not have a material adverse effect on
the Company's future international license and service revenue. The Company
believes that its growth will require expansion of its sales in foreign markets
and expects to rely principally on resellers in those markets, rather than
substantially increase its direct sales force to serve those markets. There can
be no assurance that the Company will be able to sustain or increase revenue
derived from international licensing and service.
PRODUCT LIABILITY
Although the Company has not experienced any product liability claims to
date, the license and support of products by the Company may entail the risk of
such claims. Notwithstanding the provisions in certain of the Company's license
agreements designed to limit the Company's exposure, a product liability claim
brought against the Company could have a material adverse effect upon the
Company's business, financial condition and results of operations.
VOLATILITY OF STOCK PRICE
The market price of the shares of Common Stock is likely to be highly
volatile and may be significantly affected by factors such as actual or
anticipated fluctuations in the Company's operating results, announcements of
technological innovations, new products or new contracts by the Company or its
competitors, developments with respect to patents, copyrights or proprietary
rights, acquisitions or divestiture of business or technology, conditions and
trends in the software or other industries, general market conditions and other
factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the common stocks of technology companies. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock. In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often resulted.
There can be no assurance that such litigation will not occur in the future with
respect to the Company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect upon the Company's business, financial condition and results of
operations.
20
<PAGE> 21
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about May 9, 1996, an action was commenced against the Company by
one of its subcontractors relating to a project by which the Company provided
software products and services to one it its customers. The action, entitled
"Salinas Group Limited, Plaintiff, versus Worldtalk Communications Corporation,
Defendant", was removed by the Company to the United States District Court for
the Southern District of New York, where it has been assigned Action No. 96 Civ.
4812 (LAR). The dispute concerns the performance of the subcontractor under a
written agreement with the Company, and the subcontractor's claim for certain
cost overruns. The subcontractor has claimed $109,900 for services alleged
rendered, and has also made a claim for $823,200 in damages for an unspecified
breach of contract and without specifying the nature of the alleged damages. The
Company believes the claims of the subcontractor are without merit and intends
vigorously to defend against the action. The Company has filed a Counterclaim
against the subcontractor for amounts paid to the subcontractor in excess of
that called for by the subcontractor agreement.
ITEM 2. CHANGE IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is being filed as part of this Report 11-1
Statement re: Computation of Per Share Earnings.
(b) Financial data schedule
(c) No reports on Form 8-K were filed during the three months ended June
30, 1996.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WORLDTALK
COMMUNICATIONS CORPORATION
Date: August 14, 1996 By: /s/ STEPHEN BENNION
Stephen R. Bennion
Vice President, Finance and Operations
and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
22
<PAGE> 1
WORLDTALK COMMUNICATIONS CORPORATION EXHIBIT 11.1
Computation of (Pro Forma) Net Loss Per Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------- -------------------
1996 1995 1996 1995
--------- ------- ------- -------
<S> <C> <C> <C> <C>
Net loss ................................................. $ (326) $(1,257) $ (905) $(2,158)
Weighted average common shares outstanding ............... 9,429 489 5,499 1,509
Preferred stock, on an "as if converted basis" using the
exchange rate in effect at the initial public offering
date ................................................. -- 3,000 3,012 1,966
Staff Accounting Bulletin No. 83 issuances and grants (1) -- 4,108 -- 4,108
--------- ------- ------- -------
Weighted average shares outstanding ...................... 9,429 7,597 8,511 7,583
========= ======= ======= =======
Net loss per share ....................................... $ (0.03) $ (0.17) $ (0.11) $ (0.28)
========= ======= ======= =======
</TABLE>
(1) Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock warrants, options and other potentially dilutive
securities issued during the 12 month period preceding the date of initial
filing of the Company's Registration Statement on Form S-1 (File No. 333-1482),
have been included in the calculation of common equivalent shares, using the
treasury stock method, as if they were outstanding for all periods presented,
even if anti-dilutive.
23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 10,497
<SECURITIES> 0
<RECEIVABLES> 2,799
<ALLOWANCES> 150
<INVENTORY> 0
<CURRENT-ASSETS> 19,063
<PP&E> 2,144
<DEPRECIATION> 877
<TOTAL-ASSETS> 20,645
<CURRENT-LIABILITIES> 5,568
<BONDS> 0
0
0
<COMMON> 27,471
<OTHER-SE> 13,041
<TOTAL-LIABILITY-AND-EQUITY> 20,645
<SALES> 3,272
<TOTAL-REVENUES> 3,272
<CGS> 852
<TOTAL-COSTS> 852
<OTHER-EXPENSES> 2,881
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135
<INCOME-PRETAX> (326)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (326)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
