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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission file number 0-22317
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ESHARE COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C>
GEORGIA 58-1378534
(State or other Jurisdiction of Incorporation (I.R.S. Employer Identification
or Organization) Number)
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5051 PEACHTREE CORNERS CIRCLE
NORCROSS, GEORGIA 30092-2500
(770) 239-4330
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common stock, no par value,
outstanding as of November 9, 2000: 21,797,312 shares.
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<CAPTION>
PART 1 - FINANCIAL INFORMATION
Page
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Item 1. Financial Statements
Unaudited Consolidated Balance Sheets as of September 30, 2000 and December 31, 3
1999.
Unaudited Consolidated Statements of Operations for the three
months and nine months ended September 30, 2000 and 1999. 4
Unaudited Consolidated Statements of Cash Flows for the nine months ended 5
September 30, 2000 and 1999.
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial Condition and 10
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits 15
Signatures 16
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ESHARE COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
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<CAPTION>
September 30, December 31,
2000 1999
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ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,236 $ 14,873
Accounts receivable, net of allowance for doubtful
accounts of $4,492 at September 30, 2000 and $3,014 at December 31, 1999 33,129 32,863
Inventories 2,173 1,967
Deferred taxes 6,341 4,921
Prepaid expenses and other 9,056 7,384
-------- --------
Total current assets 64,935 62,008
Property and equipment, net of accumulated depreciation 10,771 10,963
Intangible assets, net 3,980 4,254
Other assets 173 98
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$ 79,859 $ 77,323
Total assets ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,329 $ 3,343
Accrued liabilities 10,503 11,651
Deferred revenue 11,209 8,265
695 12
Other current liabilities 15 141
Current portion of notes payable -------- --------
Total current liabilities 27,751 23,412
Notes payable, excluding current portion -- 74
Stockholders' Equity
Common Stock, no par value, 100,000,000 shares authorized 21,797,312 issued
and outstanding at September 30, 2000 and 21,386,714 issued
and outstanding at December 31, 1999 69 69
Additional paid-in capital 61,886 59,504
Accumulated other comprehensive income (loss) (958) (28)
Accumulated deficit (8,889) (5,708)
-------- --------
Total stockholders' equity 52,108 53,837
-------- --------
Total liabilities and stockholders' equity $ 79,859 $ 77,323
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</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
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ESHARE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
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<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues:
Product $ 13,035 $ 10,981 $ 38,902 $ 50,571
Service 9,259 8,146 25,149 24,579
-------- -------- -------- --------
Total revenues 22,294 19,127 64,051 75,150
Cost of revenues:
Product 2,173 3,960 7,660 15,512
Service 5,455 4,450 14,612 12,717
-------- -------- -------- --------
Total cost of revenues 7,628 8,410 22,272 28,229
-------- -------- -------- --------
Gross margin 14,666 10,717 41,779 46,921
Operating expenses:
Engineering, research and development 2,999 3,922 8,081 10,821
Selling, general and administrative 13,423 12,002 38,920 34,936
Acquisition and restructuring related
charges -- 4,700 -- 4,895
Deferred compensation expense -- 2,073 -- 2,271
-------- -------- -------- --------
Total operating expenses 16,422 22,697 47,001 52,923
-------- -------- -------- --------
Loss from operations (1,756) (11,980) (5,222) (6,002)
Other income, net 4 173 256 641
-------- -------- -------- --------
Loss before income taxes (1,752) (11,807) (4,966) (5,361)
Income tax (benefit) provision (630) (2,459) (1,788) 949
-------- -------- -------- --------
Net loss after income taxes (1,122) (9,348) (3,178) (6,310)
Preferred stock preference -- -- -- (5,850)
-------- -------- -------- --------
Loss applicable to common shareholders $ (1,122) $ (9,348) $ (3,178) $(12,160)
======== ======== ======== ========
Net loss per share
Basic $ (0.05) $ (0.45) $ (0.15) $ (0.59)
======== ======== ======== ========
Diluted $ (0.05) $ (0.45) $ (0.15) $ (0.59)
======== ======== ======== ========
Weighted average common and common
equivalent shares
Basic 21,956 20,770 21,717 20,686
Diluted 21,956 20,770 21,717 20,686
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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ESHARE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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<CAPTION>
For the nine months ended
September 30,
2000 1999
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<S> <C> <C>
Cash used by operating activities:
Net loss $ (3,178) $(12,160)
Adjustments to reconcile net loss to net cash provided
by(used in) operating activities:
Preferred stock preference -- 5,850
Depreciation and amortization 3,852 2,649
Deferred taxes (808) --
Non cash financing charges 104 84
Non cash compensation expense -- 2,271
Changes in assets and liabilities:
Accounts receivable, net (266) (1,175)
Inventories (206) (905)
Prepaid expenses and other assets (1,672) 36
Accounts payable and accrued expenses 838 (2,605)
Deferred revenue 2,944 1,852
Customer deposits 683 (330)
Other, net (66) (388)
-------- --------
Total adjustments 5,403 7,339
-------- --------
Net cash provided by (used in) operating activities 2,225 (4,821)
Cash flows from investing activities:
Purchase of business, net of cash (500) (4,605)
Purchases of property and equipment (2,917) (4,882)
Proceeds from sale of marketable securities 4,500 5,720
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Net cash provided by investing activities 1,083 (3,767)
Cash flows from financing activities:
Net proceeds from issuance of common stock 1,461 1,813
Issuance of convertible notes -- 500
Proceeds from issuance of debt -- 3,444
Repayment of debt (200) (153)
-------- --------
Net cash provided by financing activities 1,261 5,604
Effect of foreign currency translation (930) 136
Net change in cash and cash equivalents 3,639 (2,848)
Cash and cash equivalents, beginning of period 3,558 8,027
-------- --------
Cash and cash equivalents, end of period 7,197 5,179
Marketable securities 7,039 17,161
-------- --------
Cash, cash equivalents and marketable securities $ 14,236 $ 22,340
======== ========
Supplemental Disclosures of Cash Flow Information:
Income taxes paid $ 12 $ 2,673
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
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ESHARE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollar and share amounts in thousands)
(unaudited)
1. Basis of Presentation
The unaudited consolidated financial statements presented herein have been
prepared in accordance with accounting principles generally accepted in the
United States applicable to interim financial statements. Accordingly, they do
not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company's management, these consolidated financial statements contain all
adjustments (which comprise only normal and recurring accruals) necessary to
present fairly the financial position as of September 30, 2000 and 1999. The
interim results for the three months and nine months ended September 30, 2000
are not necessarily indicative of the results to be expected for the full year.
These statements should be read in conjunction with the Company's consolidated
financial statements for the fiscal year ended December 31, 1999, as filed in
its Annual Report on Form 10-K.
On September 1, 1999, the Company acquired eShare Technologies, Inc., a
Delaware corporation ("eShare.com") for 6,050 shares of its common stock. The
acquisition was accounted for using the pooling-of-interest method of
accounting and accordingly, all prior period financial statements have been
restated to reflect that the acquisition had been completed as of the start of
each period.
The Company has reclassified the presentation of certain prior period
information to conform to the current presentation format.
2. Principles of Consolidation
The accompanying financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant inter-company balances and
transactions have been eliminated in consolidation.
3. Revenue Recognition
The Company generates product revenues primarily from the sale of integrated
systems, which are comprised of both hardware and software and software
licenses. The Company's service revenues are generated from maintenance
contracts that include support, parts, labor, and software update rights as
well as fee-based installation, training, hosting and consulting services. The
Company recognizes product revenues when persuasive evidence of an agreement
exists, the product has been delivered, the license fee is fixed and
determinable and collection of the fee is probable. Revenues from maintenance
contracts are recognized ratably over the term of the contractual support
period, which range from one to four years. Consulting revenues are primarily
related to extended services sold under separate service arrangements during
the installation period. Revenues from consulting, hosting, installation, and
training services are recognized as the services are performed. In contracts
where product and services are bundled together, revenue is allocated to each
element with 100% of any discount going to product.
4. Acquisitions
a. eShare.com, Inc.
On September 1, 1999, the Company acquired eShare.com, Inc. for 6,050 shares of
common stock. The acquisition was accounted for using the pooling-of-interest
method of accounting and accordingly, all prior period financial statements
have been restated to reflect that the acquisition had been completed as of the
start of each period.
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b. smallwonder! softworks, Inc.
On June 15, 1999, the Company acquired smallwonder!softworks, Inc.
("smallwonder") for $4,600 in cash and a prospective earnout of up to an
additional $1,000, based on achievement of certain defined criteria. On August
18, 2000, $500 of the earnout was paid. The acquisition was accounted for using
the purchase method of accounting. The excess of the cost over the fair value
of net assets acquired of $4,759 is being amortized over 5 years.
5. Non-recurring charges
a. Acquisition and restructuring related charges
For the three and nine months ended September 30, 1999, the Company incurred
charges of $4,700 and $4,895, respectively, principally related to professional
services and other costs associated with the acquisitions of eShare.com (see
note 4 above).
b. Deferred compensation expense
For the three and nine months ended September 30, 1999, the Company incurred a
non-cash charge of $2,073 and $2,271, respectively, associated with the
conversion of the eShare.com Employee Stock Option Plan into the Company's stock
option plan.
6. Preferred Stock Preference
Included in results of operations for the nine months ended September 30, 1999,
is a non-recurring, non-cash charge of $5,850, which represents the difference
between the estimated fair value of common stock of eShare.com at February 19,
1999 and the purchase price of certain Series C Preferred Stock issued on that
date. As part of the acquisition, the Series C Preferred Stock was converted to
common stock.
7. Inventories
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market and consist of the following at:
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September 30, 2000 December 31, 1999
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<S> <C> <C>
Raw materials $ 891 $ 212
Work in process 789 920
Finished goods 493 835
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Total inventories $2,173 $1,967
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8. Net (loss) income per share
Net (loss) income per share is computed using the weighted-average number of
common stock and diluted common stock equivalent ("CSE") shares from stock
options (using the treasury stock method) outstanding during each period. CSEs
are not included in periods where they are antidilutive.
The following table presents the components of diluted weighted average shares
outstanding.
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<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Weighted average shares outstanding
Basic weighted average shares outstanding 21,956 20,770 21,717 20,686
Weighted average common equivalent shares -- -- -- --
------ ------ ------ ------
Diluted weighted average shares outstanding 21,956 20,770 21,717 20,686
====== ====== ====== ======
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9. Other Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. The changes in the components of other comprehensive
income (loss) are reported as follows:
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<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net loss as reported $(1,122) $(9,348) $(3,178) $(12,160)
======= ======= ======= ========
Other comprehensive income (loss):
Foreign currency translation $ (224) $ 5 $ (963) $ (24)
Unrealized gains (losses) on securities, net (3) 112 33 160
------- ------- ------- --------
Other comprehensive income (loss) $ (227) $ 117 $ (930) $ 136
======= ======= ======= ========
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10. Business Segment and Geographic Area Information
The Company is a multinational business operating in two segments. The Company
has adopted Statement of Financial Accounting Standards No. 131, "Disclosure
about Segments of an Enterprise and Related Information" (SFAS 131). The
adoption of SFAS 131 requires the presentation of descriptive information about
reportable segments which is consistent with that made available to the
management of the Company to assess performance. The reportable business
segments are telephony and internet. The results of these business segments are
as follows:
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<CAPTION>
For the three months ended September 30, For the nine months ended September 30,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues:
Telephony $ 16,509 $ 16,621 $ 48,503 $ 69,182
Internet 5,785 2,506 15,548 5,968
-------- -------- -------- --------
Total Revenues $ 22,294 $ 19,127 $ 64,051 $ 75,150
======== ======== ======== ========
(Loss) income from operations:
Telephony $ 1,544 $ (9,065) $ 1,089 $ (149)
Internet (3,300) (2,915) (6,311) (5,853)
-------- -------- -------- --------
Total (loss) income from operations $ (1,756) $(11,980) $ (5,222) $ (6,002)
======== ======== ======== ========
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The following represents total revenues and long-lived assets of the Company
based on geographic location representing over 10% of the combined totals for
the three and nine months ended September 30, 2000 and 1999:
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<CAPTION>
For the three months ended September 30, For the nine months ended September 30,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
TOTAL REVENUES:
United States $16,262 $15,192 $48,515 $53,786
Europe 3,865 2,872 10,390 9,010
Mexico/Latin America 781 839 2,395 8,783
Other 1,386 224 2,751 3,571
------- ------- ------- -------
$22,294 $19,127 $64,051 $75,150
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<CAPTION>
2000 1999
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<S> <C> <C>
LONG-LIVED ASSETS AT SEPTEMBER 30:
United States $10,421 $ 9,962
Europe 338 441
Mexico/Latin America 12 40
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$10,771 $10,443
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</TABLE>
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollar and share amounts in thousands)
Overview
eshare communications, Inc., along with its acquired wholly-owned
subsidiaries; eShare.com and smallwonder, is a leading provider of unified
web and telephony customer communications solutions for customer contact
centers, e-commerce and online communities.
On September 1, 1999, we acquired eShare.com for 6,050 shares of common stock.
We accounted for the acquisition using the pooling-of-interest method of
accounting.
On June 15, 1999, we acquired smallwonder, for $4,600 in cash and a prospective
earnout of an additional $1,000, based on achievement of certain defined
criteria. On August 18, 2000, $500 of the earnout was paid. The acquisition was
accounted for using the purchase method of accounting; and accordingly, we have
included smallwonder results from the date of the acquisition. We are
amortizing the excess of the cost over the fair value of net assets acquired
over 5 years.
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
including but not limited to statements related to plans for future business
development activities, anticipated costs of revenues, product mix and service
revenues, research and development, and selling, general and administrative
activities, and liquidity and capital needs and resources. Such forward-looking
statements are subject to risks, uncertainties and other factors, which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Investors are cautioned that any
forward looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those contemplated by such forward looking statements. A discussion of certain
risk factors that may cause actual results to differ from these forward-looking
statements can be found in Exhibit 99.1 to in the Company's Annual Report on
Form 10-K for the period ended December 31, 1999, on file with the SEC.
Results of Operations
Revenues
Product. Product revenues for the quarter ended September 30, 2000 were
$13,035 as compared to $10,981 for the same period ended September 30, 1999, an
increase of $2,054, or 18.7%. Revenue from the sale of telephony product was
flat for the comparable periods, while sales of Internet product increased to
$4,325 for the quarter ended September 30, 2000 from $2,125 in the quarter ended
September 30, 1999, an increase of $2,200 or 103.5%. For the nine months ended
September 30, 2000, product revenues decreased $11,669 or 23.1% to $38,902 as
compared to product revenue of $50,571 for the nine-month period ended September
30, 1999. Revenue from telephony product decreased $18,967, or 41.6%, to $26,592
in the nine-month period ended September 30, 2000 as compared to telephony
product revenue of $45,559 for the nine months ended September 30, 1999. This
decrease is principally due to a slowdown in purchases from telephony customers
and ongoing pricing pressures within the telephony based call center industry.
This reduction was partially offset by an increase in Internet product revenues
of $7,298, or 145.6%, from $5,012 for the period ended September 30, 1999 to
$12,310 for the period ended September 30, 2000. This increase resulted from
continued market acceptance of our Internet-based customer interaction products
and the growing trend of telephony based call centers to add Internet customer
interaction software applications.
Service. Service revenue increased by $1,113, or 13.7% to $9,259 for the
quarter ended September 30, 2000, as compared to service revenue of $8,146 for
the quarter ended September 30, 1999. Increased maintenance and consulting
service revenue associated with the increase in Internet product sales was the
primary source of the new service revenues. Service revenues increased by $570,
or 2.3% to $25,149 for the nine months ended September 30, 2000 as compared to
$24,579 in the nine month period ended September 30, 1999. This increase is
again the result of the increases in consulting and maintenance service revenue
associated with the increase in Internet product revenue.
Cost of Revenues
Product. The cost of product revenues include the cost of material, fees
paid to third parties for outsourced product assembly and, in certain
instances, the cost of sublicensing third-party software. The cost of product
revenue for the quarter ended September 30, 2000 was $2,173, a decrease of
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$1,787, or 45.1%, as compared to $3,960 for the quarter ended September 30,
1999. This decrease in product cost is principally the result of software only
upgrades for our existing telephony customers and the lower cost of software
only Internet products. The cost of product revenue for the nine-month period
ended September 30, 2000 was $7,660, a decrease of $7,852, or 50.6%, as compared
to a product cost of $15,512 for the nine-month period ended September 30, 1999.
Cost of product revenue for the nine-month period ended September 30, 2000 was
19.7% of related product revenues as compared to 30.7% of related product
revenues for the nine-month period ended September 30, 1999. This 11% decrease
in absolute dollar terms in the cost of product revenue was due to the decline
in telephony hardware product revenue and a higher percentage of software
products in total product revenue as compared to the prior year.
Service. The cost of service revenues primarily consist of employee-related
costs and outsourcing costs for customer support, consulting and field service
personnel, as well as fees paid to third parties for installation services and
post installation, help desk, and hardware maintenance services. The Company's
cost of service revenues for the quarter ended September 30, 2000 increased to
$5,455, or 58.9% of related service revenues as compared to $4,450 or 54.6% of
related service revenues for the quarter ended September 30, 1999. Cost of
service revenues increased to $14,612 or 58.1% of related service revenues for
the nine months ended September 30, 2000 from $12,717 or 51.7% of related
service revenues for the nine-month period ended September 30, 1999. This
increase in cost of service revenues is related to the addition of personnel
primarily to support Internet services plus investments to increase our customer
support to a global, 24 hours a day, 7 days a week coverage.
Operating Expenses
Engineering, research and development. Engineering, research and
development expenses primarily consist of employee-related costs for
engineering personnel involved with Internet and telephony software product
development. Also included are outside contractor costs for development
projects. Engineering, research and development expenses decreased by $923, or
23.5%, to $2,999 in the quarter ended September 30, 2000, as compared to $3,922
in the quarter ended September 30, 1999. Engineering, research and development
expenses decreased by $2,740, or 25.3%, to $8,081 in the nine-month period
ended September 30, 2000 as compared to $10,821 for the nine-month period ended
September 30, 1999. Engineering, research and development costs decreased as a
percentage of product revenue from 20.8% of product revenues for the nine-month
period ended September 30, 2000 as compared to 21.4% of product revenues in the
nine-month period ended September 30, 1999. We intend to continue to invest
heavily in product development activities as we combine the telephony and
Internet products into a seamless customer interaction management ("CIM")
solution for our customers. As a result, we expect that engineering, research
and development expense will increase in the future.
Selling, general and administrative. Selling, general and administrative
expenses consist primarily of employee-related costs for sales, marketing,
administrative, finance and human resources personnel. Also included are
marketing expenditures for trade shows, advertising, and other promotional
expenditures. Our selling, general and administrative expenses increased by
$1,421, or 11.8%, to $13,423 for the quarter ended September 30, 2000, as
compared to $12,002 for the quarter ended September 30, 1999. Selling, general
and administrative costs increased to $38,920 for the nine-month period ended
September 30, 2000 from $34,936 for the quarter ended September 30, 1999, or an
11.4% increase. The majority of the increase related to investments in globally
marketing, selling and supporting our Internet solutions. We intend to continue
expanding our sales, marketing, and sales support operations related to the
integration of our CIM suite of products. As a result, we expect selling,
general and administrative costs will continue to increase in the future.
Other Income (Expense), Net. Other income (expense), net decreased by $169,
or 97.8%, to $4 in the quarter ended September 30, 2000, as compared to $173 in
the quarter ended September 30, 1999. Other income (expense), net decreased to
$256 for the nine-month period ended September 30, 2000 from $641 for the
nine-month period ended September 30, 1999. These decreases resulted from
reduced interest income earned on lower average balances invested in marketable
securities over the comparable nine month periods and a loss on disposal of
assets of approximately $159 in the quarter ended September 30, 2000.
Income Tax Provision (Benefit). For the quarter ended September 30, 2000,
we recorded a tax benefit of $630 as compared to a tax benefit of $2,459 for
the quarter ended September 30, 1999 as the result of having a smaller
operating loss for the quarter ended September 30, 2000. For the nine months
ended September 30, 2000, we recorded a tax benefit of $1,788, as compared to a
tax provision of $949 for the nine months ended September 30, 1999.
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FINANCIAL CONDITION
Total assets at September 30, 2000, were $79,859, an increase of $2,536
over total assets of $77,323 at December 31, 1999. This increase is primarily
due to increased Prepaid expenses and other as well as Deferred taxes.
Current liabilities were $27,751 at September 30, 2000, up from $23,412 at
December 31, 1999. This increase is due primarily to an increase in Deferred
revenue and Accounts payable.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had $14,236 in cash, cash equivalents and
marketable securities, compared to $14,873 as of December 31, 1999. Cash
remained relatively unchanged due to a Company effort to reduce its average
days sales outstanding ("DSO"). Overall DSO decreased 18 days in the third
quarter ended September 30, 2000 as compared to December 31, 1999 as total cash
collections were approximately $22 million for the quarter ended. Cash provided
by investing activities included the sale of $4,500 of marketable securities,
offset by the purchase of property and equipment of $2,917. Net cash provided
by financing activities of $1,261 was primarily due to the proceeds of issuance
of common stock through the Company sponsored option program and employee stock
purchase plan. The Company's working capital was $37,184 at September 30, 2000
as compared to $38,596 at December 31, 1999. The Company anticipates that
existing cash and cash equivalents will be adequate to meet its cash
requirements for the next twelve months.
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IMPACT OF THE YEAR 2000 ISSUE
We do not currently believe that the effects of any Year 2000 non-compliance in
our installed base of software will adversely affect our business, financial
condition and results of operations. However, no assurance can be given that we
will not be exposed to potential claims resulting from system problems
associated with the century change which have not manifested themselves. We
developed contingency plans for business functions that are susceptible to a
substantive risk of disruption resulting from a Year 2000 related event,
including installation of backup power generation capability at our corporate
headquarters. We did not experience any material failures in business functions
as a result of Year 2000.
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Exchange
During the three and nine months ended September 30, 2000, total
revenues from the Company's international operations were approximately 27.1%
and 24.3%, respectively, of the Company's total revenues for all operations.
The Company's international business is subject to risks typical of an
international business, including, but not limited to: differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility.
Accordingly, the Company's future results could be materially adversely
impacted by changes in these or other factors. The effect of foreign exchange
rate fluctuations on the Company during the third quarter of 2000 was not
material.
Interest Rates
The Company invests its cash in a variety of financial instruments,
including taxable and tax-advantaged variable rate and fixed rate obligations
of corporations, municipalities, and local, state and national governmental
entities and agencies. These investments are denominated in U.S. dollars. Cash
balances in foreign currencies are operating balances.
Interest income on the Company's investments is carried in "Other
income (expense), net" on the Consolidated Financial Statements. The Company
accounts for its investment instruments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"). All of the cash equivalents and
short-term investments are treated as available-for-sale under SFAS 115.
Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may
have their fair market value adversely impacted due to a rise in interest
rates, while floating rate securities may produce less income than expected if
interest rates fall. Due in part to these factors, the Company's future
investment income may fall short of expectations due to changes in interest
rates, or the Company may suffer losses in principal if forced to sell
securities which have seen a decline in market value due to changes in interest
rates. The weighted-average interest rate on investment securities at September
30, 2000 was approximately 3.95% based on predominately tax-free instruments.
The fair value of securities held at September 30, 2000 was $7.0 million.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Many of the Company's installations involve products that are critical
to the operations of its clients' businesses. Any failure in a Company
product could result in a claim for substantial damages against the
Company, regardless of the Company's responsibility for such failure.
Although the Company attempts to limit contractually its liability for
damages arising from product failures or negligent acts or omissions, there
can be no assurance the limitations of liability set forth in its contracts
will be enforceable in all instances. The Company is not currently party to
any material legal proceedings.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None
Item 6. Exhibits.
(a) Exhibit 27 Financial Data Schedule (for SEC use only).
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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 hereunto duly authorized.
ESHARE COMMUNICATIONS, INC.
Date: November 14, 2000 By: /s/ James Tito
------------------------------------------
James Tito
Chief Executive Officer
Date: November 14, 2000 By: /s/ Glen Shipley
------------------------------------------
Glen Shipley
Chief Financial and Administrative Officer
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