<PAGE>
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 December 31, 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 0-21059
ACE*COMM CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1283030
- ---------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
704 Quince Orchard Road, Gaithersburg, MD 20878
- ------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
301-721-3000
- ---------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
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
--- ---
Number of shares of Common Stock outstanding as of January 27, 1998 8,805,249
1
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ACE*COMM CORPORATION
INDEX
<TABLE>
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1997
(Unaudited) and June 30, 1997 3
Consolidated Statements of Operations (Unaudited) for the
Three and Six Months Ended December 31, 1997 and 1996 4
Consolidated Statement of Stockholders' Equity as of
December 31, 1997 (Unaudited) and June 30, 1997 5
Consolidated Statements of Cash Flows (Unaudited) for the
Six Months Ended December 31, 1997 and 1996 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
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PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
ACE*COMM CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, JUNE 30,
1997 1997
------------ ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.............................................................. $ 2,834 $ 7,920
Accounts receivable, net............................................................... 16,135 16,120
Inventories, net....................................................................... 2,743 2,814
Prepaid expenses and other............................................................. 1,447 1,011
------------ ---------
Total current assets................................................................. 23,159 27,865
Property and equipment, net.............................................................. 4,260 3,470
Capitalized software development costs, net.............................................. 2,256 2,077
Other assets............................................................................. 81 106
------------ ---------
Total assets......................................................................... $ 29,756 $ 33,518
------------ ---------
------------ ---------
Liabilities and Stockholders' Equity
Current liabilities:
Current borrowings..................................................................... $ 442 $ 527
Accounts payable....................................................................... 1,505 2,735
Accrued expenses....................................................................... 321 184
Accrued compensation................................................................... 2,005 2,129
Accrued contract costs................................................................. 3,198 3,551
Deferred income taxes.................................................................. -- 395
Deferred revenue....................................................................... 636 510
------------ ---------
Total current liabilities............................................................ 8,107 10,031
Noncurrent borrowings.................................................................. 824 1,013
Deferred income taxes.................................................................. 297 765
------------ ---------
Total liabilities.................................................................... 9,228 11,809
Common stock, $.01 par value, 45,000,000 shares authorized, 8,662,653 and 8,550,582
shares issued and outstanding........................................................ 87 85
Additional paid-in capital............................................................. 19,748 19,530
Retained earnings...................................................................... 693 2,094
------------ ---------
Total stockholders' equity........................................................... 20,528 21,709
------------ ---------
Total liabilities and stockholders' equity........................................... $ 29,756 $ 33,518
------------ ---------
------------ ---------
</TABLE>
See accompanying notes to consolidated financial statements.
3
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ACE*COMM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue--products, software licenses and services....................... $ 5,491 $ 7,257 $ 14,226 $ 13,521
Cost of products, software licenses and services........................ 4,598 3,480 8,282 6,618
--------- --------- --------- ---------
Gross profit............................................................ 893 3,777 5,944 6,903
Selling, general and administrative expense............................. 3,963 2,511 7,306 4,646
Research and development expense........................................ 503 468 951 866
--------- --------- --------- ---------
(Loss) income from operations........................................... (3,573) 798 (2,313) 1,391
Interest income, net.................................................... 37 92 89 39
--------- --------- --------- ---------
(Loss) income before income taxes....................................... (3,536) 890 (2,224) 1,430
Income tax (benefit) provision.......................................... (1,335) 266 (823) 266
--------- --------- --------- ---------
Net (loss) income....................................................... $ (2,201) $ 624 $ (1,401) $ 1,164
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic (loss) income per share (pro forma for the six months ended
December 31, 1996).................................................... ($ 0.25) $ 0.08 ($ 0.16) $ 0.16
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted (loss) income per share (pro forma for the six months ended
December 31, 1996).................................................... ($ 0.25) $ 0.07 ($ 0.16) $ 0.14
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in computing income per share:
Basic................................................................. 8,654 7,832 8,623 7,097
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted............................................................... 8,654 8,972 8,623 8,099
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
4
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ACE*COMM CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------------- ------------------------ ADD'L
PAR PAR PAID-IN
SHARES VALUE SHARES VALUE CAPITAL
------ ----- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
Balance June 30, 1996............................ 1 $ 1 3,590 $ 36 $ 343
Accretion of preferred stock dividends........... -- -- -- -- (17)
Conversion of preferred stock Class C............ -- -- 1,531 15 2,264
Redemption of preferred stock Class B............ (1) (1) -- -- (307)
Issuance of common stock......................... -- -- 2,645 26 16,083
Exercise of common stock options................. -- -- 838 8 2,060
Repurchase and retirement of common stock........ -- -- (54) -- (896)
Net income for the period ended June 30, 1997.... -- -- -- -- --
-------- -------- -------- -------- -----------
Balance, June 30, 1997........................... -- -- 8,550 85 19,530
-------- -------- -------- -------- -----------
Exercise of common stock options (unaudited)..... -- -- 113 2 239
Repurchase and retirement of common stock
(unaudited).................................... -- -- (1) -- (21)
Net income (loss) for the period ended December
31, 1997 (unaudited)........................... -- -- -- -- --
-------- -------- -------- -------- -----------
Balance December 31, 1997........................ -- -- 8,662 $ 87 $ 19,748
-------- -------- -------- -------- -----------
-------- -------- -------- -------- -----------
<CAPTION>
RETAINED
EARNINGS
(ACCUMULATED
DEFICIT TOTAL
--------------- ---------
<S> <C> <C>
Balance June 30, 1996............................ $ (530) $ (150)
Accretion of preferred stock dividends........... -- (17)
Conversion of preferred stock Class C............ -- 2,279
Redemption of preferred stock Class B............ -- (308)
Issuance of common stock......................... -- 16,109
Exercise of common stock options................. -- 2,068
Repurchase and retirement of common stock........ -- (896)
Net income for the period ended June 30, 1997.... 2,624 2,624
------- ---------
Balance, June 30, 1997........................... 2,094 21,709
------- ---------
Exercise of common stock options (unaudited)..... -- 241
Repurchase and retirement of common stock
(unaudited).................................... -- (21)
Net income (loss) for the period ended December
31, 1997 (unaudited)........................... (1,401) (1,401)
------- ---------
Balance December 31, 1997........................ $ 693 $ 20,528
------- ---------
------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
5
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ACE*COMM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................................... $ (1,401) $ 1,164
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation................................................................... 377 174
Amortization of capitalized software........................................... 475 281
Changes in operating assets and liabilities:
Accounts receivable............................................................ (15) (728)
Inventories.................................................................... 71 (238)
Other assets................................................................... (411) (89)
Accounts payable............................................................... (1,230) (2,356)
Accrued expenses............................................................... (216) (625)
Accrued compensation........................................................... (123) 93
Deferred income taxes.......................................................... (863) 266
Deferred revenue............................................................... 126 (1,198)
--------- ---------
Net cash used for operating activities........................................... (3,210) (3,256)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment.............................................. (1,166) (517)
Additions to capitalized software development costs.............................. (655) (715)
--------- ---------
Net cash used for investing activities........................................... (1,821) (1,232)
--------- ---------
Cash flows from financing activities:
Net decrease in line of credit................................................... -- (4,446)
Payments on debt................................................................. (256) (237)
Principal payments under capital lease obligation................................ (19) (3)
Net proceeds from common stock issued............................................ -- 16,134
Exercise of common stock options................................................. 241 295
Repurchase and retirement of common stock........................................ (21) (256)
Redemption of class B preferred shares........................................... -- (308)
--------- ---------
Net cash (used for) provided by financing activities............................. (55) 11,179
--------- ---------
Net (decrease) increase in cash and cash equivalents............................. (5,086) 6,691
Cash and cash equivalents at beginning of period................................. 7,920 369
--------- ---------
Cash and cash equivalents at end of period....................................... $ 2,834 $ 7,060
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information-
Cash paid during the period for :
Interest..................................................................... $ 64 $ 136
--------- ---------
--------- ---------
Income taxes................................................................. $ 39 $ 15
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
6
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ACE*COMM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of ACE*COMM Corporation and its subsidiaries ("ACE*COMM" or the
"Company"). The financial statements have been prepared by ACE*COMM in
accordance with generally accepted accounting principles for interim
financial statements and pursuant to the rules of the Securities and Exchange
Commission for Form 10-Q. Accordingly, certain information and footnotes
required by generally accepted accounting principles for complete financial
statements have been omitted. It is the opinion of management that all
adjustments considered necessary for a fair presentation have been included,
and that all such adjustments are of a normal and recurring nature.
Operating results for the periods presented are not necessarily indicative of
the results that may be expected for any future periods. For further
information, refer to the audited financial statements and footnotes included
in the Company's Annual Report on Form 10-K for the year ended June 30, 1997.
Pro forma income (loss) per share is computed using the weighted average
number of shares of common stock, adjusted for the dilutive effect of common
stock options and assuming the conversion of redeemable preferred stock as of
the beginning of the period presented. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83, common stock and common stock
equivalent shares issued by the Company at prices below its initial public
offering price during the twelve month period prior to the initial public
offering date (using the treasury stock method and an offering price of $7.00
per share) have been included in the calculation of pro forma income per
share for all periods, except the six months ended December 31, 1997, as if
they were outstanding for all of the period regardless of whether they are
dilutive.
RECLASSIFICATIONS
Certain prior year information has been reclassified to conform with current
year presentation.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
ACE*COMM Corporation ("ACE*COMM" or the "Company") develops, markets and
services operations support systems ("OSS") products for networks deployed by
telecommunications service providers. These include telephone companies,
other public carriers and large enterprises operating data and voice
networks. The Company's products perform such functions as billing data
collection, network surveillance, alarm processing and network management for
some of the largest carriers and enterprises in the world.
The Company sells and licenses hardware and software products through direct
channels and through strategic alliance partners, for delivery to end users
in the United States and internationally. Since June 1994, the Company
historically derived most of its revenue from sales of carrier network
products to traditional carriers. The Company expects such sales to continue
to represent a significant portion of its revenue for at least the next
several years. An increasing proportion of the Company's revenue is derived
from the sale of products to new and emerging carriers and the balance of the
Company's revenue is derived from the sale of products to enterprise
customers, including agencies of the U.S. government. The proportion of
revenue derived from each of these markets is expected to vary from time to
time based on the timing of contracts and on developments within the
telecommunications industry. The Company experiences relatively higher
margins in connection with product sales in which a software license
comprises a substantial portion of the sales price, such as are typical of
the Company's sales to new and emerging carriers and to its enterprise
customers.
The Company sells its products directly to end users, or as components in the
products or systems developed and marketed by its strategic partners. The
Company typically experiences higher margins offset in part by relatively
higher sales and marketing expenses, in connection with its direct sales
contracts.
Substantially all of the Company's revenue is derived from dollar-denominated
sales and, although the Company has had significant sales to Mexico and the
Republic of South Korea, the Company does not have significant foreign
operations. The Company's customers are usually contractually obligated to
pay for products in U.S. dollars. All products are shipped from the United
States pursuant to terms of orders issued by customers.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items on
the Company's statement of operations as a percentage of revenue:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, December 31,
-------------------------- ------------------------
1997 1996 1997 1996
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Revenue - products, software
licenses and services 100.0% 100.0% 100.0% 100.0%
Costs and operating expenses:
Cost of products, software
licenses and services 83.7% 48.0% 58.2% 48.9%
----------- ------------ ---------- -----------
Gross margin 16.3% 52.0% 41.8% 51.1%
Selling, general and administrative 72.2% 34.6% 51.4% 34.4%
Research and development 9.2% 6.4% 6.7% 6.4%
----------- ------------ ---------- -----------
(Loss) income from operations (65.1)% 11.0% (16.3)% 10.3%
----------- ------------ ---------- -----------
----------- ------------ ---------- -----------
</TABLE>
8
<PAGE>
Revenues. Revenues for the three- and six-month periods ended December 31,
1997 were $5.5 million and $14.2 million, respectively, representing a
decrease of $1.8 million (24%) and an increase of $700,000 (5%) when compared
to revenues of $7.3 million and $13.5 million, respectively, for the
comparable three- and six-month periods in 1996. The substantial decrease in
revenues in the current quarter was primarily attributable to two factors.
First, the Company believes that the recent economic instability in the Asia
Pacific region, where the Company has a significant customer base (including
customers in Korea, the Philippines and Indonesia), caused certain customers
to delay orders. Second, the U.S. Air Force suspended orders for the
Company's network management software products, originally scheduled for
December (second quarter) delivery, pending evaluation of Air Force budget
shortfall issues relating to the "Year 2000 problem" prevalent in some legacy
Air Force systems.
The Company anticipates that its revenues from customers in the Asia Pacific
region will continue to be adversely affected at least for the duration of
the period of economic instability in that region. However, the Company also
anticipates that such adverse effects may be offset, in whole or in part, by
expected increasing activity in the emerging and alternative carrier markets
in the United States, Canada and Western Europe.
The increase in revenues for the six months ended December 31, 1997 was
primarily due to a strong increase in demand for the Company's products and
software licenses in its emerging carrier customer base, substantially offset
by the second quarter revenue decrease discussed above.
Gross Margins. Gross margins for the three- and six-month periods ended
December 31, 1997 were 16.3% and 41.8%, respectively, compared to gross
margins of 52.0% and 51.1% for the comparable three- and six-month periods in
1996. The substantial reduction in gross margin in the current quarter when
compared to the comparable quarter in 1996 was primarily due to an
unfavorable change in the mix of products sold. Due to order delays, software
sales, which generate relatively high margins, accounted for only $1.2
million or 22% of revenue, during the current quarter, as compared to $2.4
million, or 33% of revenue, during the comparable quarter in 1996. In
addition, the Company incurred certain unrecoverable costs associated with
the programs which were either delayed or postponed and provided
approximately $150,000 in additional reserves for potentially obsolete
inventory during the current quarter.
Selling, General and Administrative. Selling, general and administrative
expenses for the three- and six-month periods ended December 31, 1997 were
$4.0 million and $7.3 million, respectively, representing increases of $1.5
million (58%) and $2.7 million (59%), when compared to selling, general and
administrative expenses of $2.5 million and $4.6 million, respectively, for
the comparable three- and six-month periods in 1996. The increases in the
current three- and six-month periods were primarily due to increased
personnel, fringe benefits and facilities costs associated with the growth of
the Company in general and, in particular, with expansion of its marketing,
sales and administrative functions. In addition, during the most recent
three-month period, the Company increased its accounts receivable reserve by
approximately $350,000 in light of a relatively high level of past due
accounts receivable (discussed below at "Liquidity and Capital Resources").
Research and Development. Research and development expenses for the three-
and six-month periods ended December 31,1997 were $503,000 and $951,000,
respectively, representing increases of $35,000 (7%) and $85,000 (10%) when
compared to research and development expenses of $468,000 and $866,000,
respectively, for the comparable three- and six-month periods in 1996. The
increases in both the current three- and six-month periods were primarily
attributable to the addition of software development engineers required to
support the Company's ongoing product development activities.
Provision for Income Taxes. The Company recorded tax benefits of $1.3
million and $823,000, respectively, for the three- and six-month periods
ended December 31, 1997. For each of the three- and six-month periods ended
December 31, 1996, the Company recorded a tax provision of $266,000. The tax
benefit was recorded in the current three- and six-month periods based upon
the Company's current belief that it will be able to utilize its losses
during the six months ended December 31, 1997 to offset anticipated profits
during the second half of the current fiscal year.
9
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LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had $2.8 million of cash and cash
equivalents and $15 million of working capital. These balances represent
decreases of $5.1 million in cash and cash equivalents and $2.8 million in
working capital when compared to the Company's cash and cash equivalents and
working capital balances as of June 30, 1997, the end of its most recently
completed fiscal year. The decreases during the most recent six-month period
are primarily due to the funding of operating losses, capital expenditures
for computer equipment, and a relatively high accounts receivable balance
(when compared to current period revenues) as of December 31, 1997, which had
an adverse impact on the Company's cash and working capital positions.
The relatively high level of accounts receivable at December 31, 1997 was
primarily attributable to two factors. First, approximately $5 million of
accounts receivable (30% of total accounts receivable as of December 31,
1997) represent amounts which, under contractual payment terms, may not be
collectible for up to twelve months. In addition, approximately $6 million
of accounts receivable (37% of total accounts receivable as of December 31,
1997) represent overdue accounts,which the Company is actively pursuing.
The Company had two lines of credit with Crestar Bank of Maryland
("Crestar"), with total borrowing capacity of $3.5 million, both of which
expired in January 1998. At December 31, 1997, no amounts were outstanding
under these lines of credit. During January 1998, the Company renegotiated
its credit arrangements and received a commitment from Crestar for a line of
credit expiring December 31, 1998 with total borrowing capacity of up to $7
million. The new line is expected to carry a fee equal to 0.25% of the
unused balance and to bear interest at a variable rate equal to 2% above the
30-day LIBOR rate, with accrued interest payable monthly. It will be secured
by assets of the Company and will require the Company to comply with certain
financial covenants.
The Company believes that existing cash balances, cash flow from operations
and available bank credit facilities will be sufficient to support its
working capital requirements for the foreseeable future. To the extent
that the Company's existing resources, together with future earnings, are
insufficient to fund the Company's working capital requirements, the Company
may need to raise additional funds through public or private financings. No
assurance can be given that such additional financing will be available in a
timely manner or at all or, if available, that such financing will be on
terms favorable to the Company. In the event that additional financing is
not available at all or on favorable terms, the Company's business may be
adversely affected.
FACTORS AFFECTING FUTURE OPERATING RESULTS
ACE*COMM provides products to a technology driven industry sector.
Therefore, ACE*COMM's success is dependent in part upon factors beyond its
control. This report contains forward-looking statements relating to the
prospective operating results of the Company. The following are factors
which could affect ACE*COMM's future operating results. These factors are
intended to serve as a cautionary statement qualifying statements that may be
made, either verbally or in writing, including those in any other
forward-looking statements made by or on behalf of, the Company:
To date, a significant portion of the Company's revenue has been derived from
substantial orders placed by large organizations. The Company expects that
in the future it will continue to be dependent upon a limited number of
customers in any given period for a significant portion of its revenue. The
Company's future success may depend upon the continued demand by such
customers for its products and services. The Company's results of operations
and financial condition could be materially adversely affected by the failure
of anticipated orders to materialize and by deferrals or cancellation of
orders.
Sales to traditional carriers have provided and are expected to continue to
provide a majority of revenue. The Company's business is dependent upon the
continued growth of the telecommunications industry in the United States and
internationally, on the continued convergence of voice and data networks and
on the evolution and widespread adoption of emerging network technologies.
Any decline in the growth of the
10
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industry, the failure of these markets to converge or the failure of these
network technologies to evolve or achieve widespread market acceptance could
have a material adverse effect on the Company.
A key element of the Company's business strategy is to develop strategic
alliances with leading companies that provide telecommunications services or
that manufacture market network equipment in order to expand the Company's
distribution channels and enter new markets. There can be no assurance that
the Company will be able to continue to increase the number of, or to expand
these types of relationships, in order to market its products effectively,
particularly internationally.
The Company has expanded its operation rapidly, which has placed significant
demands on the Company's administrative, operational and financial personnel
and systems. Additional expansion by the Company may further strain the
Company's management, financial and other resources. There can be no
assurance that the Company's systems, procedures, controls and existing space
will be adequate to support expansion of the Company's operations. If the
Company is unable to respond to and manage changing business conditions, the
quality of its products and services and its results of operations could be
materially adversely affected.
The new and emerging carrier market in the United States and overseas
represents a source of growing demand for the Company's products, software
licenses and services. In that this market segment is relatively new and in
that many of these organizations are in the early stages of their
development, financial resources may be limited and may adversely affect
their ability to pay for the Company's products, software licenses and
services.
Additional risks and uncertainties that could cause actual results to differ
from those anticipated by forward-looking statements made by or on behalf of
the Company include, but are not limited to, accounting adjustments during
the final closing of the books; delays or cancellations of orders due to
various factors, including business and economic conditions in the U.S. and
foreign countries or industry-wide slowdowns; uncertainties associated with
collection of amounts due to the Company; pricing pressures and the impact of
competitive products; the time to develop and achieve acceptance of new
products; and manufacturing efficiencies.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS 128").
This statement establishes standards for computing and presenting earnings
per share; simplifying previous standards for computing earnings per share
("EPS") and making them comparable to international standards. It replaces
the presentation of primary EPS with a presentation of basic EPS, and
requires dual presentation of basic and diluted "EPS on the face of the
income statement for all entities with complex capital structures. Basic EPS
excludes dilution and is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issued common stock were exercised or
converted into Common Stock or resulted in the issuance of common stock that
then share in the earnings of the entity. SFAS 128 requires restatement of
all prior period earning per share data presented, and is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. Earlier application is not permitted.
The Company adopted this statement during the second quarter of 1998, as
required. Accordingly, all prior period EPS data have been restated.
In October 1997, the AICPA issued Statement of Position SOP 97-2, "Software
Revenue Recognition". The statement provides guidance on applying generally
accepted accounting principles in recognizing revenue on software
transactions. This statement supersedes SOP 91-1, "Software Revenue
Recognition" and is effective for transactions entered into in fiscal years
beginning after December 15, 1997. Early adoption is encouraged and
retroactive application is prohibited. The Company is evaluating the impact
and will fully adopt it beginning with fiscal year 1999.
11
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PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 19, 1997, the Registrant held its 1997 Annual Meeting of
Stockholders (the "1997 Annual Meeting"). At the 1997 Annual Meeting, each of
the following directors was elected as a Class I director, to serve until the
2000 Annual Meeting of Stockholders and until his successor is duly elected
and qualifies:
Gilbert A. Wetzel Votes For: 7,629,675 Votes Withheld: 14,200
Gary P. Golding Votes For: 7,628,975 Votes Withheld: 14,900
In addition to the Class I directors enumerated above, as of the close
of the 1997 Annual Meeting, the Company's Board of Directors consisted of
Paul G. Casner, Jr., a Class II director whose term expires at the 1998
Annual Meeting of Stockholders and George T. Jimenez, a Class III director,
whose term expires at the 1999 Annual Meeting of Stockholders.
At the 1997 Annual Meeting, the stockholders also took the following
actions:
(i) to approve the proposal to amend the Company's Amended
and Restated Omnibus Stock Plan.
Votes For: 5,484,871
Votes Against: 1,301,350
Abstain: 9,585
(ii) to approve the proposal to amend the Company's Amended and
Restated Option Plan for Directors.
Votes For: 7,265,523
Votes Against: 223,700
Abstain: 9,685
Broker Non-Votes: 144,967
(iii) to ratify the selection of Price Waterhouse LLP as the independent
auditors of the Company for the 1998 fiscal year.
Votes For: 7,634,690
Votes Against: 4,300
Abstain: 4,885
There were no broker non-votes with respect to items (i) and (iii) above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number Description
11.1 Statement of Computation of Earnings per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACE*COMM CORPORATION
DATE February 11, 1998 By /s/ George T. Jimenez
---------------------
George T. Jimenez
President and Chief Executive Officer
/s/ Joseph F. Greeves
---------------------
Joseph F. Greeves
Vice President and Chief Financial Officer
13
<PAGE>
Exhibit 11.1
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------ --------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---------- --------- --------- ---------
Basic income per share:
Net (loss) income............... $(2,201) $ 624 $ (1,401) $ 1,164
---------- --------- --------- ---------
---------- --------- --------- ---------
Weighted average shares outstanding:
Common stock.................... 8,654 7,832 8,623 7,097
---------- --------- --------- ---------
---------- --------- --------- ---------
Basic (loss) income per share (pro
forma for the six months ended
December 31, 1996)................. $ (0.25) $ 0.08 $ (0.16) $ 0.16
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted income per share:
Net (loss) income................... $ (2,201) $ 624 $ (1,401) $ 1,164
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares outstanding:
Common stock........................ 8,654 7,832 8,623 7,097
Common stock options, as if
converted, only if dilutive........ -- 1,140 -- 1,002
---------- --------- --------- ---------
Weighted average common shares and
equivalents........................ 8,654 8,972 8,623 8,099
---------- --------- --------- ---------
---------- --------- --------- ---------
Diluted (loss) income per share (pro forma
for the six months ended December 31, 1996)...... $ (0.25) $ 0.07 $ (0.16) $ 0.14
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1997 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,834
<SECURITIES> 0
<RECEIVABLES> 16,687
<ALLOWANCES> 552
<INVENTORY> 2,743
<CURRENT-ASSETS> 23,159
<PP&E> 5,801
<DEPRECIATION> 1,541
<TOTAL-ASSETS> 29,756
<CURRENT-LIABILITIES> 8,107
<BONDS> 0
0
0
<COMMON> 87
<OTHER-SE> 20,441
<TOTAL-LIABILITY-AND-EQUITY> 29,756
<SALES> 14,226
<TOTAL-REVENUES> 14,226
<CGS> 8,282
<TOTAL-COSTS> 8,282
<OTHER-EXPENSES> 8,257
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> (2,224)
<INCOME-TAX> (823)
<INCOME-CONTINUING> (1,401)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,401)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
