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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
COMMISSION FILE NUMBER 000-23260
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GLOBAL VILLAGE COMMUNICATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STATE OF INCORPORATION: DELAWARE IRS IDENTIFICATION NUMBER: 94-3095680
1144 EAST ARQUES AVENUE
SUNNYVALE, CA 94086-4602
(408) 523-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001
Par Value
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /X/
The approximate aggregate market value of the Common Stock held by
non-affiliates of the Registrant, based upon the closing price of the Common
Stock reported on the National Association of Securities Dealers, Inc. Automated
Quotation (Nasdaq) National Market was $148,135,971 of May 31, 1996.(1)
The number of shares of Common Stock outstanding as of May 31, 1996 was
16,796,178.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 Annual Report to Stockholders are incorporated by
reference into Parts I, II and IV.
Portions of the definitive Proxy Statement dated on or about June 26, 1996
to be delivered to stockholders in connection with the Annual Meeting of
Stockholders to be held July 31, 1996 are incorporated by reference into Part
III.
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(1) Excludes 1,795,067 shares of Common Stock held by directors, officers and
affiliates as of May 31, 1996.
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PART I
ITEM 1. BUSINESS
The following discussion should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended March 31,
1996. This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1934, as amended. Actual results could
differ materially from those anticipated in forward-looking statements as a
result of risks identified and the other cautionary disclosures set forth below
and elsewhere in this report.
Global Village Communication, Inc. ("Global Village" or the "Company") is a
leader in the design, development and marketing of easy-to-use integrated
communications products for personal computers with Windows, Macintosh, OS/2 and
DOS operating systems. The Company's products enable mobile, home office and
networked computer users in small- to medium-sized organizations to communicate
efficiently with colleagues, customers and suppliers. Global Village was founded
in June 1989 and is incorporated in Delaware.
The Company which was founded in 1989, has in the past experienced and in
the future may experience significant fluctuations in annual and quarterly
operating results that may be caused by many factors including, among others,
the introduction or enhancement of products by Apple Computer, Inc. ("Apple"),
IBM-compatible personal computer (PC) manufacturers, the Company or its
competitors; the sales rates of Apple Macintosh personal computers and PCs; the
size and timing of individual orders; market price reductions; difficulties and
delays in connection with the integration of the operations of KNX Limited
("Global Village Communication (U.K.), Ltd.," or "Global Village U.K.") into the
Company, market acceptance of new products and technology; seasonality of
revenues; customer order deferrals and accelerations in anticipation of new
products; changes in the Company's operating expenses; performance of the
Company's distributors and suppliers; mix of products sold; quality control of
the Company's products; and general economic conditions. As a result, the
Company believes that period-to-period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as indication of
future performance. Moreover, the industry in which the Company competes
generally is subject to short product life cycles. In this regard, the Company
traditionally has experienced a reduction in the average selling prices of its
products as the time from product introduction elapses. The Company recently has
instituted significant price reductions with respect to substantially all of its
products and expects that competitive pressures will continue to necessitate
price reductions. This is illustrated by the decline in the suggested retail
price of the Company's PowerPort Platinum product from $399 to $240 during the
period from its introduction in March 1995 through March 1996. In particular,
the Company expects the trend of reduced average selling prices for its products
for the Apple Macintosh family of personal computers to continue during fiscal
1997. There can be no assurance that the trend of reduced average selling prices
will not accelerate during fiscal 1997. The Company therefore expects that
revenues and/or gross margins from its products for the Apple Macintosh family
could remain flat or decrease in future periods, which would have a material
adverse effect on the Company's business and results of operations unless the
Company can generate sufficient revenues from its Communication Software
products and other products to compensate for any shortfall in revenues from its
Apple products. However, there can be no assurance that revenues for the Apple
Macintosh family will not decline in future periods. Any price reduction or
decrease in sales volume could have a material adverse effect on the Company's
results of operations.
In May 1996, the Company announced that its current quarter is being
adversely impacted by Apple Computer's recently announced repair program for
Macintosh PowerBook 5300 and 190 models. The Company expects that Apple's
actions will result in a significant revenue decline from the prior quarter and
in a loss for the quarter ending June 30, 1996. The Company's products being
primarily impacted by Apple's repair program are the PowerPort PC cards which
produced $16 million in revenue in the last quarter ended March 31, 1996, and
are expected to produce minimal revenue in the current quarter.
In fiscal 1996 the Company operated four major divisions: the
Communications Systems Division, the Communications Software Division, the ISDN
Division, and the Global Center Internet Services Division.
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For the Apple Macintosh, the Company's products are characterized by a highly
integrated, proprietary software and hardware design which makes computer
communications easy for the average user. For Windows, OS/2 and DOS operating
systems, the Company provides integrated communication software to original
equipment manufacturers (OEMs) such as IBM and Packard Bell, and through other
distribution channels to end users. For high-performance PC and LAN systems in
small offices or branch offices of larger organizations, the Company provides
ISDN cards supporting PPP and Multi-link PPP and integration of ISDN/analog
telephone systems. The Company also provides small and medium-sized businesses
with a plug-and-play Internet solution.
To date, a substantial majority of the Company's revenue has been
attributable to sales of its TelePort, PowerPort and OneWorld product lines (all
of which are designed around the Apple Macintosh family of computers), and the
Company expects that sales of these products will account for a majority of its
revenue for the foreseeable future. The Company's future financial performance
will depend in part on the successful development, introduction and customer
acceptance of new and enhanced versions of its TelePort, PowerPort and OneWorld
products as well as the Company's ability to generate increased sales of
Windows-based, ISDN or other products. Though the Company continually seeks to
further enhance its product offerings and to develop new products, there can be
no assurance that these development efforts will result in enhanced or new
products being introduced on a timely basis, or that any such product
enhancements or new products will achieve market acceptance. In addition, the
announcement by the Company of new products with the potential to replace
current products may cause customers to defer purchasing the Company's current
products which could have a material adverse effect on the Company's results of
operations. While the Company writes off inventory that it considers to be
excessive or obsolete, there can be no assurance that the Company's recorded
allowances for such write-offs and returns will be adequate, and a material
increase in such write-offs and returns over historical rates would have a
material adverse effect on the Company's results of operations. There can be no
assurance that the Company will be successful in developing new products or
enhancing its current products on a timely basis, or that such new products or
product enhancements will achieve market acceptance.
Communications Systems Division
The Company's Communications Systems Division designs modems,
telecommunications servers, and proprietary communications software for two
distinct segments of the communications marketplace: individual users and
network users. The Company's individual products include TelePort modems for
desktop Macintosh computer users and PowerPort modems for PowerBook notebook
computer users. The Company's line of network products, OneWorld
telecommunication servers, offers shared fax, modem, and remote network access
capabilities for an office network. The Company's GlobalFax communications
software provides a consistent, user-friendly interface across Communications
Systems Division's product lines and provides Macintosh users with an intuitive
tool for managing their computer fax communications.
Communications Software Division
The Company's Communication Software Division develops communications
software for individual computer users and networks of users. The Company
produces FocalPoint integrated communication software for users of personal
computers running the Windows 3.1 or Windows 95 operating systems. FocalPoint
incorporates fax, voice, data, e-mail, and Internet capabilities into one
easy-to-use application. The Communication Software Division also produces
FaxWorks Pro products for individual users and the FaxWorks Pro LAN line of fax
server software products for use in Windows, Windows NT, and OS/2 network
environments.
ISDN Division
This year, the Company acquired KNX Limited, a leading U.K.-based provider
of ISDN remote access products. The resulting new ISDN Division brings advanced
ISDN, branch-office routing, and Windows networking technologies to meet the
needs of rapidly growing markets worldwide. The ISDN Division develops ISDN
cards that support PPP and Multi-link PPP and integrate with ISDN/analog
telephone systems for small offices or branch offices of larger organizations.
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GlobalCenter Internet Services Division
The Company's GlobalCenter Internet Services Division delivers worldwide
e-mail and full Internet access to small and medium-sized organizations via the
plug-and-play GlobalCenter Internet service. Just after the fiscal year-end, the
Company made the Internet Services Division a standalone subsidiary called
GlobalCenter, Inc. to better focus on the significant opportunities that the
Internet represents. At the same time, the Company announced that UUNET
Technologies, Inc., an Internet service provider, has taken a 19.9-percent
equity interest in the new business.
In addition, the Company expects that GlobalCenter, Inc. will complete an
additional financing which, if completed, will likely reduce the Company's
ownership interest in GlobalCenter, Inc. below 50 percent (which will likely be
reduced further do to planned grants of stock options to GlobalCenter
employees). There can be no assurance that GlobalCenter will be able to close
the contemplated financing or any other financing. The preceding sentences
contain forward-looking statements and the actual results could differ
materially from those anticipated in the forward-looking statement as a result
of risks such as the parties failure to reach agreement with respect to the
proposed investment, announcements by GlobalCenter's competitors or adverse
changes in the Internet services business.
TECHNOLOGY AND PRODUCTS -- COMMUNICATIONS SYSTEMS DIVISION
TelePort and PowerPort Fax/Modems
The Company has continued to release new additions to its TelePort and
PowerPort modem product lines, which utilize Global Village's award-winning
GlobalFax software. In fiscal 1996, the Company introduced its first PowerPort
PC cards. The PowerPort Platinum Pro, PowerPort Platinum, and PowerPort Gold PC
cards all provide easy-to-use communication capabilities for users of Macintosh
PowerBook 5300 and 190 notebook computers. The Platinum and Platinum Pro cards
feature a 28,800-bps fax/modem, and the Platinum Pro offers simultaneous
Ethernet networking and modem capabilities for simple connectivity in or out of
the office.
The Company also offers 28,800-bps "Platinum" versions of its TelePort
desktop modem line and PowerPort internal modem line. Both the TelePort Platinum
and PowerPort Platinum for the PowerBook 1XX series of notebook computers
feature incoming call discrimination and other performance enhancements, as well
as GlobalFax 2.5 software. Targeted towards users who require instant electronic
communication, the Platinum products provide a solution for connecting to
on-line services and the Internet, accessing bulletin board services and using
Apple Remote Access (ARA).
The following table shows the major products in the Company's TelePort and
PowerPort product lines:
INTEGRATED COMMUNICATIONS SYSTEMS FOR INDIVIDUAL MACINTOSH USERS
TELEPORT EXTERNAL FAX/MODEMS FOR DESKTOP MACINTOSH COMPUTERS
TelePort Platinum
(28,800 bps data, 14,400 bps send/receive-fax modem)
TelePort Gold II
(14,400 bps data and send/receive-fax modem)
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POWERPORT INTERNAL FAX/MODEMS FOR POWERBOOK NOTEBOOK COMPUTERS
PowerPort Platinum Pro PC Card
(28,800 bps data, 14,400 bps send/receive fax modem, 10Base-T ethernet
connector)
PowerPort Platinum PC Card
(28,800 bps data, 14,400 bps send/receive fax modem)
PowerPort Platinum
(28,800 bps data, 14,400 bps send/receive fax modem)
PowerPort Mercury
(19,200 bps data, 14,400 send/receive fax modems)
PowerPort Gold PC Card
(14,400 bps data, 14,400 bps send/receive fax modem)
OneWorld Telecommunication Servers
The Company's line of network-based Macintosh servers provides complete,
easy-to-use communication solutions for workgroups. The OneWorld Combo server
provides fax, remote access, and network modem capabilities, giving each user on
a Macintosh network the ability to send faxes and dial out to on-line services
or bulletin board systems without the need for individual modems and phone
lines. OneWorld Combo is also a complete Apple Remote Access 1.0/2.0 server that
allows offsite Macintosh users to connect to their company network from
virtually any location. OneWorld Fax includes both fax and network modem
capabilities, and OneWorld Network Modem provides network modem capabilities.
All servers can be upgraded to add additional capabilities.
These network server products offer shared facilities for a workgroup and
eliminate the need to install dedicated telephone lines for each individual
workstation in the office. In addition, the products can be administered from
any network-connected computer, including wide-area network sites and remote
computers, and allow an administrator to update the operating programs stored in
flash memory from anywhere on the network. The products accommodate the
Company's PowerPort modems so that the entire server fits within a single
enclosure and requires only a single power source.
The following table shows the major products in the Company's line of
OneWorld Telecommunication Servers:
INTEGRATED COMMUNICATIONS SYSTEMS FOR MACINTOSH WORKGROUPS
ONEWORLD TELECOMMUNICATION SERVERS
OneWorld Combo
(network modem, fax, and ARA 1.0/2.0 server for Ethernet and LocalTalk networks)
OneWorld Fax
(network fax and modem server for Ethernet and LocalTalk networks)
OneWorld Network Modem
(network modem server for Ethernet and LocalTalk networks)
TECHNOLOGY AND PRODUCTS -- COMMUNICATIONS SOFTWARE DIVISION
FocalPoint and FaxWorks Software for Individuals
In the fourth quarter of fiscal 1996, the Company introduced FocalPoint
integrated communications software, providing Windows-based computer users with
an easy way to streamline their communications. FocalPoint turns the PC into a
central communication center bringing together fax, data, e-mail, Internet,
voice mail, speakerphone and paging capabilities in a single interface. The
first truly integrated Windows communication software program, FocalPoint is
ideally suited for users in small or home offices and for mobile professionals
who need an easy and efficient way to communicate with customers, suppliers, and
associates.
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The Company also offers FaxWorks communications software for users of
computers running the OS/2 or DOS operating systems. The FaxWorks product line
was acquired in August 1994, when the Company purchased SofNet, Inc., an
Atlanta-based software company.
The following table shows the major products in the Company's FocalPoint
and FaxWorks software product lines:
INTEGRATED COMMUNICATIONS SOFTWARE FOR INDIVIDUAL PC USERS
FocalPoint for Windows 3.1 and Windows 95
FaxWorks for Windows
FaxWorks Pro for OS/2
FaxWorks 3.0 for DOS
FaxWorks Pro LAN Server Software for Networks
For small and medium-sized organizations, the Company offers the FaxWorks
Pro LAN line of fax server software for use in Windows, OS/2, and Windows NT
environments. FaxWorks Pro LAN products integrate advanced fax software features
into a single user interface, allowing users to send and receive faxes directly
from their computer on the network.
The following table shows the major products in the Company's FaxWorks Pro
LAN software product line:
INTEGRATED COMMUNICATIONS SOFTWARE FOR PC WORKGROUPS
FaxWorks Pro LAN for Windows NT server
FaxWorks Pro LAN for OS/2
FaxWorks Pro LAN for Windows
TECHNOLOGY AND PRODUCTS -- ISDN DIVISION
The Company's ISDN products provide an easy to use and cost effective
solution to integrate remote offices, retail outlets, home offices and
individual users into the internet and corporate network as well as providing
infrastructure for corporate "intranets." Designed to operate in Windows
(including Windows 95/NT) and other PC environments, these products make
effective use of ISDN technology by incorporating a number of advanced features,
including data compression, protocol spoofing, data encrytion and analog
telephony integration, to reduce the cost and improve the security of both
personal and corporate data and voice communications.
The following table shows the major products available in the Company's
ISDN product lines:
ISDN PRODUCTS
CARD LEVEL PRODUCTS
ISA Bus Basic Rate ISDN With Analog Voice Option
PCMCIA Bus Basic Rate ISDN
ISA Bus Primary Rate ISDN
STAND-ALONE PRODUCTS
POD 2000 ISDN Basic Rate With LAN Connections
POD 2500 ISDN Basic Rate With LAN and Voice Connections
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CENTRAL SITE PRODUCTS
LAN Access Servers With Basic And Primary Rate ISDN Connections
TECHNOLOGY AND PRODUCTS -- GLOBALCENTER INTERNET SERVICES DIVISION
With the GlobalCenter Internet service, Global Village provides complete,
plug-and-play Internet access to small and medium-sized organizations. The
service includes everything necessary to give an office worldwide e-mail
capability and full Internet access. The GlobalCenter Internet Start-Up Package
includes a router with a 28,800-bps or ISDN connection; server, administrator,
and Web browser software; and registration for the GlobalCenter service. The
GlobalCenter Internet service handles all of an office's Internet connections
and manages incoming and outgoing e-mail. The service integrates Internet e-mail
capabilities within existing QuickMail or Microsoft Mail workgroups, so users
can exchange messages with Internet or on-line service subscribers as easily as
they do with coworkers in the office.
Just after the fiscal year-end, the Company made the Internet Services
Division a standalone subsidiary called GlobalCenter, Inc. to better focus on
the significant opportunities that the Internet represents. At the same time,
the Company announced that UUNET Technologies, Inc., an Internet service
provider, has taken a 19.9-percent equity interest in the new business.
The following table shows the major services available with the Company's
GlobalCenter Internet service:
GLOBALCENTER INTERNET SERVICE
Service Initialization, including GlobalCenter Internet start-up package
ISDN Dial-up Connections via Local POP
ISDN Dial-up Connections via Toll-Free 800 Number
V.34 Dial-up Connections via Local POP
V.34 Dial-up Connections via Toll-Free 800 Number
Basic Service
Global Village now has a presence on the World Wide Web. The site, called
"The Village," fulfills the company's dual commitment to maintain close
communication with its customers and educate users about accessing the virtually
unlimited information and resources available on the Internet. Users can learn
about the company's products and recent news, and receive customer support. The
address is http://www.globalvillage.com.
The market for Internet connectivity services and products is in an early
stage of growth. Since this market is relatively new and because current and
future competitors are likely to introduce competing Internet connectivity
and/or on-line services and products, it is difficult to predict whether or at
the rate at which the market will grow or at which new or increased competition
will result in market saturation. If demand for Internet services fails to grow,
grows more slowly than anticipated, or becomes saturated with competitors, the
Company's business, operating results and financial condition will be adversely
affected. In addition, the novelty of the market for Internet access services
may adversely affect the Company's ability to retain new customers, as customers
unfamiliar with the Internet may be more likely to discontinue the Company's
services after an trial period than other subscribers.
SALES AND MARKETING
Sales
Consistent with industry practice, the Company distributes its products
through a worldwide system of distributors, dealers, system integrators, OEMs
and mail order houses. The Company's two largest distributors, Ingram Micro and
Merisel, accounted for approximately 31% and 9%, respectively, of the Company's
net
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revenue in fiscal 1996 and 29% and 12%, respectively, of the Company's net
revenue in fiscal 1995 and, accordingly, the Company relies significantly on
these sales to distributors and their subsequent resale.
The Company has executed distribution agreements with Ingram Micro and
Merisel, granting each a non-exclusive right to distribute the Company's
products for a term of one year. These distributors carry multiple product lines
and could reduce their support of the Company's products in favor of a
competitor's products or for any other reason. The loss of any of the Company's
major distributors would have a material adverse effect on the Company's results
of operations. The Company's agreements with these distributors contain right of
return privileges for stock balancing, non-salable products, and discontinued
products. Therefore, the Company is exposed to the risk of product returns from
distributors and direct reseller customers. There can be no assurance that the
Company's recorded allowances for returns will be adequate and a material
increase in returns over historical rates would have a material adverse effect
on the Company's results of operations.
In addition, the Company is subject to the risk that its inventories may
rapidly become obsolete or that the Company may carry quantities of certain
products that exceed current or projected demand. While the Company writes off
inventory that it considers to be excessive or obsolete, there can be no
assurance that the Company's recorded allowances for such write-offs and returns
will be adequate, and a material increase in such write-offs and returns over
historical rates could have a material adverse effect on the Company's results
of operations.
The Company has an agreement with Apple under which the Company licenses to
Apple a version of the TelePort Platinum and Gold II fax modem, which Apple
distributes with virtually all of its current series of Macintosh Performa
computers sold in the United States and Canada. In addition, Global Village has
licensing agreements with original equipment personal computer and modem
manufacturers such as Boca Research, Gateway 2000, IBM, Megahertz, Packard Bell
and others. For the Communications Software Division, these agreements are for
software which provides capabilities such as fax, data communications, speaker
phone and voice mail. This is in contrast with the Company's agreement with
Apple, which is for hardware as well as software.
Prior to fiscal 1995, the Company marketed its products exclusively through
distributors, dealers or mail order catalogs. The Company has developed an
in-house telesales organization. Direct mail is sent to potential customers.
Leads are followed up by telephone. Once the customer is ready to make a
purchase, the order is fulfilled by Upgrade Corporation of America.
Export sales represented approximately 23%, 17%, and 15% of the Company's
net revenue in fiscal 1996, 1995, and 1994, respectively. The Company utilizes
distributors in Australia, the Benelux countries, Canada, Chech Republic,
Croatia, Denmark, Finland, France, Germany, Greece, Ireland, Israel, Italy,
Norway, Portugal, Macedonia, Mexico, Middle East, New Zealand, Norway, Portugal,
Singapore, Slovinia, South Africa, Spain, Sweden, Switzerland, Turkey, Ukraine,
United Arab Emirates, and the United Kingdom. There can be no assurance that the
Company will be able to maintain or increase international demand for the
Company's products or that the Company's distributors will be able to
effectively meet that demand.
The Company has obtained regulatory approval for the sale of its products,
and sells its products in Australia, Canada, France, Germany, Japan,
Netherlands, Sweden, the United Kingdom and the United States. The Company
intends to localize its products for sale in several other non-English speaking
countries. Global Village generally requires its distributors to commit to a
minimum sales volume and to provide local support, marketing and sales coverage
for their specific territory. In addition to regulatory approval, each country
has local competitors with significant market share. In January 1995, the
Company created a European subsidiary, Global Village Communication Europe B.V.
to support its distribution channels in the sale, marketing and support of its
products.
Additional risks inherent in the Company's international business
activities generally include unexpected changes in regulatory requirements,
tariffs and other trade barriers, costs and risks of localizing products for
foreign countries, longer accounts receivable payment cycles, difficulties in
managing international distributors, potentially adverse tax consequences,
repatriation of earnings, the burdens of complying with a wide
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variety of foreign laws and changes in demand resulting from fluctuations in
exchange rates. In addition, the laws of certain foreign countries do not
provide protection for the Company's intellectual property to the same extent as
do the laws of the United States.
Because the Company generally ships products within a short period after
receipt of an order, the Company does not always have a material backlog of
unfilled orders, and revenues in any quarter are substantially dependent on
orders booked in that quarter. The Company's expense levels are based in part on
its expectations as to future revenues. Therefore, the Company may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall of demand in relation to the
Company's expectations or any material delay of customer orders would have an
almost immediate adverse effect on the Company's results of operations.
Fluctuations in operating results may also result in volatility in the price of
the Company's Common Stock.
Marketing
The Company complements its sales activities with a range of public
relations and advertising programs designed to stimulate customer demand. The
Company believes that reviews and comments by influential trade press, business
press, market analysts and user group leaders have a pronounced impact on demand
for the Company's products. The Company conducts regular product strategy
briefings and new product previews. Historically, the Company has enjoyed strong
support from the trade press and has received numerous awards for its products.
Recent awards and accolades include the PC World Best Buy, and OS/2 Magazine
Editors' Choice awards for FaxWorks Pro, Macworld World Class and Editors'
Choice awards for PowerPort, Mac Home Journal Readers' Choice awards for
GlobalFax and TelePort, and Byte Magazine Product Excellence award for OneWorld
Fax, Windows NT Magazine Editors' Choice award for FaxWorks Server for Windows
NT, Windows Magazine Recommended Products List for FocalPoint.
From time to time, the Company makes certain upgrade offers to its
customers, for example to take advantage of greater speed or increased
functionality through new additions to the communications product lines. The
Company also markets add-on products and convenience items directly to its
installed base of customers. Such sales do not currently constitute a
significant portion of the Company's business, but may become an increasing
source of revenue as the installed base grows.
The Company provides a five-year warranty on its personal products and a
three-year warranty on its server products, which provide for the repair or
replacement of products determined to be defective. Therefore, the Company is
exposed to the risk of product returns from distributors, direct resellers, and
end-user customers.
RELATIONSHIP WITH APPLE AND OTHER OEMS
Global Village and its subsidiaries have worked with Apple and other OEMs
such as IBM and Packard Bell throughout the Company's product development
process and has developed a working relationship with them, which includes
collaborative product development, sharing of information, product sales to and
licensing technology. The Company currently has several agreements with Apple
and other OEMs encompassing development and licensing of certain technology. See
"Sales and Marketing" and "Proprietary Rights." The Company seeks to continue to
develop these relationships in order to better anticipate new technologies and
understand the needs of their installed user bases.
Apple and other OEMs are not contractually obligated to continue
collaborative development or information sharing activities with the Company and
could discontinue such activities at any time. In addition, Apple and other OEMs
are not contractually obligated to renew licenses with the Company or purchase
the Company's products. Apple and other OEMs are collaborating with other
vendors of communications products that compete with the Company's products, and
they may elect to do so in the future.
The Company's strategy of developing products compatible with the Macintosh
family of products is substantially dependent on the Company's ability to gain
pre-release access to, and to develop expertise in, current and future Macintosh
product developments by Apple. Apple currently bundles modems and
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communications software with some of its computers, and the Company cannot
assure that Apple will continue to bundle such products in the future. There can
be no assurance that Apple and other OEMs will continue to cooperate with the
Company, and the inability of the Company to maintain and develop further its
relationships could have a material adverse effect on the Company's results of
operations. See "Competition."
A substantial majority of the Company's sales to date have been derived
from products designed for use with the Apple Macintosh family of personal
computers, including the Macintosh desktop series of computers and the PowerBook
series of portable computers. Therefore, the Company is substantially dependent
on the sale of Apple Macintosh computers and the development and sale of new
Apple computers. Due to expected continuing pricing pressures and new product
introductions by the Company's competitors, the Company expects that revenues
and/or gross margins from its products for the Apple Macintosh family could
remain flat or decrease in future periods, which would have a material adverse
effect on the Company's business and results of operations unless the Company
can generate sufficient revenues from its Windows-based, ISDN and other products
to compensate for any shortfall in revenues from its Apple products. However,
there can be no assurance that revenues for the Apple Macintosh family will not
decline in future periods. The market for personal computers is extremely
competitive and rapidly changing. There can be no assurance that personal
computers competing with the Apple Macintosh family of computers will not
displace the Macintosh products or reduce their growth as such personal
computers are enhanced in their functionality, evolve to support technologically
superior applications or otherwise become economically more attractive. Although
the Company now has solutions on a broader array of computing platforms, there
is no guarantee to the success of any of those platforms.
Apple in the past has experienced difficulty in making the transition
associated with the development, manufacturing, marketing and sale of certain
new computers. The transition to any new generation of products would subject
the Company to the risks associated with such transitions, including the risk
that (i) potential customers will defer purchases of current products as a
result of, among other things, speculation or premature announcements about new
products; (ii) the new products will not be successfully received in the
marketplace; and (iii) Apple will be unable to adequately meet demand for the
new products. The inability of Apple to successfully develop, manufacture,
market, sell or make the transition to new products could have a material
adverse effect on the Company's results of operations. In addition, sales of the
Company's products in the past have been adversely affected by the announcement
by Apple of new products with the potential to replace existing products. Any
decrease in the sales of the Apple Macintosh family of computers, could have an
immediate and material adverse effect on the Company's results of operations.
For example, in May 1996, the Company announced that its current quarter is
being adversely impacted by Apple Computer's recently announced repair program
for Macintosh PowerBook 5300 and 190 models. The Company expects that Apple's
actions will result in a significant revenue decline from the prior quarter and
in a loss for the quarter ending June 30, 1996.
Additionally, any time Apple or any OEM makes a transition to a new machine
or architecture, there are risks of compatibility and interoperability problems,
that, if severe enough, could materially, adversely impact the Company's sales
and customer satisfaction.
COMPETITION
The market for the Company's products is intensely competitive and is
characterized by rapidly changing technology, evolving industry communication
standards and frequent new product introductions. A number of competitors such
as Shiva, Diamond Multimedia, Symantec, 3Com and U.S. Robotics, among others,
offer products that compete with one or more of the Company's products. Other
companies in the personal computer industry, such as modem vendors, remote
access server vendors, communication software vendors, microprocessor and chip
set suppliers, fax machine manufacturers and personal computer manufacturers,
could seek to expand their product offerings by designing and selling products
using competitive technology that could render obsolete or have a material
adverse effect on sales of the Company's products.
Many of the Company's competitors have substantially greater financial,
technical, sales, marketing and other resources, as well as greater name
recognition and a larger customer base, than the Company. In
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<PAGE> 11
addition, the market for the Company's products is characterized by significant
price competition, and the Company expects that it will face increasing pricing
pressures from its current competitors. Accordingly, there can be no assurance
that the Company will be able to provide products that compare favorably with
the products of the Company's competitors or that competitive pressures will not
require the Company to further reduce its prices. Any material reduction in the
price of the Company's products could negatively affect gross profit as a
percentage of net revenue and could require the Company to increase unit sales
in order to maintain net revenue.
Communications Systems Division
Apple currently offers products that compete directly or indirectly with
the Company's products and can be expected to introduce additional competitive
products in the future. Apple currently bundles modems and communications
software with some of its computers, and the Company anticipates that Apple will
continue to bundle such products in the future. In addition, Apple may further
enhance communications functionality within its desktop or portable computers.
Any such additional bundling or enhancement by Apple would have a material
adverse effect on the Company's results of operations.
The Company's OneWorld fax server products compete primarily with
stand-alone fax machines, electronic mail, centralized fax systems produced by
independent manufacturers such as 4Sight, Cypress, and STF, as well as printer
vendors, including Apple and NEC, which offer fax capabilities with some of
their products. The Company's OneWorld Combo server competes with the same
products in the fax server category, as well as with other remote access server
products produced by independent manufacturers such as APT, Cayman, Dana,
Megahertz, Shiva, Tribe, and Webster.
Communications Software Division
FocalPoint, the Company's integrated communications software for computers
running Windows, faces competition from Symantec, Datastorm, and Smith Micro. Of
those competitors, Symantec has an approximately 75% share of the fax software
market. In the OEM software market, the primary competitor is Smith Micro. In
the network fax server segment, competitors include Cheyenne, Optus, Rightfax
and many smaller vendors.
ISDN Division
Competition for the Company in the ISDN market comes principally from
Cisco, Bay Networks, 3Com, Shiva, Ascend, U.S. Robotics and Motorola.
Global Center Internet Services Division
The competition to provide Internet access, navigation and service is
substantial, from the regional Bell operating companies, the commercial on-line
services such as America Online, CompuServe and Prodigy, Internet service
providers such as NetCom, UUNET Technologies and PSI, wide area network
telephone companies such as Sprint, MCI and AT&T as well as software providers
such as Netscape, Microsoft, IBM and Spry. See "Technologies and
Products -- GlobalCenter Internet Services Division."
PROPRIETARY RIGHTS
The Company relies primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. The Company has no patents or patent
applications pending. The Company seeks to protect its hardware, software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. The Company seeks to protect its brand
names under trademark and unfair competition laws. Despite the Company's efforts
to protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
products is difficult, and while the Company is unable to determine the extent
to which piracy of its software products exists, software piracy can be expected
to be a persistent
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problem. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to as great an extent as do the laws of the United
States. There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar technology.
The Company believes that, due to the rapid pace of innovation within the
communications software industry, the Company's success in establishing and
maintaining a technological leadership position is likely to depend more upon
the technological and creative skills of its personnel, continued innovation,
its marketing skills and customer support than on the various legal means of
protecting its existing technology.
The Company licenses software from Apple and from other OEMs and
incorporates such software into its products. Generally, such agreements grant
the Company non-exclusive, worldwide licenses with respect to the subject
software and terminate on varying dates. For example, the Company licenses
software from The Keller Group for its OS/2 software. A royalty is paid using a
percentage of revenue on the OS/2 stand alone products and network servers. In
addition, new communications technologies may be developed or the Company's
products may be modified so as to require licenses that the Company may not be
able to obtain on reasonable terms or at all.
The Company entered into a Software Development Agreement with Apple, dated
August 31, 1992, under which the Company developed certain software for Apple.
Under that agreement, Apple has the perpetual and exclusive right to the
developed software and all derivative works to that product made by either
party. Under a Source Code License Agreement with Apple, dated the same date,
the Company is granted certain rights to modify and incorporate such software in
its own products. The Company has incorporated such software into its OneWorld
Combo server. Under the Source Code License, the Company has been granted a
non-exclusive license and has paid a one-time license fee to Apple for
distribution rights through the term of the agreement and is obligated to give
Apple the right to use internally any tools or test codes the Company produces
in connection with the software licensed from Apple. Upon termination of the
Source Code License, the Company may not further modify, adapt or improve the
software by making use of the licensed source code, but the Company may continue
distribution and maintenance of already developed and distributed products.
Similar arrangements have been made with OEMs in the Communications Software
Division.
The Company is aware of products in addition to its own that are marketed
under the trademarks "PowerPort," "TelePort," "GlobalFax," "FocalPoint" and
"OneWorld." The Company also is aware of a company that operates under and has a
trademark for the name "Global Villages" and provides computer-related services.
Recently, Apollo Travel Services and Galileo International Partnership initiated
a lawsuit in court alleging infringement by the Company, of their rights in the
mark FOCALPOINT. See "Legal Proceedings." There can be no assurance that
additional litigation with respect to these trademarks will not be instituted by
any third parties. If any such litigation were successful, the Company could be
required to pay damages and cease all use of a particular trademark. There can
be no assurance that any loss of the right to use a trademark would not reduce
sales of the Company's products. In any event, even if the Company were
successful in any such litigation, the legal and other costs associated with
such litigation could be substantial. As is customary in the Company's industry,
the Company from time to time receives communications from third parties
asserting that the Company's products infringe, or may infringe, the proprietary
rights of third parties or seeking indemnification against such infringement.
There can be no assurance that any such claims would not result in protracted
and costly litigation. The Company anticipates that the duration of its
trademarks will be perpetual.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are primarily focused on
software development and related incidental hardware. The Company's expenditures
for research and development were $16.3 million, $10.1 million and $5.6 million
for the fiscal years ended March 31, 1996, 1995 and 1994, respectively.
Customer-sponsored research and development was immaterial during these periods.
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The market for personal computer communications products is characterized
by continual change and improvement in hardware and software technology
resulting in short product life cycles. The Company believes that its future
success will depend on its ability to enhance its current products, develop new
products on a timely and cost-effective basis that meet changing customer needs
and respond to emerging industry standards and other technological changes. In
particular, the Company must adapt its products to the evolving technological
standards of the various Apple and other OEM computer platforms and new
technical standards resulting from increases in data transmission speed and
wireless communication, as well as new form factors such as the PCMCIA Card. Any
failure by the Company to anticipate or respond adequately to changes in
technology and customer preferences or any significant delay in product
development or introduction would have a material adverse effect on the
Company's results of operations. Due in part to the factors described above, the
Company is subject to the risk that its inventories may rapidly become obsolete
or that the Company may carry quantities of certain products that exceed current
or projected demand. While the Company writes off inventory that it considers to
be excessive or obsolete, the Company has in the past recorded inventory
write-offs in excess of available reserves. There can be no assurance that the
Company's recorded allowances for such writeoffs will be adequate in the future,
and material write-offs could have a material adverse effect on the Company's
results of operations. In addition, products as complex as those offered by the
Company may contain undetected errors or defects when first introduced or as new
versions are released. There can be no assurance that, despite testing by the
Company and by current and potential customers, errors will not be found in new
products after commencement of commercial shipments resulting in a delay in
market acceptance or a recall of such products.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing operations consist primarily of turnkey
managers, program managers, quality assurance, packaging and shipping personnel.
For a majority of its hardware assemblies, the Company purchases fully
manufactured and tested units from Flextronics Technologies, Inc., a "turnkey"
manufacturing subcontractor. Components and manufacturing services from the
Company's suppliers are obtained on an as-needed basis. The Company believes
that there are a number of alternative contract manufacturers that could produce
the Company's products. However, it could take a significant period of time and
result in significant additional expense to qualify an alternative subcontractor
and commence manufacturing in the event of a reduction or interruption of
production. Therefore, the Company is highly dependent, on a short-term basis,
on its continued relationship with its "turnkey" manufacturing subcontractor and
any reduction, interruption, or termination of this relationship could have a
material adverse effect on the operating results of the Company.
The Company is dependent on sole or limited source suppliers for certain
key components used in its products, particularly chip sets designed and
manufactured by Motorola and Rockwell International. The Company generally
purchases sole or limited source components pursuant to purchase orders placed
from time to time in the ordinary course of business and has no guaranteed
supply arrangements with its sole or limited source suppliers. Certain component
suppliers, such as Motorola, are also modem manufacturers and, accordingly,
could elect to satisfy their internal supply requirements rather than the
Company's purchase requirements. The Company at times in the past has
experienced delays in product development, difficulties in manufacturing
sufficient product to meet demand due to the inability of certain suppliers to
meet the Company's volume and schedule requirements. To date, none of these
occurrences have had a material impact on the Company's operations. There can be
no assurance, however, that the Company's suppliers will be able to meet the
Company's requirements for key components and failure to meet such requirements
in the future could have a material adverse effect on the Company's results of
operation.
ACQUISITION OF SOFNET
In August 1994, the Company acquired SofNet, a supplier of fax software for
PCs running Windows, OS/2 or DOS. All of SofNet's products are for PCs, and all
of the Company's products prior to its acquisition of SofNet were for Apple
Macintosh computers. The markets in which SofNet and the Company have operated
in the past are significantly different from one another, and the businesses of
the two companies,
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including research and development, product development, sales and marketing and
other matters, are significantly different as well. Until the SofNet
acquisition, the Company's management had no significant experience in the
Windows marketplace, and most of SofNet's management have not continued with the
Company following the acquisition. Failure of the Company to properly manage the
integration of the two businesses would have a material adverse effect on the
Company's results of operations.
As often occurs in connection with merger transactions, the Company has
experienced difficulties in integrating the operations of SofNet into those of
the Company. The Company has relocated SofNet's telesales operation to the
Company's headquarters in Sunnyvale, California. There can be no assurance that
the Company will not experience additional difficulties in connection with the
transition.
ACQUISITION OF KNX LIMITED
In January 1996, the Company acquired KNX Limited, a UK-based provider of
ISDN remote access products. All of KNX Limited's products are for ISDN remote
access, an area of which the Company has little experience. The markets in which
KNX Limited and the Company have operated in the past are significantly
different from one another, and the businesses of the two companies, including
research and development, product development, sales and marketing and other
matters, are significantly different as well. Until the KNX Limited acquisition,
the Company's management had no significant experience in the ISDN marketplace.
The process of integrating the businesses will require significant management
attention and there can be no assurance that the Company will be able
successfully to integrate the two businesses. Failure of the Company to properly
manage the integration of the two businesses would have a material adverse
effect on the Company's results of operations.
As often occurs in connection with merger transactions, the Company has
experienced difficulties in integrating the operations of KNX Limited into those
of the Company. The Company has not completed the integration and therefore
expects that further difficulties may be experienced in connection with the
integration, and there can be no assurance that any such difficulties will not
have a material adverse effect on the Company's business and results of
operations. There can be no assurance that the Company will not experience
additional difficulties in connection with the transition.
Additional risks inherent in the Company's international business
activities generally include unexpected changes in regulatory requirements,
tariffs and other trade barriers, costs and risks of localizing products for
foreign countries, longer accounts receivable payment cycles, difficulties in
managing international distributors, potentially adverse tax consequences,
repatriation of earnings, the burdens of complying with a wide variety of
foreign laws and changes in demand resulting from fluctuations in exchange
rates. In addition, the laws of certain foreign countries do not provide
protection for the Company's intellectual property to the same extent as do the
laws of the United States.
WIRELESS TECHNOLOGY
In June 1996, the Company announced that it was entering into a licensing
agreement with Ex Machina, Inc. pursuant to which the Company intends to
develop, market and distribute receivers for Ex Machina's AirMedia Live!
network. In addition, the Company plans an equity investment of approximately $4
million. The AirMedia Live! network is designed to provide news and electronic
mail alerts directly to PC desktops without requiring an online connection. The
Company has no experience in developing products based on wireless technology
and there can be no assurance that it will be able to successfully develop,
market or distribute such devices. The preceding sentences contain
forward-looking statements and the actual results could differ materially from
those anticipated in the forward-looking statements as a result of risks such as
the parties failure to reach a definitive agreement relating to their
relationship, unanticipated delays in development, marketing or distribution of
the proposed products or announcements by Ex Machina's competitors.
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EMPLOYEES
As of March 31, 1996, the Company employed a total of 297 persons,
including 114 in sales, marketing and customer support, 32 in operations, 107 in
engineering and product development and 44 in finance and administration. The
Company had two employees located in Canada, one employee in the Netherlands, 46
employees in England, and 248 employees located in the United States. None of
the Company's employees are represented by a labor union or are subject to a
collective bargaining agreement. The Company believes that its relations with
its employees are good. The Company's future success depends to a significant
extent on its senior management and other key employees, including key
development personnel. The loss of the services of any of these individuals or
group of individuals could have a material adverse effect on the Company's
results of operation. The Company has no employment agreements with any of its
key employees. The Company also believes that its future success will depend in
large part on its ability to attract and retain additional key employees.
Competition for such personnel in the computer industry is intense, and there
can be no assurance that the Company will be successful in attracting and
retaining such personnel.
The Company recently has experienced significant growth in both revenue and
employees. This growth has placed substantial demands on the Company. In fiscal
1995, the Company hired 118 employees, 55 of whom are attributable to the
acquisition of SofNet, Inc. During fiscal 1996, the Company hired 69 employees,
46 of whom are attributable to the acquisition of KNX, Limited. The Company's
ability to assimilate new personnel will be critical to the Company's
performance. In addition, the Company will be required to recruit additional key
management personnel, expand its direct sales force, improve its operational and
financial systems, expand its customer support functions and train, motivate and
manage its employees. There can be no assurance that the Company will be able to
manage these changes successfully.
EXECUTIVE OFFICERS OF THE COMPANY
The current executive officers of the Company and their ages as of March
31, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Neil Selvin........................ 42 President, Chief Executive Officer and Director
Leonard A. Lehmann................. 41 Chairman of the Board
James M. Walker.................... 47 Vice President, Finance, Chief Financial Officer
and Secretary
James Brown........................ 41 Vice President, Operations
Charles R. Oppenheimer............. 37 Vice President and General Manager, Communications
Systems Division
Douglas Dennerline................. 37 Vice President, Sales
Andrew Watson...................... 35 Vice President and General Manager, Communications
Software Division
Marsha Raulston.................... 47 Vice President, Customer Satisfaction
</TABLE>
Neil Selvin has served as President and Chief Executive Officer and
director of the Company since March 1993. From February 1990 to March 1993, he
was Director of Marketing at Apple Computer for the PowerBook product family and
prior to that for Apple's peripherals product line. From 1985 to 1990, Mr.
Selvin was employed by Ampex Corporation, a manufacturer of electronics
products, most recently as Chief Operating Officer of its Video Systems division
and also as business unit general manager and in several marketing management
positions. Prior to joining Ampex Corporation, Mr. Selvin held marketing, sales
and technical management positions at Varian Associates and Apollo Lasers. Mr.
Selvin received a B.A. in physics and mathematics from Pomona College, an M.S.
in physics from Brown University, and an M.B.A. from Harvard Business School.
Leonard A. Lehmann has served as Chairman of the Board of the Company since
its founding in June 1989. From January 1993 to March 1996, Mr. Lehmann has
served as Vice President, Advanced Products and has evaluated new technologies
and performed strategic planning for the Company. From March 1992 to January
1993, he served as Vice President, Engineering of the Company. From June 1989 to
March 1992, he
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served as the Company's Chief Executive Officer. Mr. Lehmann was also a founder
of DigiRad Corporation, a medical imaging company, and GreenSpring Computers,
Inc., an industrial computer manufacturer. Mr. Lehmann was President and Chief
Executive Officer of GreenSpring Computers from 1985 to 1989 and served as its
Chairman of the Board from 1985 through April 1995. Mr. Lehmann received a B.S.
in electrical engineering from Cornell University, and an M.S. and a Ph.D. in
electrical engineering from Stanford University.
James M. Walker has served as Vice President, Finance, and Chief Financial
Officer of the Company since September 1993 and as Secretary since November
1993. From May 1987 to September 1993, Mr. Walker was Vice President, Finance
and Administration for Fujitsu Computer Products of America, a computer
peripherals maker. From 1980 to 1987, Mr. Walker was Vice President, Finance and
Administration for Compression Labs, Inc., a manufacturer of video
teleconferencing equipment. Prior to 1980, he held various senior financial
positions in the electronics industry. Mr. Walker received a B.S. in mathematics
from San Jose State University and an M.B.A. from Santa Clara University.
James Brown became the Company's Vice President, Operations in January
1994. From September 1990 to January 1994, Mr. Brown was employed by Apple
Computer, most recently as Director of World-Wide Consumables Business and also
as Director of World-Wide Imaging Operations. From 1985 to 1990, he was employed
by Ampex Corporation in various management positions in operations. Mr. Brown
received a B.S. in Behavioral Sciences and Economics from George Williams
College.
Charles R. Oppenheimer became the Company's Vice President and General
Manager, Systems Division in November 1995. He became the Company's Vice
President and General Manager, Mac Division in October 1994, previously served
as Vice President, Marketing of the Company beginning in July 1993. From 1984 to
July 1993, Mr. Oppenheimer was employed by Apple Computer, most recently as
Director of System Software Marketing and also as manager of System Software
Marketing and manager of Macintosh Product Marketing. From 1980 to 1982, he
managed software development for Donnelley Marketing Information Services, a Dun
& Bradstreet Company. Mr. Oppenheimer received a B.S. in computer science from
Union College, and an M.B.A. from The Wharton School.
Douglas Dennerline became the Company's Vice President, Sales in September
1995. He previously served as Director, North America Sales of the Company
beginning in August 1993. From June 1986 to July 1993, Mr. Dennerline was
employed by 3Com Corporation in various management positions in sales. From 1981
to 1986, Mr. Dennerline was a Major Account Sales Representative for Hewlett
Packard Corporation. Mr. Dennerline received a B.S. in business administration
from Arizona State University.
Andrew Watson became the Company's Vice President and General Manager,
Communications Software Division, in July 1995. From April 1989 to June 1995,
Mr. Watson was employed by Compaq Computer, most recently as Director of Desktop
Marketing and also as Director of Deskpro Marketing and in several marketing
management positions. From 1988 to 1989, Mr. Watson was a marketing consultant
for Landmark Graphics. From 1984 to 1988, Mr. Watson was employed by Compaq
Computer as a Product Manager. Prior to Compaq Computer, Mr. Watson was employed
by Xedex/Microlog from 1982 to 1984 as a design engineer. Mr. Watson received a
B.S. in Psychology and Computer Science from the University of Florida.
Marsha Raulston became the Company's Vice President, Customer Satisfaction
in January 1994. From October 1991 to January 1994, Ms. Raulston was employed by
Intuit, a personal finance software company, as Vice President of Customer
Service. From June 1987 to October 1991, Ms. Raulston served as Corporate
Coordinator, Quality of Work Life at American Airlines, Inc., an airline, and,
prior to that, she worked for the Citicorp Diners Club Inc., a credit card
issuer. Ms. Raulston holds a B.A. in psychology from Stephens College in
Columbia, Missouri and an M.A. in sociology from the University of Nottingham in
Nottingham, England.
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ITEM 2. PROPERTIES
The Company leases approximately 128,000 square feet of office space for
its headquarters in Sunnyvale, California. This facility accommodates
administration, finance, sales, marketing, customer satisfaction, engineering,
and research and development. The lease expires in April 2000 and the monthly
rent is approximately $102,000.
The Company leases a 9,500 square foot office building in Skipton, North
Yorkshire, England. This facility accommodates administration, finance, sales,
marketing, customer satisfaction, engineering, and research and development for
the Company's U.K. operations. The lease expires in August 2000 and monthly rent
is approximately $8,900 per month.
The Company's manufacturing and distribution operation consists of a 7,000
square foot facility in Richardson, Texas. The lease expires in February 2000
and monthly rent is approximately $3,600.
The Company also leases approximately 16,000 square feet of office space
for its Software Division in Marietta, Georgia. The lease expires in December
1999 and the monthly rent is approximately $17,600. Also, the Company leases
sales office space at eight other facilities, including six in the United
States, one in Canada, and one in the Netherlands.
The Company believes the space to which it is committed is adequate for its
current needs and that additional space sufficient to meet the Company's needs
for the foreseeable future is available on commercially reasonable terms. The
Company's facilities are subject to a variety of environmental regulations. The
Company has incurred no significant expenses to date related to complying with
these regulations.
ITEM 3. LEGAL PROCEEDINGS
On March 24, 1995, a complaint was filed in the Santa Clara County Superior
Court against the Company and certain individuals following the termination of
the plaintiff's employment with the Company. The complaint alleges wrongful
termination of employment, discrimination, sexual harassment and related claims
and seeks compensatory damages for lost wages, emotional distress and other
items and unspecified punitive damages. In July 1995, both the Company and
certain individuals filed their answers to the complaint, generally denying the
allegations against them and raising numerous affirmative defenses. No trial
date has been set.
On April 8, 1996, in response to trademark infringement claims asserted by
Apollo Travel Services Partnership ("Apollo") and Galileo International
Partnership ("Galileo") with respect to Global Village's trademark FocalPoint,
Global Village filed an action in the Northern District of California seeking a
judicial declaration of non-infringement. Apollo and Galileo subsequently filed
a trademark infringement action in the Northern District of Illinois alleging
infringement of their rights in the mark FOCALPOINT. The venue in which this
dispute will be resolved has not, as yet been determined.
Litigation is inherently uncertain, however, and there can be no assurance
that the resolution of plaintiff's claims or expense associated with the
litigation will not have a material adverse effect on the Company. In any event,
even if the Company were successful in any such litigation, the legal and other
costs associated with such litigation could be substantial.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following required information is filed as part of the report:
The Company has not paid cash dividends on its Common Stock. The Company's
Stock is traded over-the-counter and is quoted on the Nasdaq National Market
under the symbol "GVIL". The following table sets forth the range of high and
low closing sale prices for the Common Stock:
<TABLE>
<CAPTION>
LOW SALE PRICE HIGH SALE PRICE
-------------- ---------------
<S> <C> <C>
Fiscal 1995
First Quarter......................................... $ 6.25 $ 10.25
Second Quarter........................................ 5.75 10.00
Third Quarter......................................... 7.13 11.00
Fourth Quarter........................................ 9.00 14.25
Fiscal 1996
First Quarter......................................... $11.00 $ 17.00
Second Quarter........................................ 13.00 18.13
Third Quarter......................................... 10.25 24.13
Fourth Quarter........................................ 12.12 19.25
</TABLE>
On March 31, 1996, there were approximately 11,000 holders of record of the
Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth on the inside cover of the 1996 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth on pages 11 through 16 of the 1996 Annual Report
to Stockholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary financial information
for the Company and report of independent auditors set forth on pages 17 through
32 of the 1996 Annual Report to Stockholders are incorporated herein by
reference.
- Consolidated Balance Sheets as of March 31, 1996 and 1995.
- Consolidated Statements of Operations for each of the years in the
three-year period ended March 31, 1996.
- Consolidated Statements of Stockholders' Equity for each of the years in
the three-year period ended March 31, 1996.
- Consolidated Statements of Cash Flows for each of the years in the
three-year period ended March 31, 1996.
- Notes to Consolidated Financial Statements.
- Financial Information by Quarter (Unaudited)
- Independent Auditors' Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The Company's definitive Proxy Statement will be filed with the Securities
and Exchange Commission in connection with the solicitation of proxies for the
Company's Annual Meeting of Stockholders to be held on July 31, 1996 (the "Proxy
Statement"). Certain information required by this item is incorporated by
reference from the information contained in the Proxy Statement under the
caption "Election of Directors." For information regarding executive officers of
the Company, see Part I of this Form 10-K under the caption "Executive Officers
of the Company."
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item will be contained in the Company's
definitive Proxy Statement under the caption "Executive Compensation" and is
incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item will be contained in the Company's
definitive Proxy Statement under the caption "Security Ownership of Certain
Beneficial Owners and Management" and is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item will be contained in the Company's
definitive Proxy Statement under the caption "Certain Transactions" and is
incorporated by reference herein.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents Filed as part of Form 10-K
1. Financial Statements
The financial statements of the Company as set forth under Item 8 of
this report Form 10-K are incorporated herein by reference.
2. Financial Statement Schedule (see page 24)
Schedule II -- Valuation and Qualifying Accounts
3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------------------------------------------------------------------
<S> <C>
3.1 Form of Certificate of Incorporation of Global Village Communication Delaware*
3.2 Form of Bylaws of Global Village Communication Delaware*
4.1 Reference is made to Exhibits 3.1 through 3.2*
4.2 Amended and Restated Investor Rights Agreement among the Company and certain other
persons named therein, dated as of May 26, 1992*
4.3 Employee Shareholder Agreement between the Company and certain stockholders of the
Company, as amended, and related schedule*
4.4 Common Stock Purchase Agreement between the Company and other parties named
therein, dated as of October 2, 1989*
4.5 Series A Junior Preferred Stock Exchange Agreement between the Company and other
parties named therein, dated as of May 14, 1991*
4.6 Series B Preferred Stock Purchase Agreement between the Company and other parties
named therein, dated as of May 14, 1991*
4.7 Warrant to Purchase 31,395 Shares of Series B Preferred granted by the Company to
Company to Dominion Ventures, dated as of November 27, 1991*
4.8 Series C Preferred Stock Purchase Agreement between the Company and other parties
named therein, dated as of May 26, 1992*
10.1 Form of Indemnity Agreement entered into between the Company and its directors and
officers, with related schedule*
10.2 1991 Stock Option Plan, as amended (the "Option Plan")*
10.3 Form of Incentive Stock Option under the Option Plan*
10.4 Form of Supplemental Stock Option under the Option Plan*
10.5 1993 Employee Stock Purchase Plan*
10.6 Sublease Agreement between the Company and Northern Telecom Inc., dated as of May
21, 1992*
10.7+ Source Code License, Agreement between the Company and Apple Computer, Inc., dated
August 31, 1992*
10.8+ Software Development Agreement between the Company and Apple Computer, Inc., dated
August 31, 1992*
10.9+ Form of License and Distribution Agreement between the Company and Apple Computer,
Inc., dated December 15, 1993*
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------------------------------------------------------------------
<S> <C>
10.10 Distribution Agreement between the Company and Ingram Micro, dated as of February
16, 1993*
10.11 Distribution Agreement between the Company and Merisel, Inc., dated as of June 1,
1993*
10.12 1994 Non-Employee Directors' Stock Option Plan, including Form of Supplemental
Stock Option*
10.13+ Master OEM Purchase Agreement between Apple Computer, Inc. and the Company dated
June 6, 1994**
10.14+ License and Distribution Agreement between the Company and Apple Computer, Inc.
dated June 6, 1994**
10.15++ First Amendment to License Agreement between Apple Computer, Inc. and the Company,
dated June 30, 1994***
10.16++ Lease Agreement between Herman Christensen and Jr. Raymond P. Christensen and the
Company dated July 14, 1994***
11.1 Statement regarding computation of per share earnings
13.0 Annual Report to Stockholders
16.1 Letter regarding change in accountants*
23.1 Consent of KPMG Peat Marwick LLP
25.1 Power of Attorney (see page 23)
27.1 Financial Data Schedule
</TABLE>
- ---------------
+ The Company has received confidential treatment with respect to portions of
these Exhibits.
++ The Company has requested confidential treatment with respect to portions of
this document.
* Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(Registration No 33-73878 as amended) and incorporated by reference hereby.
** Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended March 31, 1994 and incorporated by reference hereby.
*** Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1994 and incorporated by reference hereby.
The independent auditors' report with respect to the above-listed
financial statement schedule appears on page 22 of this report on Form
10-K. Financial statement schedules other than those listed above have been
omitted since they are either not required, not applicable, or the
information is shown in the financial statements or notes thereto.
(b) On February 20, 1996, the Company filed a Current Report on Form 8-K in
which the Company announced 30 days of combined operations with Global Village
Communication (UK) Limited, the successor company to KNX Limited which the
Company purchased in January 1996.
21
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Global Village Communication, Inc.:
Under date of April 24, 1996, (except as to Note 11 which is as of May 31,
1996), we reported on the consolidated balance sheets of Global Village
Communication, Inc. and subsidiaries as of March 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended March 31, 1996, as
contained in the 1996 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1996. In connection with our audits of
the aforementioned consolidated financial statements, we also have audited the
related financial statement schedule as listed in item 14(a)2 of this Form 10-K.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Palo Alto, California
April 24, 1996, except as to
Note 11 which is as
of May 31, 1996
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Company has duly caused this Form 10-K Annual Report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 26th day of
June, 1996.
GLOBAL VILLAGE COMMUNICATION, INC.
By: /s/ NEIL SELVIN
-----------------------------------
Neil Selvin, President, Chief
Executive Officer and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Neil Selvin and James M. Walker jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to the Form 10-K Annual
Report, and to file the same, with exhibits thereto and other documents in
connections therewith, with the Securities and Exchange Commission, hereby
ratifying and conforming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------- --------------
<C> <S> <C>
/s/ Chairman of the Board June 26, 1996
LEONARD A. LEHMANN
- ------------------------------------------
Leonard A. Lehmann
/s/ President, Chief Exectutive June 26, 1996
NEIL SELVIN Officer and Director
- ------------------------------------------ (Principal Executive Officer)
Neil Selvin
/s/ Vice President, Finance and June 26, 1996
JAMES M. WALKER Chief
- ------------------------------------------ Financial Officer
James M. Walker (Principal Financial and
Accounting Officer)
/s/ Director June 26, 1996
ROBERT S. COHN
- ------------------------------------------
Robert S. Cohn
/s/ Director June 26, 1996
KEVIN R. COMPTON
- ------------------------------------------
Kevin R. Compton
/s/ Director June 26, 1996
MICHAEL MORITZ
- ------------------------------------------
Michael Moritz
/s/ Director June 26, 1996
DAVID H. RING
- ------------------------------------------
David H. Ring
</TABLE>
23
<PAGE> 24
SCHEDULE II
GLOBAL VILLAGE COMMUNICATION, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS(1) PERIOD
- ---------------------------------------------------- ---------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
Year ended March 31, 1996
Allowance for returns and doubtful accounts....... $2,144 $ 8,412 $ 8,678 $ 1,878
Warranty and other product-related obligations.... 1,559 4,493 4,535 1,517
------ ------- ------- ------
Total allowance........................... $3,703 $ 12,905 $13,213 $ 3,395
====== ======= ======= ======
Year ended March 31, 1995
Allowance for returns and doubtful accounts....... $ 475 $ 4,861 $ 3,192 $ 2,144
Warranty and other product-related obligations.... 1,058 2,730 2,229 1,559
------ ------- ------- ------
Total allowance........................... $1,533 $ 7,591 $ 5,421 $ 3,703
====== ======= ======= ======
Year ended March 31, 1994
Allowance for returns and doubtful accounts....... $ 348 $ 1,751 $ 1,624 $ 475
Warranty and other product-related obligations.... 572 769 283 1,058
------ ------- ------- ------
Total allowance........................... $ 920 $ 2,520 $ 1,907 $ 1,533
====== ======= ======= ======
</TABLE>
24
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------------------------------------------------------------------
<S> <C>
3.1 Form of Certificate of Incorporation of Global Village Communication
Delaware*
3.2 Form of Bylaws of Global Village Communication Delaware*
4.1 Reference is made to Exhibits 3.1 through 3.2*
4.2 Amended and Restated Investor Rights Agreement among the Company and certain other
persons named therein, dated as of May 26, 1992*
4.3 Employee Shareholder Agreement between the Company and certain stockholders of the
Company, as amended, and related schedule*
4.4 Common Stock Purchase Agreement between the Company and other parties named
therein, dated as of October 2, 1989*
4.5 Series A Junior Preferred Stock Exchange Agreement between the Company and other
parties named therein, dated as of May 14, 1991*
4.6 Series B Preferred Stock Purchase Agreement between the Company and other parties
named therein, dated as of May 14, 1991*
4.7 Warrant to Purchase 31,395 Shares of Series B Preferred granted by the Company to
Company to Dominion Ventures, dated as of November 27, 1991*
4.8 Series C Preferred Stock Purchase Agreement between the Company and other parties
named therein, dated as of May 26, 1992*
10.1 Form of Indemnity Agreement entered into between the Company and its directors and
officers, with related schedule*
10.2 1991 Stock Option Plan, as amended (the "Option Plan")*
10.3 Form of Incentive Stock Option under the Option Plan*
10.4 Form of Supplemental Stock Option under the Option Plan*
10.5 1993 Employee Stock Purchase Plan*
10.6 Sublease Agreement between the Company and Northern Telecom Inc., dated as of May
21, 1992*
10.7+ Source Code License, Agreement between the Company and Apple Computer, Inc., dated
August 31, 1992*
10.8+ Software Development Agreement between the Company and Apple Computer, Inc., dated
August 31, 1992*
10.9+ Form of License and Distribution Agreement between the Company and Apple Computer,
Inc., dated December 15, 1993*
10.10 Distribution Agreement between the Company and Ingram Micro, dated as of February
16, 1993*
10.11 Distribution Agreement between the Company and Merisel, Inc., dated as of June 1,
1993*
10.12 1994 Non-Employee Directors' Stock Option Plan, including Form of Supplemental
Stock Option*
10.13+ Master OEM Purchase Agreement between Apple Computer, Inc. and the Company dated
June 6,1 994**
10.14+ License and Distribution Agreement between the Company and Apple Computer, Inc.
dated June 6, 1994**
</TABLE>
<PAGE> 26
EXHIBIT INDEX (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------------------------------------------------------------------
<S> <C>
10.15++ First Amendment to License Agreement between Apple Computer, Inc. and the Company,
dated June 30, 1994***
10.16++ Lease Agreement between Herman Christensen and Jr. Raymond P. Christensen and the
Company dated July 14, 1994***
11.1 Statement regarding computation of per share earnings
13.0 Annual Report to Stockholders
16.1 Letter regarding change in accountants*
23.1 Consent of KPMG Peat Marwick LLP
25.1 Power of Attorney (see page 23)
27.1 Financial Data Schedule
</TABLE>
- ---------------
+ The Company has received confidential treatment with respect to portions of
these Exhibits.
++ The Company has requested confidential treatment with respect to portions of
this document.
* Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(Registration No 33-73878 as amended) and incorporated by reference hereby.
** Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended March 31, 1994 and incorporated by reference hereby.
*** Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1994 and incorporated by reference hereby.
<PAGE> 1
EXHIBIT 11.1
GLOBAL VILLAGE COMMUNICATION, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Statement of operations data:
Net income (loss)............................................. $ 8,836 $(7,672) $ 3,900
Weighted average shares outstanding........................... 16,478 15,013 4,416
Common equivalent shares from stock options................... 1,394 0 8,711
------- ------- -------
Average common and equivalent shares outstanding(1)........... 17,872 15,013 13,127
======= ======= =======
Net income (loss) per share................................... $ 0.49 $ (0.51) $ 0.30
======= ======= =======
</TABLE>
- ---------------
(1) The difference between primary and fully diluted earnings per share is not
material.
<PAGE> 1
EXHIBIT 13.0
[GRAPHIC]
COMMUNICATING
SIMPLY IN A
COMPLEX WORLD
1996
<PAGE> 2
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
IN THOUSANDS EXCEPT EARNINGS PER SHARE DATA 1992 1993 1994 1995 1996
- ------------------------------------------- ------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net revenue $4,208 $23,770 $49,313 $65,724 $144,479
Income (loss) from operations $ (618) $ 1,779 $ 6,374 $(4,675) $ 13,019
Income (loss) before income taxes $ (655) $ 1,786 $ 6,500 $(3,862) $ 13,996
Net income (loss) $ (670) $ 979 $ 3,900 $(7,672) $ 6,636
Net income (loss) per share $(0.19) $ 0.08 $ 0.30 $ (0.51) $ 0.49
Shares used in computing
income (loss) per share 3,530 12,403 13,127 15,013 17,872
Balance Sheet Data:
Working capital $ 119 $ 5,628 $27,044 $28,086 $ 35,722
Total assets $2,773 $12,029 $37,430 $55,912 $ 75,677
Total liabilities $2,347 $ 5,156 $ 8,292 $19,777 $ 27,846
Stockholder's equity, including
redeemable stock and warrant $ 426 $ 6,873 $29,138 $36,135 $ 47,831
</TABLE>
The selected financial data has been derived from, and should be read in
conjunction with, the related Consolidated Financial Statements.
<PAGE> 3
MAKING COMMUNICATIONS EASY
The term "global village" was coined by Marshall McLuhan, a Canadian
scholar of modern mass media who used it to describe a world brought closer
together by vast networks of communications systems that would ultimately link
everyone. Our company name reflects our desire to help bring the world closer
together. We do that by creating elegant products that enable people to
communicate more easily, freely, and with greater meaning. Our products
encourage the exchange of ideas and knowledge between people, companies and
countries. Global Village is a leader in making personal communications easy,
helping people achieve personal and professional goals.
[4 graphs from left to right showing net revenue in $ millions, net income
(loss) in $ millions, earnings (loss) per share, and installed base in
millions - cumulative]
Excludes $12.8 million nonrecurring charge for in-process research and
development related to the SofNet, Inc. acquisition.
Excludes $1.4 million income charge associated with KNX Limited acquisition.
<PAGE> 4
TO OUR SHAREHOLDERS
Since its founding seven years ago, Global Village Communication(TM) has
helped bring order and simplicity to the many ways people communicate worldwide.
A range of technologies that did not exist just a few years ago now makes it
possible for individuals by the millions to get instant access to information --
and each other -- from any computer, from any location. As the communication
market continues to explode with more users coping with increasingly complex
technology, we continue to pursue our original vision: to provide solutions that
make it easy for ordinary people to connect and communicate with their worldwide
community, their "global village." And once again this year, our mission of
taming intricate communication technologies with integrated, "one-button-simple"
solutions differentiated Global Village in ways that are both compelling to
consumers and good for business.
DELIVERING SOLUTIONS AND FINANCIAL PERFORMANCE
Global Village solutions address the communication needs of customers in
the home office, on the road, and in small and medium-sized businesses. Over 7.5
million people use our products, because they want communication to be easy and
straightforward, with an intuitive interface and features that enhance
productivity. In fiscal 1996, we continued to serve our markets with
achievements such as the introduction of a communications software package that
offers an unprecedented degree of integration; new solutions for mobile users;
an integrated telecommunication server for the network; and a turnkey Internet
service.
In addition, the way we bring solutions to the market benefits our
investors with a well-run company that delivers above-average financial
performance. We pride ourselves on consistent growth and applying innovative
business practices that help us thrive in a rapidly changing industry.
[GRAPHIC CAPTION: Our communication solutions address all PC users in the home
office, mobile, and small business segments, no matter what the platform. In
fact, of our 7.5 million current customers, 5 million work on Windows' based PCs
and 2.5 million use Macintosh(R) computers.]
2
<PAGE> 5
[GRAPHIC]
THE LAPTOP
CAMPUS
<PAGE> 6
For instance, with regard to managing our channels of distribution,
we make a point of staying in close touch with those who sell our products.
Maintaining this contact from the highest levels within our company provides
us valuable market insights about customer needs. In cooperation with our
channel representatives, we also manage the flow of inventory, which helps us
keep quarterly shipments consistently even. As a result of Global Village's
closely regulated release of inventory, our receivables average less than 40
days -- which is well below the industry average.
Moreover, another key aspect of our inventory management is the
relationship we pioneered with our manufacturing partners. We have agreements
with all our parts suppliers, chip and board vendors, and final manufacturers,
so that we move and take possession of products only in direct response to
booked orders.
As a result of these and other asset management practices, accounts
receivable and inventory are low for a company our size, and our cash flow is
positive. We generated $10 million in cash during the last year while achieving
a revenue growth rate of nearly 70 percent. Moreover, at fiscal year-end we
completed our twelfth consecutive quarter of year-over-year revenue growth in
excess of 50 percent.
THE NUMBERS
Revenues for the year ended March 31, 1996, increased to $144.5 million,
up 69 percent form $85.7 million in fiscal 1995. Net income (before historical
restatement attributable to the acquisition of KNX Limited and excluding the
effect of a non-recurring charge for both fiscal 1996 and fiscal 1995) was $12.6
million, or 75 cents per share, for fiscal 1996 compared with net
[GRAPHIC CAPTION: Our passion is to simplify communications, combined with
successful products and innovative business measures has resulted in an average
yearly growth rate of 80 percent since 1992, with continuous profitability every
year since we began volume shipments in 1993.]
4
<PAGE> 7
[GRAPHIC]
AS THE
WORLDWIDE
WEB TURNS
<PAGE> 8
income of $6.6 million, or 43 cents, the year before. Finally, our balance
sheet remained strong with $38 million in cash and short-term investments, $36
million in working capital, no long-term debt, and $46 million in stockholders'
equity. Of course, our financial performance reflects the strengths of our
product offerings, which grew with several important introductions in fiscal
1996.
PRODUCTS FOR THE INDIVIDUAL USER
Our focus on integrating multiple capabilities into one easy-to-use
solution culminated in FocalPoint(TM) software -- the first truly integrated
communications package for Windows 3.1 and Windows 95 users. FocalPoint
software lets users in home- and small-offices fax, transfer files, exchange
e-mail, access the Internet, and manage phone calls from one interface. The
software tracks and manages all incoming faxes, voice mail, and e-mail from one
convenient "in-box," so any message can be accessed without switching between
applications. One address book keeps track of each addressee's preferred way of
communicating -- by fax or e-mail -- so users compose just one message and send
it to all recipients with one click.
In fiscal 1996 we also introduced a line of powerful PC cards -- the
PowerPort Platinum(TM) Pro, PowerPort(TM) Platinum, and PowerPort Gold(TM) PC
cards for the Macintosh PowerBook(R) 5300 and 190 notebook computers. The
Platinum and Platinum Pro cards both feature a 28,800-bps fax/modem, and the
Platinum Pro offers simultaneous Ethernet networking and modem capabilities for
simple connectivity in or out of the office.
[GRAPHIC CAPTION: FocalPoint is the first truly integrated communications
software for Windows 3.1 and Windows 95 users. It offers home and small office
users multiple capabilities, including fax, e-mail, data communications, voice
mail, Internet and paging in one easy to use interface.]
6
<PAGE> 9
[GRAPHIC]
NETWORKING
THE GIFT
OF LIFE
<PAGE> 10
PRODUCTS FOR NETWORK USERS
Adding to our lineup of network products, we introduced FaxWorks(TM)
Pro LAN for Windows NT, a powerful 32-bit fax server solution for local area
networks that enables users within an office environment to fax directly from
their networked PCs as easily as they print.
In addition, our GlobalCenter(TM) Internet service is now available for
small offices using Microsoft(R) Mail on a Windows network. GlobalCenter
delivers worldwide e-mail and full Internet access in a plug-and-play package
- -- everything from the router hardware and software to the service
registration. For QuickMail(TM) users in Macintosh workgroups, we also added
Integrated Service Digital Network (ISDN) access, a higher-speed alternative to
the 28,800-bps access already available to all GlobalCenter subscribers. Just
after the fiscal year-end, we made the Internet Services Division a standalone
business called GlobalCenter, Inc. to better focus on the significant
opportunities that the Internet represents. At the same time, we announced that
UUNET Technologies, Inc., an Internet service provider, is taking a
19.9-percent equity interest in the new business.
LOOKING ABROAD
Demand for our solutions is growing internationally, which the recent
growth in our overseas revenues reflects. International sales rose 131 percent
in fiscal 1996 over the previous year, and as foreign telecommunication
deregulation and privatization continue, we are investing in the products,
marketing, and sales infrastructure to support overseas opportunities. Our
acquisition this year of KNX Limited, a leading U.K.-based provider of ISDN
remote access products, brings
[GRAPHIC CAPTION: Global Village's acquisition of the U.K. based KNX Ltd. is
both an investment in our growing international opportunities, and a step
toward incorporating ISDN technology into our future products for higher speed
Internet and remote access solutions.]
8
<PAGE> 11
[GRAPHIC]
BANDWIDTH
FOR
BANDS
<PAGE> 12
advanced ISDN, branch-office routing, and Windows networking technologies to
meet the needs of rapidly growing markets worldwide. Our new U.K.-based team
provides Global Village with strategic presence and reseller channels to
accelerate our access to European markets.
GOING FORWARD
As communication technology continues to evolve, people in home offices
and small businesses will need to keep pace with entirely new communication
solutions that help them work more productively and broaden their customer base.
We are prepared for that future with an enduring vision, backed by a nimble
corporate culture, and a passion for engineering powerful "point-and-click"
solutions. Our customers are putting those solutions to work right now, as the
accompanying stories illustrate. Our success makes us confident, but never
complacent. As we follow our vision, we look forward to reporting our progress
in the months ahead.
/s/ NEIL SELVIN /s/ LEN LEHMANN
Neil Selvin Len Lehmann
President and Chief Executive Officer Chairman of the Board
[PHOTO OF NEIL SELVIN] [PHOTO OF LEN LEHMANN]
[GRAPHIC CAPTION: Recent awards went to FaxWorks(TM) Pro (PC World Best Buy
Windows Magazine WIN 100. and OS.2 Magazine Editors' Choice); PowerPort(TM)
(Macworld World Class and Editors' Choice); GlobalFax(TM) and TelePort(TM)
(Mac Home Journal Readers' Choice); and OneWorld(TM) Fax (Byte Magazine Product
Excellence).]
10
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the attached
audited consolidated financial statements and notes thereto for the
year ended March 31, 1996. This report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Actual
results could differ materially from those anticipated in forward-looking
statements as a result of the risks identified and the other cautionary
disclosures set forth below and elsewhere in this report.
Global Village Communications, Inc. ("Global Village" or "the
Company"), is a leader in the design, development, and marketing of easy-to-use
integrated communications products and services for users of personal computers
with Windows, Macintosh, OS/2, or DOS operating systems. The Company's products
enable mobile, home office, and networked computer users in small and
medium-sized organizations to communicate efficiently with colleagues,
customers, and suppliers.
The Company was founded in 1989 and, accordingly, has a limited
operating history. Although the Company has experienced revenue growth in
recent periods, the Company's growth rate may not be sustainable and is not
indicative of future operating results. The Company in the past has experienced
and in the future may experience significant fluctuations in annual and
quarterly operating results that may be caused by many factors including, among
others, the introduction or enhancement of products by Apple Computer, Inc.
(Apple), IBM-compatible personal computer manufacturers, the Company or its
competitors; the sales rates of Apple Macintosh personal computers and PCs;
difficulties and delays in connection with the integration of the operations of
KNX Limited (Global Village Communications (U.K.), Ltd., or Global Village
U.K.); the size and timing of individual orders; market price reductions;
market acceptance of new products and technology; seasonality of revenues;
customer order deferrals and accelerations in anticipation of new products;
changes in the Company's operating expenses; performance of the Company's
distributors and suppliers; mix of products sold; quality control of the
Company's products; and general economic conditions. As a result, the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance.
The industry in which the Company competes is generally subject to short
product life cycles. In this regard, the Company traditionally has experienced
a significant reduction in the average selling prices of its products as the
time from product introduction elapses. In fiscal year 1996, the Company
instituted significant price reductions with respect to substantially all of
its products and expects that competitive pressures will continue to
necessitate price reductions. In particular, the Company expects increased
competition for its products for the Apple Macintosh platform family of
personal computers to continue as a number of companies continue to introduce
modems for the Apple platform. There can be no assurance that the trend of
reduced average selling prices will not accelerate during fiscal 1997.
The Company therefore expects that revenues and/or gross margins from
its products for the Apple Macintosh family could remain flat or decrease in
future periods, which would have a material adverse effect on the Company's
business and results of operations unless the Company can generate sufficient
revenues and/or gross margins from its Communications Software Division
products and other products in compensate for any shortfall in revenues from
its Apple platform products. However, there can be no assurance that revenues
for the Apple Macintosh platform family will not decline in future periods.
Any price reduction or decrease in sales volume could have a material adverse
effect on the Company's results of operations.
In May 1996, the Company announced that its current quarter is being
adversely impacted by Apple Computer's recently-announced repair program for
Macintosh PowerBook 5300 and 190 models. The Company expects that Apple's
actions will result in a significant decline from the prior quarter and
11 Global Village Communication, Inc.
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
in a loss for the current quarter ending June 30, 1996. The Company's products
being primarily impacted by Apple's repair program are the PowerPort PC cards
which produced $16 million revenue in the last quarter ended March 31, 1996,
and are expected to produce minimal revenue in the current quarter.
Because the Company generally ships products within a short period
after receipt of an order, the Company typically does not have a material
backlog of unfilled orders, and revenues in any quarter are substantially
dependent on orders booked in that quarter. The Company's expense levels are
based in part on its expectations as to future revenues. Therefore, the Company
may be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. Accordingly, any significant shortfall of demand
in relation to the Company's expectations or any material delay of customer
orders would have an almost immediate adverse impact on the Company's results
of operations and liquidity. Fluctuations in operating results may also result
in volatility in the price of the Company's Common Stock.
In fiscal 1996, the Company operated four major divisions: the
Communications Systems Division, the Communications Software Division, the ISDN
Division, and the GlobalCenter Internet Services Division. For the Apple
Macintosh, the Company's products are characterized by a highly integrated,
proprietary software and hardware design which makes computer communication
easy for the average user. For Windows, OS/2, and DOS operating systems, the
Company provides integrated communications software to original equipment
manufacturers (OEMs) such as IBM and Packard Bell, and through other
distribution channels to end users. For high-performance PC and LAN systems in
small offices or branch offices of larger organizations, the Company provides
ISDN cards supporting PPP and Multi-link PPP and integration of ISDN/analog
telephone systems. The Company also provides small and medium-sized businesses
with a plug-and-play Internet solution.
To date, a substantial majority of the Company's revenue has been
attributable to sales of its TelePort, PowerPort, and OneWorld(TM) product
lines (all of which are designed around the Apple Macintosh family of
computers), and the Company expects that sales of these products will account
for a majority of its revenue for the foreseeable future. The Company's future
financial performance will depend in part on the successful development,
introduction, and customer acceptance of new and enhanced versions of its
TelePort, PowerPort and OneWorld products as well as the Company's ability to
generate increased sales of PC, ISDN, or other products. Though the Company
continually seeks to further enhance its product offerings and to develop new
products, there can be no assurance that these development efforts will result
in enhanced or new products being introduced on a timely basis, or that any
such product enhancements or new products will achieve market acceptance. In
addition, the announcement by the Company of new products with the potential to
replace current products may cause customers to defer purchasing the Company's
current products, which could have a material adverse effect on the Company's
results of operations. As a result of changing technology and market factors,
the Company is subject to the risk that its inventories may rapidly become
obsolete or that the Company may carry quantities of certain products that
exceed current or projected demand. While the Company writes off inventory that
it considers to be excessive or obsolete, there can be no assurance that the
Company's recorded allowances for such write-offs and returns will be adequate,
and a material increase in such write-offs and returns over historical rates
would have a material adverse effect on the Company's results of operations.
There can be no assurance that the Company will be successful in developing new
products or enhancing its current products on a timely basis, or that such new
products or product enhancements will achieve market acceptance.
The Company derives a portion of its revenue from royalties associated
with the bundling of the Company's product with the Apple Macintosh Performa
family of products. Reductions of royalty revenues from the Apple
12 Global Village Communication, Inc.
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Macintosh Performa products can have an adverse effect
on the overall gross margin for a given period. Given
the uncertainty surrounding the sale of Macintosh
computer products, there can be no assurance that
revenues and gross margins will not decrease in future
periods if the Company is unable to offset reductions of
Apple Macintosh-related revenues with increased sales of
its PC products and ISDN products.
The Company is dependent on sole or limited
source supplies for certain key components used in its
products, particularly the modem chip sets designed and
manufactured by AT&T and Rockwell International. The
Company has no guaranteed supply arrangements with its
sole or limited source suppliers. The Company at times
in the past has experienced delays in its ability to
manufacture sufficient product to meet demand due to the
inability of certain suppliers to meet the Company's
volume and schedule requirements. There can be no
assurance that any sole or limited source supplier will
meet the Company's volume and scheduling requirements in
the future. Any failure of such a supplier to meet such
requirements could have a material adverse effect on the
Company's business and results of operations.
The Company continually evaluates potential
candidates for acquisitions. Such candidates are
selected based on products or markets which are
complementary to those of the Company. The Company's
operations and financial results could be significantly
affected by such an acquisition. There can be no
assurance that any such contemplated acquisition will be
consummated.
In January 1996, the Company acquired KNX
Limited, a provider of ISDN remote access products,
located in Skipton, North Yorkshire, England. The
transaction was effected through the exchange of shares
of Common Stock of the Company for all outstanding
shares of KNX Limited and the assumption of all
outstanding options for KNX Limited Common Stock. The
acquisition was accounted for as a pooling of interests.
The Company's historical results have been restated to
include the results of KNX Limited. In total, the
Company issued 1,365,951 shares of the Company's Common
Stock.
RESULTS OF OPERATIONS The following table sets forth, for the years indicated,
the percentage relationship to net revenue of certain
items in the Company's Consolidated Statements of
Operations.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenue 100% 100% 100%
Cost of revenue 57 54 54
------------------------------------
Gross profit 43 46 46
Operating expense
Research and development 11 12 11
Marketing and sales 17 18 17
General and administrative 5 7 5
KNX Limited acquisiton costs 1 -- --
In-process research and development -- 15 --
------------------------------------
Total operating expenses 34 52 33
Income (loss) from operations 9 (6) 13
Other income, net 1 1 --
------------------------------------
Income (loss) before income taxes 10 (5) 13
Provision for income taxes 4 4 5
------------------------------------
Net income (loss) 6% (9)% 8%
============================================================================================================
</TABLE>
13 Global Village Communication, Inc.
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET REVENUE Net revenue includes revenue from gross shipments and
licenses, less reserves for returns and allowances. Net
revenue increased to $144.5 million in fiscal 1996 from $85.7
million in fiscal 1995 and from $49.3 million in fiscal 1994.
The fiscal 1996 increase in net revenue is primarily
attributable to the introduction of PCMCIA modems in the
second half of fiscal 1996, an increase in international
sales, and a general increase in the volume of shipments of
the Company's products through distribution channels. The
increase in fiscal 1995 was primarily due to the Company's
introduction of new products, including Teleport Gold II(TM),
PowerPort Mercury(TM) for the PowerBook 500 and the PowerBook
Duo, and OneWorld servers, as well as from FaxWorks software
sales from the Company's Communications Software Division.
The Company experienced a significant increase in
international revenue in fiscal 1996. International net
revenue increased to $33.9 million or 23% of net revenue in
fiscal 1996 from $14.7 million or 17% of net revenue in fiscal
1995 and $7.4 million or 15% of net revenue in fiscal 1994. A
substantial majority of the international revenue is
denominated in U.S. dollars. Revenue reserves and allowances
are established for estimated future returns due to stock
balancing and discontinued and nonsalable products. Aggregate
returns and allowances have approximated 6%, 5%, and 3% of
gross revenue for fiscal 1996, 1995, and 1994, respectively.
There can be no assurance that the Company's historical
experience regarding returns and allowances will continue.
GROSS PROFIT Cost of revenue primarily consists of cost of materials,
contract manufacturing costs, manufacturing overhead
expenses, royalty payments, and warranty expenses. The
Company's gross profit as a percentage of net revenue
decreased to 43% in fiscal 1996 from 46% in both fiscal 1995
and 1994. The gross profit decrease in fiscal 1996 was
primarily attributable to price reductions the Company
instituted with respect to substantially all of its products
and expects that competitive pressures will continue to
necessitate price reductions. In particular, the Company
expects increased competition for its products for the Apple
Mcintosh family of personal computers to continue as a number
of companies continue to introduce modems for the Apple
platform. Gross profit margins are likely to fluctuate as a
result of the sales mix between lower- and higher-margin
products and changes in distribution channels as well as
changes in component and production costs and price
reductions. In particular, the Company expects that over the
next several quarters pricing pressures will continue and new
products will be introduced by the Company's competitors,
both of which may have an adverse effect on the gross margins
of the Company's products for the Apple platform. In order to
maintain margins, the Company will be required to increase
sales of its PC and ISDN products and to continue to
introduce new price-competitive products for the Apple
platform, and there can be no assurance that the Company will
be able to do so.
RESEARCH AND The Company's research and development expenses
DEVELOPMENT increased to $16.3 million in fiscal 1996 from $10.1 million
in fiscal 1995 and from $5.6 million in fiscal 1994. These
increases reflect significant increases in personnel and
related costs incurred in the development of new products and
the enhancement of existing products. Research and
development expenses as a percentage of net revenue were 11%,
12%, and 11% in fiscal 1996, 1995, and 1994, respectively.
Customer-sponsored research and development was immaterial
during these periods. Development costs incurred in the
research and development of new software products and
enhancements to existing software products are expensed as
incurred until technological feasibility has been established
in compliance with Statement of Financial Accounting Standards
No. 86, "Accounting for the
14 Global Village Communication, Inc.
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Costs of Software to be Sold, Leased, or Otherwise
Marketed." Historically, software development has been
substantially completed concurrently with the
establishment of technological feasibility, and,
accordingly, no costs have been capitalized to date. The
Company believes that its future success will depend, in
large part, on its ability to enhance to existing
product lines and to continue to develop, introduce, and
deliver new products in a timely fashion. Accordingly,
the Company expects that research and development
expenses will increase in absolute terms and could
increase as a percentage of total net revenues.
MARKETING AND SALES The Company's marketing and sales expenses increased to
$24.6 million in fiscal 1996 from $15.5 million in
fiscal 1995 and from $8.2 million in fiscal 1994.
Marketing and sales expenses were 17%, 18%, and 17% of
net revenue in fiscal 1996, 1995, and 1994,
respectively.
These increase in marketing and sales expenses
resulted from the inclusion, beginning in August 1994,
of marketing and sales expenses from the Company's
Communications Software Division, the introduction of
new and enhanced products, the expansion of distribution
and dealer channels, increased product advertising, the
expansion of the Company's customer support
organization, and the addition of marketing and sales
personnel. The Company intends to continue to expand its
marketing and sales organizations to promote and support
further market acceptance of its Windows, OS/2, and DOS
communications software, and to promote and support its
ISDN product lines as well as to continue its marketing
and sales expenditures for the Apple platform product
lines. Accordingly, marketing and sales expenses are
expected to increase in absolute terms and could
increase as a percentage of total net revenue.
GENERAL AND General and administrative expenses increased to $7.3
ADMINISTRATIVE million in fiscal 1996 from $5.8 million in fiscal 1995
and from $2.4 million in fiscal 1994. These increases
were primarily due to the addition of administrative
personnel and other employee-related costs required to
support the Company's growth. General and administrative
expenses as a percentage of net revenue were 5%, 7%, and
5% in fiscal 1996, 1995, and 1994, respectively.
KNX LIMITED In January 1996, the Company acquired KNX Limited. In
ACQUISITION COSTS the process of acquiring KNX Limited, the Company
incurred a onetime charge of $1.3 million relating
primarily to the transaction, legal and accounting costs
associated with the acquisition.
IN-PROCESS RESEARCH In connection with the Company's acquisition of SofNet,
AND DEVELOPMENT Inc., in August 1994, approximately $12.8 million of the
purchase price was allocated to in-process research and
development. This in-process research and development
had not achieved technological feasibility at the time
of the acquisition and, therefore, did not qualify for
capitalization under generally accepted accounting
principles for software capitalization, and thus was
charged to operations in the second quarter of fiscal
1995.
OTHER INCOME The Company's net other income increased to $1.0 million
in fiscal 1996 from $0.8 million in fiscal 1995 and from
$0.1 million in fiscal 1994. Other income was 1%, 1% and
0% of net revenue in fiscal 1996, 1995, and 1994,
respectively. The increase in other income during the
aforementioned periods is primarily attributable to both
an increase in interest income and a decrease in
interest expense.
15 Global Village Communication, Inc.
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<S> <C>
PROVISION FOR INCOME TAXES Combined federal, state, and foreign effective
income tax rates were 37% in fiscal 1996, 99%
in fiscal 1995, and 40% in fiscal 1994.
The fiscal 1996 rate differs from the
combined statutory rates primarily due to the
Company's increased foreign activities, thus
giving rise to multiple taxing jurisdictions
and tax rates. The rates also differ from the
combined statutory rates in effect during
these periods as a result of tax-exempt
interest, current foreign losses carried
forward for benefit in future periods,
available research credits, and foreign sales
corporation tax benefits. The 1995 in-process
research and development charge, which was not
deductible for tax purposes, was the primary
reason for the difference between the combined
statutory rates and the effective tax rate for
1995.
LIQUIDITY AND CAPITAL RESOURCES Working capital increased to $35.7 million
as of March 31, 1996, from $28.1 million as of
March 31, 1995, and from $27.0 million as of
March 31, 1994. The increase in fiscal 1996
and 1995 was primarily the result of cash
generated from operations, partially offset by
purchases of property and equipment. The
Company spent $2.3 million for the purchase
and implementation of a new computer system in
fiscal 1996. The Company has capitalized and
is depreciating, over the system's estimated
useful life, all costs associated with the
purchase and implementation of the system. The
increase in fiscal 1994 reflected net proceeds
of $18.2 million from the Company's initial
public offering of Common Stock in February
1994, cash flow from operations of $4.9
million, offset by cash used for purchases of
property and equipment, and the repayment of
debt.
As of March 31, 1996, the Company had
$37.7 million in cash and short-term
investments and had an $8.0 million credit
facility with a bank, which includes $5.0
million available under a revolving line of
credit based on percentages of eligible
accounts receivable and $3.0 million available
as term loans for purchases of property and
equipment. The credit facility is secured by
all assets of the Company and bears interest
at prime for the line of credit and the bank's
treasury rate plus 2.0% for the term loans.
The facility contains various financial
covenants and restrictions (see Note 3 of
Notes to Consolidated Financial Statements).
The facility is scheduled to expire in July
1996. The Company expects to renew its line of
credit on substantially similar terms as the
current agreement. However, there can be no
assurances that the Company will be able to do
so. As of March 31, 1996, there was no
indebtedness outstanding under this facility.
The Company does not expect fiscal 1997
capital expenditures to significantly exceed
historical levels.
Because the Company generally ships
products within a short period after receipt
of an order, the Company typically does not
have a material backlog of unfilled orders,
and revenues in any quarter are substantially
dependent on orders booked in that quarter.
The Company's expense levels are based in part
on its expectations as to future revenues.
Therefore, the Company may be unable to adjust
spending in a timely manner to compensate for
any unexpected revenue shortfall. Accordingly,
any significant shortfall of demand in
relation to the Company's expectations or any
material delay of customer orders would have
an almost immediate adverse impact on the
Company's results of operations and liquidity.
The Company believes that its existing
cash and short-term investments, together with
cash generated from operations, if any, will
be sufficient to meet the Company's operating
requirements through at least fiscal 1997.
</TABLE>
16 Global Village Communication, Inc.
<PAGE> 19
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1996 1995
- ------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $15,900 $ 5,789
Short-term investments 21,819 20,969
Accounts receivable, net 15,310 12,946
Inventories 6,033 4,113
Deferred income taxes 2,384 2,486
Other current assets 2,064 1,490
----------------------
Total current assets 63,510 47,793
----------------------
Property and equipment, net 10,793 6,783
Other assets 1,374 1,336
----------------------
Total assets $75,677 $55,912
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $20,627 $13,677
Accrued and other liabilities 6,754 5,092
Income taxes payable 335 208
Capital lease obligations, current portion 72 730
----------------------
Total current liabilities 27,788 19,707
----------------------
Other long-term liabilities 58 70
Commitments and contingencies -- --
Stockholders' equity:
Preferred Stock, $0.001 par value;
5,000,000 shares authorized; none
issued and outstanding -- --
Common Stock, $0.001 par value;
30,000,000 shares authorized;
16,744,837 and 16,167,429 shares
issued and outstanding 17 16
Additional paid-in capital 43,226 40,492
Cumulative translation adjustment 247 123
Retained earnings (Accumulated deficit) 4,341 (4,495)
----------------------
Total stockholders' equity 47,831 36,135
----------------------
Total liabilities and
stockholders' equity $75,677 $55,912
==============================================================================
See accompanying Notes to Consolidated Financial Statements
</TABLE>
17 Global Village Communication, Inc.
<PAGE> 20
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1996 1995 1994
- ------------------------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C>
Net revenue $144,479 $ 85,724 $ 49,313
Cost of revenue 81,907 46,293 26,759
----------------------------------------
Gross profit 62,572 39,431 22,554
----------------------------------------
Operating expenses:
Research and development 16,307 10,053 5,602
Marketing and sales 24,622 15,459 8,204
General and administrative 7,282 5,785 2,374
KNX Limited acquisition costs 1,342 -- --
In-process research and development -- 12,809 --
----------------------------------------
Total operating expenses 49,553 44,106 16,180
----------------------------------------
Income (loss) from operations 13,019 (4,675) 6,374
Other income, net:
Interest income 1,000 832 179
Interest expense (24) (32) (55)
Other income 1 13 2
---------------------------------------
Total other income, net 977 813 126
Income (loss) before income taxes 13,996 (3,862) 6,500
Provision for income taxes 5,160 3,810 2,600
---------------------------------------
Net income (loss) $8,836 $(7,672) $ 3,900
=======================================
Net income (loss) per share $ 0.49 $ (0.51) $ 0.30
=======================================
Shares used in computing income (loss)
per share (Note 1) 17,872 15,013 13,127
================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
18 Global Village Communication, Inc.
<PAGE> 21
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RESTRICTED
CUMULATIVE EARNINGS TOTAL
ADDITIONAL TRANSLATION (ACCUMULATED STOCKHOLDERS'
COMMON STOCK PAID-IN CAPITAL ADJUSTMENT DEFICIT) EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT SHARE DATA SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
Balances as of March 31, 1993: 3,570,357 $ 3 $ 1,000 $ -- $ (382) $ 621
Exercise of stock options 765,787 1 51 -- -- 52
Accretion of warrant redemption value -- -- -- -- (341) (341)
Termination of warrant cash
redemption feature -- -- 486 -- -- 486
Exercise of redeemable warrant 87,210 -- 37 -- -- 37
Conversion of redeemable convertible
Preferred Stock to Common Stock 6,687,646 7 6,012 -- -- 6,019
Initial public offering of
Common Stock 2,560,000 2 18,219 -- -- 18,221
Foreign currency translation adjustment -- -- -- 109 -- 109
Net income -- -- -- -- 3,900 3,900
-----------------------------------------------------------------------------
Balances as of March 31, 1994: 13,671,000 13 25,805 109 3,177 29,104
Exercise of stock options 638,481 1 361 -- -- 362
SofNet, Inc. acquisition 1,772,369 2 13,078 -- -- 13,080
Shares issued under ESPP 55,848 -- 382 -- -- 382
Cashless exercise of redeemable warrant 29,731 -- -- -- -- --
Tax benefits related to stock plans -- -- 866 -- -- 866
Foreign currency translation adjustment -- -- -- 13 -- 13
Net loss -- -- -- -- (7,672) (7,672)
-----------------------------------------------------------------------------
Balances as of March 31, 1995: 16,167,429 16 40,492 122 (4,495) 36,135
Exercise of stock options 583,711 1 1,547 -- -- 1,548
Shares issued under ESPP 63,229 -- 539 -- -- 539
Treasury shares acquired (69,532) -- (984) -- -- (984)
Tax benefits related to stock plans -- -- 1,632 -- -- 1,632
Foreign currency translation adjustment -- -- -- 125 -- 125
Net income -- -- -- -- 8,836 8,836
-----------------------------------------------------------------------------
Balances as of March 31, 1996: 16,744,837 $17 $43,226 $247 $4,341 $47,831
===========================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
19 Global Village Communication, Inc.
<PAGE> 22
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
IN THOUSANDS
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 8,836 $ (7,672) $ 3,900
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 3,147 1,373 756
Deferred income taxes 102 (1,150) (358)
Acquired in-process research and development -- 12,809 --
Changes in operating assets and liabilities:
Accounts receivable, net (2,364) (7,385) (999)
Inventories (1,920) (462) (2,166)
Other current assets (574) (1,165) 288
Accounts payable 6,950 8,370 2,261
Accrued and other liabilities 1,662 961 1,703
Income taxes payable 1,760 940 (430)
----------------------------------------
Net cash provided by operating activities 17,599 6,619 4,955
----------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (7,157) (6,035) (1,142)
Cash used in acquisition of SofNet, Inc.,
net of cash acquired -- (583) --
Other assets (38) 471 (236)
Purchases of short-term investments (78,747) (55,253) (21,563)
Proceeds from sales and maturities of short-term
investments 77,897 55,513 761
----------------------------------------
Net cash (used for) investing activities (8,045) (5,887) (22,180)
----------------------------------------
Cash flows from financing activities:
Repayments of note payable and line of credit (745) -- (550)
Borrowings under note payable and line of credit -- 553 148
Payments on capital lease obligations, net 75 (5) (49)
Proceeds from issuance of Common Stock, net 2,086 744 52
Proceeds from initial public offering of Common Stock, net -- -- 18,221
Payments on repurchases of Common Stock (984) -- --
Proceeds from exercise of redeemable warrant -- -- 37
----------------------------------------
Net cash provided by financing activities 432 1,272 17,859
----------------------------------------
Effect of foreign currency exchange rate changes on
cash and cash equivalents 125 13 109
Net increase in cash and cash equivalents 9,986 2,004 634
Cash and cash equivalents at beginning of year 5,789 3,772 3,029
----------------------------------------
Cash and cash equivalents at end of year $15,900 $ 5,789 $ 3,772
================================================================================================================
Supplemental disclosures:
Cash paid during the year for:
Interest $ 100 $ 13 $ 39
Income taxes $ 5,033 $ 4,074 $ 3,388
Non-cash investing and financing activities:
Conversion of redeemable convertible Preferred Stock into
Common Stock $ -- $ -- $ 6,019
Value of Common Stock issued for purchase of SofNet, Inc. $ -- $ 13,080 $ --
Tax benefits related to stock plans $ 1,632 $ 866 $ --
</TABLE>
See accompanying Notes to Consolidated Financial Statements
20 Global Village Communication, Inc.
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 Description of Business
DESCRIPTION OF BUSINESS Global Village Communication, Inc. ("the
AND SUMMARY OF SIGNIFICANT Company"), a Delaware corporation, was
ACCOUNTING POLICIES founded in June 1989 and is a leader in the
design, development and marketing of easy-to-use
integrated communications products and services
for users of personal computers with Windows,
Macintosh, OS/2 or DOS operating systems. The
Company's products enable mobile, home office,
and networked computer users in small and
medium-sized organizations to communicate
efficiently with colleagues, customers, and
suppliers. The Company currently has four
divisions: the Communications Systems Division,
the Communications Software Division, the ISDN
Division, and the GlobalCenter Internet Services
Division.
Summary of Significant Accounting Policies
Principles of Consolidation. The accompanying
Consolidated Financial Statements include the
accounts of the Company and its wholly owned
subsidiaries. All intercompany accounts and
transactions have been eliminated.
Cash and Cash Equivalents and Short-Term
Investments. Cash and cash equivalents consist
of cash and highly liquid investments such as
money market funds, commercial paper, and U.S.
Treasury Bills with original maturities of less
than 90 days.
Short-term investments generally
consist of U.S. Treasury Bills, commercial
paper, and municipal bonds with original
maturities in excess of 90 days. At March 31,
1996, all such investments had maturities or
fixed put features of less than one year.
Under the provisions of Statement of
Financial Acounting Standards No. 115,
"Accounting for Certain Investments in Debt and
Equity Securities," the Company has classified
its investments in certain debt and equity
securities as available-for-sale. Such
investments are recorded at fair value, with
unrealized gains and losses reported as a
separate component of stockholders' equity. As
of March 31, 1996, unrealized gains and losses
were not significant.
The Company is exposed to credit risk in
the event of default by the financial
institutions or the issuers of these investments
to the extent of the amounts recorded on the
balance sheet.
Inventories. Inventories are stated at
standard cost, which approximates the lower of
actual cost (first-in, first-out method) or
market.
Property and Equipment. Property and
equipment are recorded at cost less accumulated
depreciation and amortization. Depreciation is
calculated using the straight-line method over
the estimated useful lives of the respective
assets, generally three to five years. Leasehold
improvements are amortized over the lesser of
the estimated useful lives of the improvements
or the lease term, generally five years.
Purchased Software Technology. The value
of the Company's rights and interests in certain
software technologies are included in other
assets in the accompanying consolidated balance
sheets. Such rights and interests are stated at
cost and are amortized over the useful lives of
such technologies, estimated at four years.
Product Warranty. The Company warrants its
products for up to five years from date of
shipment. A provision for the estimated future
costs of warranty repair or replacement is
provided at the time of sale.
21 Global Village Communication, Inc.
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition. Revenue is generally recognized at the time of shipment.
Revenue from sales to distributors and dealers is subject to agreements
allowing limited rights of return and exchange, and price protection.
Accordingly, the Company provides reserves for estimated future returns,
exchanges, and price protection credits in the same period as related revenue.
Revenue from products licensed to original equipment manufacturers (OEMs) is
recognized when sales to end users are reported to the Company.
The Company's revenue recognition policies comply with the provisions
of the American Institute of Certified Public Accountants' Statement of
Position ("SOP") 91-1, "Software Revenue Recognition."
Recent Accounting Pronouncements. In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation," SFAS No. 123 is effective
for fiscal years beginning after December 31, 1995, and will require that the
Company either recognize in its financial statements costs related to its
employee stock-based compensation plan, such as stock option and stock purchase
plans, or make pro forma disclosures of such costs in a footnote to the
financial statements.
The Company expects to continue to use the intrinsic-value-based
method of Accounting Principles Board Opinion No. 25, as allowed under SFAS No.
123, to account for all of its employee stock-based compensation plans.
Therefore, in its financial statements for fiscal 1997, the Company will make
the required pro forma disclosures in a footnote to the financial statements.
SFAS No. 123 is not expected to have a material effect on the Company's results
of operations or financial position.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Software Development Costs. Development costs incurred in the research and
development of new software products and enhancements to existing software
products are expensed as incurred until technological feasibility has been
established. Through March 31, 1996, software development has been substantially
completed concurrently with the establishment of technological feasibility, and,
accordingly, no costs have been capitalized to date.
Income Taxes. The Company accounts for income taxes under the asset and
liability method of accounting. Under the asset and liability method, deferred
tax assets and liabilities are recognized based on the expected future tax
consequences of events that have been recognized in the Company's consolidated
financial statements or tax returns.
Net Income (Loss) Per Share. Net income (loss) per share data has been computed
using net income, less warrant value accretion, when applicable, and the
weighted average number of shares of Common Stock, common equivalent shares
from the redeemable convertible Preferred Stock (when dilutive using the
if-converted method at date of issuance), and common equivalent shares from
stock options and warrants outstanding (when dilutive using the treasury stock
method). Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, common equivalent shares issued during the twelve-month period prior
to the Company's initial public offering in February 1994 have been included in
the calculation as if they were outstanding for all periods prior to the
offering (even if antidilutive using the treasury stock method).
22 Global Village Communication, Inc.
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign Currency Translation. All assets and liabilities denominated in foreign
currencies are translated at the exchange rate on the balance sheet date.
Revenues, costs, and expenses are translated at average rates of exchange
prevailing during the period. Translation adjustments are accumulated as a
separate component of stockholders' equity. Gains and losses resulting from
foreign currency transactions are included in the consolidated statements of
operations.
Reclassifications. Certain amounts in prior years' financial statements have
been reclassified to conform with the fiscal 1996 financial statement
presentation.
NOTE 7
BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
MARCH 31 1996 1995
- -------------------------------------------------------------------------
IN THOUSANDS
<S> <C> <C>
Short-term investments:
U.S. government securities $ 1,647 $ 1,479
Municipal securities 20,172 19,490
Total short-term investments $21,819 $20,969
=========================================================================
Accounts receivable:
Trade accounts receivable $17,188 $15,090
Less allowance for returns and
doubtful accounts 1,878 2,144
---------------------
Net accounts receivable $15,310 $12,946
=========================================================================
Inventories:
Purchased parts $ 131 $ 340
Work in process 217 --
Finished goods 5,685 3,773
---------------------
Total inventories $ 6,033 $ 4,113
=========================================================================
Property and equipment:
Computer, test, and production equipment $11,320 $ 5,452
Furniture and fixtures 3,172 2,163
Leasehold improvements 2,205 1,927
---------------------
Total property and equipment, gross 16,697 9,542
Less accumulated depreciation and
amortization 5,904 2,759
---------------------
Total property and equipment, net $10,793 $ 6,783
=========================================================================
Accrued and other liabilities:
Warranty and other product-related
obligations $ 1,517 $ 1,559
Accrued compensation and benefits 3,224 1,543
Other 2,013 1,990
---------------------
Total accrued and other liabilities $ 6,754 $ 5,092
=========================================================================
</TABLE>
23 Global Village Communication, Inc.
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 The Company has an $8.0 million credit facility with a
LINE OF CREDIT bank which includes $5.0 million available under a
revolving line of credit based on percentages of
eligible accounts receivable and $3.0 million available
as term loans for purchases of property and equipment.
The credit facility is secured by all assets of the
Company and bears interest at prime for the line of
credit and the bank's treasury rate plus 2.0% for the
term loans. As of March 31, 1996, there was no
indebtedness outstanding under this facility. The
facility, which is scheduled to expire in July 1996,
contains various financial covenants and restrictions,
including restrictions on the Company's ability to pay
dividends or to effect mergers or acquisitions. The
Company is subject to compensating balance arrangements
in connection with this credit facility that require
that an average balance of $250,000 be deposited with
the bank.
NOTE 4 Lease Commitments. The Company leases facilities under
COMMITMENTS AND noncancelable operating leases expiring in December 1999
CONTINGENCIES April 2000. The lease expiring in April 2000 has a
renewal option of an additional five-year term. Future
minimum lease payments as of March 31, 1996, are:
<TABLE>
<CAPTION>
FISCAL YEAR LEASE PAYMENTS
-----------------------------------------------------
IN THOUSANDS
<S> <C>
1997 $1,664
1998 1,710
1999 1,762
2000 1,757
2001 146
Thereafter 56
-------------
Total future minimum lease payments $7,095
=====================================================
</TABLE>
Rent expense was approximately $1,443,000, $853,000, and
$424,000 for the fiscal years ended March 31, 1996,
1995, and 1994, respectively.
License Agreement. The Company licenses software
technology from third parties for inclusion in certain
Communications Software Division products. The Company
generally pays a royalty under these agreements based on
a per unit rate or a percentage of net revenues for
products sold which contain such licensed technology.
Under the most significant of these license agreements,
the Company is required to meet certain minimum royalty
payments per year. Failure to meet these minimum
payments could result in cancellation of the agreement
or a rescission of the Company's exclusivity rights.
Minimum royalties due under this agreement in the year
ending March 31, 1997, are $416,000. The minimum
royalties increase by 10% annually over the remaining
term of this agreement. The Company anticipates meeting
the aforementioned minimum royalty payments, in
accordance with the agreement.
Legal Matters. The Company is a party to certain
lawsuits and claims arising out of the conduct of its
business. These claims generally relate to commercial
transactions, patent infringements, and employment
matters. While the ultimate resolution of such suits or
other proceedings against the Company cannot be
predicted with certainty, management expects that these
matters will not have a material adverse effect on the
financial position or results of operations of the
Company.
24 Global Village Communication, Inc.
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 Common and Preferred Stock. As of March 31, 1996, the
STOCKHOLDERS' EQUITY number of Common Stock and Preferred Stock shares
authorized was 30,000,000 and 5,000,000 respectively.
The classes, series, rights and preferences of the
Preferred Stock may be established by the Company's
Board of Directors. As of March 31, 1996, no action with
respect to such shares has been taken.
On August 30, 1994, the Company issued approximately
1,800,000 shares of Common Stock as part of the
consideration for the acquisition of SofNet, Inc. (see
Note 6).
On January 5, 1996, the Company issued approximately
1,400,000 shares of Common Stock as part of the
consideration for the acquisition of KNX Limited (see
Note 7).
Stock Options. The Company has adopted a stock option
plan (the "Plan") under which incentive stock options
may be granted to employees and officers, and
nonqualified (supplemental) stock options may be granted
to employees, officers, directors, and consultants to
purchase an aggregate of 4,400,000 shares of Common
Stock. Options may be granted at an exercise price of at
least 100% of the fair market value of Common Stock at
the date of grant, or for supplemental options at an
exercise price not less than 85% of the fair market
value of such stock at the date of grant. All options
expire no later than 10 years after the date of grant
and generally vest over 4 or 5 years with 20% to 25%
vesting after 1 year and the balance vesting monthly
over the remaining 3 to 4 years. As of March 31, 1996,
options to purchase 385,598 shares of Common Stock were
exercisable under the Plan.
In January 1994, the Company adopted the 1994
Non-Employee Directors' Stock Option Plan (the
"Directors' Plan"). The Directors' Plan provides for
automatic grants of options to purchase shares of Common
Stock to non-employee directors of the Company at or
above the fair market value of the Common Stock on the
date of grant. The Company has reserved a total of
100,000 shares of the Company's Common Stock for
issuance upon the exercise of options granted pursuant
to the Directors' Plan. Options granted under the
Directors' Plan expire 10 years following the grant and
vest in 5 annual installments commencing on the date of
grant and are contingent upon the continuous service of
the director. As of March 31, 1996, options representing
12,267 shares were exercisable under the Directors'
Plan.
25 Global Village Communication, Inc.
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Below is a table of the combined stock option activity under the Plan
and the Directors' Plan:
<TABLE>
<CAPTION>
SHARES AVAILABLE OPINIONS OUTSTANDING
FOR GRANT
- -----------------------------------------------------------------------------------------------
SHARES PRICE PER SHARE
<S> <C> <C> <C>
Balances as of March 31, 1993: 121,488 2,048,175 $.04 - 0.15
Additional shares authorized 1,335,576 --
Options granted (1,150,300) 1,150,300 .30 - 8.00
Options exercised -- (515,787) .04 - .30
Options canceled 333,993 (333,993) .04 - 1.00
-----------------------------------------------------
Balances as of March 31, 1994: 640,757 2,348,695 .04 - 8.00
Options granted (832,278) 832,278 .82 -13.00
Options exercised -- (638,481) .04 - 6.00
Options canceled 192,048 (192,048) .04 - 8.25
----------------------------------------------------
Balances as of March 31, 1995: 527 2,350,444 .04 -13.00
Additional shares authorized 900,000 --
Options granted (1,011,485) 1,011,485 10.25 -18.38
Options exercised -- (583,711) .04 -13.00
Options canceled 462,263 (462,263) .04 -18.38
---------------------------------------------------
Balances as of March 31, 1996: 351,305 2,315,955 $.04 -18.38
===========================================================================================
</TABLE>
Employee Stock Purchase Plan. In December 1993, the Company adopted the 1993
Employee Stock Purchase Plan (the "Purchase Plan") reserving 300,000 shares of
Common Stock for issuance under the Purchase Plan. The Purchase Plan provides a
means by which employees may purchase the Company's Common Stock through
payroll deductions, of up to 10% of their compensation, at a price per share
equal to the lower of (i) 85% of the fair market value of a share of Common
Stock on the date of commencement of participation in the offering or; (ii) 85%
of the fair market value of a share of Common Stock on the date of purchase. As
of March 31, 1996, 119,077 shares had been purchased under the Purchase Plan.
Common Stock Reserved for Future Issuance. As of March 31, 1996, the Company
has reserved the following shares of Common Stock for future issuance:
<TABLE>
<CAPTION>
SHARES
- -------------------------------------------------
<S> <C>
Exercise of stock options 2,576,592
Employee stock purchase plan 180,923
Directors' plan 90,667
---------
Total reserved shares 2,848,182
=================================================
</TABLE>
26 Global Village Communication, Inc.
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 On August 30, 1994, the Company purchased all
ACQUISITION OF SOFNET, INC. of the outstanding stock of SofNet, Inc.
(SofNet), a Georgia corporation. SofNet is a
developer and marketer of communication
software for Windows, OS/2, and DOS computers
for use in stand-alone and networked
environments. The purchase price of $13.7
million for the acquisition consisted of
approximately $0.7 million in cash and 1.8
million shares of the Company's Common Stock.
Additionally, in connection with the
acquisition, pursuant to a management
incentive agreement, certain members of SofNet
management and key employees received $1.2
million in cash, for prior services rendered.
The acquisition of SofNet was accounted for
using the purchase method of accounting and,
accordingly, the operating results of SofNet
have been included in the accompanying
consolidated financial statements of the
Company from the date of acquisition. The
purchase price of approximately $13.7 million
was allocated as follows:
<TABLE>
<CAPTION>
----------------------------------------------
IN THOUSANDS
<S> <C>
Net tangible liabilities assumed $ (820)
Purchased in-process research and
development 12,809
Purchased software technology 674
Deferred income taxes 1,000
-------
Total purchase price $13,663
=============================================
</TABLE>
The purchased in-process research and
development was charged to operations in the
second quarter of fiscal 1995. The amounts
allocated to purchased software technology
will be amortized over four years.
The following unaudited pro forma combined
results of operations for the years ended
March 31, 1995 and 1994, are presented as if
the acquisition had occurred at the beginning
of each period. The onetime charge for the
write-off of in-process research and develop-
ment has not been reflected in the following
pro forma summary as it is nonrecurring. This
pro forma summary does not necessarily reflect
the results of operations as they would have
been if the Company had constituted a consoli-
dated entity during such periods.
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------
IN THOUSANDS
<S> <C> <C>
Net revenue $87,978 $53,360
Net income $ 4,435 $ 1,951
Net income per share $ 0.25 $ 0.13
==============================================
</TABLE>
NOTE 7 In January 1996, the Company acquired KNX
ACQUISITION OF KNX LIMITED Limited, a UK-based provider of ISDN remote
access products. The transaction was effected
through the exchange of shares of Common Stock
of the Company for all outstanding shares of
KNX Limited. In total, the Company issued, or
reserved for issuance on exercise of options,
1,365,951 shares of the Company's Common
Stock. The acquisition of KNX Limited was
accounted for using the pooling of interests
method of accounting. Accordingly, all periods
presented have been restated to include the
historical results of KNX Limited.
27 Global Village Communication, Inc.
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The results of operations for the separate enterprises and the combined amounts
presented in the accompanying consolidated financial statements are summarized
below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 MARCH 31, 1995 MARCH 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenue:
Global Village
Communication, Inc. $ 97,764 $80,021 $46,637
KNX Limited 4,684 5,703 2,676
--------------------------------------------------------
Combined $102,448 $85,724 $49,313
========================================================
Net income (loss):
Global Village
Communication, Inc. $ 8,749 $(6,206) $ 4,308
KNX Limited (2,592) (1,466) (408)
--------------------------------------------------------
Combined $ 6,157 $(7,672) $ 3,900
================================================================================
</TABLE>
NOTE 6
INCOME TAXES
The Company's pretax income (loss) from operations consisted of the following
components:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1996 1995 1994
- -----------------------------------------------------------------------------
IN THOUSANDS
<S> <C> <C> <C>
Domestic $16,753 $(2,396) $6,877
Foreign (2,757) (1,466) (377)
----------------------------------------
Total pretax income (loss) $13,996 $(3,862) $6,500
============================================================================
</TABLE>
The components of income tax are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1996 1995 1994
- -----------------------------------------------------------------------------
IN THOUSANDS
<S> <C> <C> <C>
Current:
Federal $2,749 $ 3,040 $2,340
State 677 1,054 618
----------------------------------------
Total current 3,426 4,094 2,958
----------------------------------------
Deferred:
Federal 46 (820) (206)
State 56 (330) (152)
----------------------------------------
Total deferred 102 (1,150) (358)
----------------------------------------
Charge in lieu of income taxes
associated with exercise of
stock options 1,632 866 --
----------------------------------------
Total provision for income taxes $5,160 $3,810 $2,600
============================================================================
</TABLE>
28 Global Village Communication, Inc.
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary timing differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1996 1995
- -----------------------------------------------------------------------------
IN THOUSANDS
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance
for returns and doubtful accounts $419 $819
Inventories, due to additional costs
inventoried for tax purposes and
valuation allowance 471 362
State taxes deducted for financial purposes
not taken for tax purposes (30) 34
Warranty accrual deducted for financial
purposes not taken for tax purposes 637 --
Accruals for financial purposes not taken
for tax purposes 936 919
Net operating loss carryforward, federal,
state, and foreign 4,390 3,293
Other 59 184
----------------------
Total gross deferred tax assets 6,882 5,611
Less valuation allowance 3,648 2,275
----------------------
Net deferred tax benefit $3,234 $3,336
============================================================================
</TABLE>
The valuation allowance is provided for the uncertainty of fully utilizing
SofNet, Inc., net operating loss carryforwards due to annual limitations
discussed below. A further valuation allowance is provided for the uncertainty
of utilizing the deferred tax assets of Global Village Communications, (U.K.),
Ltd. and carryover benefits for its predecessor, KNX Limited.
29 Global Village Communication, Inc.
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The difference between the effective income tax rate and
the U.S. federal statutory income tax rate is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1996 1995 1994
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35 % (34)% 54 %%
State tax, net of federal benefit 5 % 16 % 10 %
Foreign loss without tax benefit 7 % 12 % 2 %
Foreign sales corporation benefit (2)%
Tax-exempt interest (2)% (7)% --
In-process research and development
not deductible for tax purposes -- 113 % --
Acquisition costs 1 % -- --
Research and experimental tax credit (4)% (2)% (7)%
Other (3)% 1 % 1 %
--------------------------------------
Effective income tax rate 37 % 99 % 40 %
======================================================================================
</TABLE>
The federal tax credit for increasing research
activities lapsed as of June 30, 1995. As such, the
Company is including in the income tax provision the
benefit of the credit allowed for the first quarter of
the year ended June 30, 1995. It is anticipated that the
credit would be extended retroactively; however, due to
the federal budget impasse, no legislation has been
signed on this issue. If the credit is reinstated
retroactively, the benefit in the effective tax rate for
the year ended March 31, 1996 is estimated at 2.2%,
reducing the total effective rate for the year to
approximately 34.7%.
The Company acquired KNX Limited in January 1996.
As of the acquisition date, KNX Limited had United
Kingdom net trading less carryforwards of $1.3 million.
The United Kingdom does not impose any limitation on
the amount of the loss utilized in any future period up
to the amount of taxable trading income earned for the
period. Any unused loss can be carried forward
indefinitely to subsequent years.
The Company acquired SofNet, Inc., in August 1994.
As of the acquisition date, SofNet had federal and
Georgia net operating loss carryforwards of $9.3
million. The federal net operating loss is subject to
an annual limitation approximating $820,000 as a result
of an "ownership change" as defined in Section 382 of
the Internal Revenue Code. Any unusual annual
limitation can be carried forward to subsequent years.
In addition, the SofNet operating losses can only be
used to offset future earnings of SofNet as a result of
separate return limitation rules.
NOTE 9 The Company sells primarily to distributors, dealers,
CUSTOMERS AND CREDIT and OEMs in North America, Europe, and the Pacific Rim.
CONCENTRATIONS The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The
Company maintains reserves for potential credit losses,
and such actual losses have been within management's
expectations.
In the United States, the Company markets its
products primarily through distributors and resellers.
For the fiscal year ended March 31, 1996, sales to one
distributor accounted for 31% of net revenues
representing accounts receivable of $4,903,000. For the
fiscal year ended March 31, 1995, sales to two
distributors
30 Global Village Communication, Inc.
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accounted for 31% and 12% of net revenues representing accounts receivable of
$2,895,000 and $679,000, respectively. For the year ended March 31, 1994, two
distributors accounted for approximately 43% and 20% of net revenue
representing accounts receivable of $2,237,000 and $343,000, respectively.
The Company's export sales for the fiscal years ended March 31, 1996,
1995, and 1994, represented approximately 26%, 18%, and 15% of net revenue,
respectively.
NOTE 10
FINANCIAL INFORMATION BY QUARTER
(UNAUDITED)
The following table represents selected quarterly information for fiscal
1996 and 1995:
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE DATA FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1996
Net revenue $29,280 $ 32,574 $40,594 $42,031
Gross proft $13,209 $ 14,366 $16,929 $18,068
Net income $ 1,604 $ 2,303 $ 2,250 $ 2,679
Net income per share $ 0.09 $ 0.13 $ 0.12 $ 0.15
Market price of common stock:
High $ 17.00 $ 18.13 $ 24.13 $ 19.25
Low $ 11.00 $ 13.00 $ 10.25 $ 12.12
===================================================================================================================
Fiscal 1995
Net revenue $16,404 $ 18,722 $23,055 $27,543
Gross proft $ 7,541 $ 8,355 $11,099 $12,436
Net income (loss) $ 1,658 $(12,176) $ 1,253 $ 1,593
Net income (loss) per share $ 0.11 $ (0.84) $ 0.07 $ 0.09
Market price of common stock:
High $ 10.25 $ 10.00 $ 11.00 $ 14.25
Low $ 6.25 $ 5.75 $ 7.13 $ 9.00
===================================================================================================================
</TABLE>
The Company's historical results have been restated to include the results
of KNX Limited.
Net loss for second quarter of fiscal 1995 includes a $12.8 million
write-off of in-process research and development associated with the
acquisition of SoftNet, Inc.
The Company's Common Stock is traded in the NASDAQ National Market
under the symbol GVIL. The Company completed an initial public offering in the
fourth quarter of 1994 with an initial offering price of $8.00 per share.
Presented above are the highest and lowest "last trade" stock prices for that
period.
31 Global Village Communication, Inc.
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11
SUBSEQUENT EVENTS
In April 1996, the Company incorporated its GlobalCenter Internet
Services Division as a stand-alone business called GlobalCenter, Inc. At the
same time, the Company announced that UUNET Technologies, Inc., has acquired
a 19.9% equity interest in GlobalCenter, Inc. Effective April 1996, the Company
no longer has the ability to exercise significant influence and control over
GlobalCenter, Inc. Accordingly, the Company will no longer consolidate the
results of the newly formed GlobalCenter, Inc., with Global Village
Communication, Inc.
In May 1996, the Company signed a letter of intent to invest $4 million
to acquire a 19.75% equity interest in Ex Machina, a privately held wireless
solutions company that develops and markets products and services that merge
computing and wireless communication technologies. The Company anticipates the
transaction will close in June 1996 and that it will value the investment under
the cost method.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Global Village Communication, Inc.
We have audited the accompanying consolidated balance sheets of Global
Village Communication, Inc., and subsidiaries as of March 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended March 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Global Village Communication, Inc., and subsidiaries as of March 31, 1996
and 1995, and the results of their operations and their cash flows for each of
the years in the three-year period ended March 31, 1996, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Palo Alto, California
April 24, 1996, except
as to Note 11 which is
as of May 31, 1996
32 Global Village Communication, Inc.
<PAGE> 35
CORPORATE DATA
<TABLE>
<S> <C> <C> <C>
CORPORATE OFFICERS Michael Moritz Global Village CORPORATE AND INVESTOR INFORMATION
General Partner Communication (U.K.), Ltd.
Leonard A. Lehmann Sequoia Capital Tempest Court Please direct inquiries to:
Chairman of the Board Broughton Hall
David H. Ring Skipton, North Yorkshire James M. Walker
Neil Selvin Private Investor England BD23-3AE Chief Financial Officer
President and Chief and Consultant Global Village Communication, Inc.
Executive Officer BV World Trade Center 1144 East Arques Avenue
CORPORATE HEADQUARTERS Straiwnskylaan 305 Sunnyvale, California 94086
James M. Walker 1077 XX Amsterdam, Netherlands Tel: (800) 9GVIL-IR (948-4547)
Vice President, Finance, Global Village Fax: (408) 523-2287
Chief Financial Officer Communication, Inc. GENERAL COUNSEL
and Secretary 1144 East Arques Avenue Internet e-mail:
Sunnyvale, California 94086 Wilson Sonsini Goodrich & [email protected]
James Brown Rosati P.C.
Vice President, Operations OFFICES Palo Alto, California World Wide Web site:
http://www.globalvillage.com
Douglas Dennerline 1090 Northchase Parkway INDEPENDENT AUDITORS
Vice President, Sales Suite 350 ANNUAL MEETING:
Marietta, Georgia 30067 KPM Peat Marwick LLP
Charles Oppenheimer Palo Alto, California The annual meeting of stockholders
Vice President and 575 Anton Boulevard of Global Village Communication,
General Manager, Suite 300 STOCK TRADING Inc. will be held at 9 a.m. on July
Communications Costa Mesa, California 92626 31, 1996, at Company headquarters,
Systems Division Global Village's common stock 1144 East Arques Avenue,
1415 West 22nd Street is traded on the over-the- Sunnyvale, California. All stock-
Marsha Raulston Tower Floor counter market and is quoted holders are encouraged to attend.
Vice President, Oakbrook, Illinois 60521 on the NASDAQ National Market
Customer Information under the symbol GVIL. (C)1996 Global Village
60 State Street, Communication, Inc.
Andrew Watson Suite 700 TRANSFER AFENT AND REGISTRAR All rights reserved.
Vice President and Boston, Massachusetts 02109
General Manager, The First National Bank Global Village Communication,
FaxWorks, FocalPoint, GlobalCenter,
Communications 5001 LBJ Freeway of Boston c/o Boston EquiServe GlobalFax, OneWorld, PowerPort,
Software Division Suite 700 P.O. Box 644 PowerPort Platinum, PowerPort Gold,
Dallas, Texas 75244 Boston, Massachusetts 02102-0644 TelePort, TelePort Gold, and TelePort
Platinum are trademarks and the
BOARD OF DIRECTORS Telephone: (617) 575-3120 Global Village logo is a registered
1299 Commerce Drive trademark of Global Village
Leonard A. Lehmann Richardson, Texas 75081 SEC FORM 10-K Communication, Inc. All other brand or
Chairman of the board product names and logos are
Global Villae 90 Park Avenue A copy of the Company's SEC trademarks or registered trademarks of
Communication, Inc. 16th Floor Form 10-K, as filed with the their respective holders. Global
New York, New York 10016 Securities and Exchange Village's GlobalCenter Internet
Neil Selvin Commission, is available upon service, PowerPort Platinum and
President and Chief 3701 North High Street request, at no charge. TelePort Platinum fax/modems, and
Executive Officer Suite D, 2nd Floor GlobalTransfer software were used
Global Village Columbus, Ohio 43214 extensively in the creation of
Communication, Inc. this annual report.
Robert S. Cohn Design: Kimberly Baer Design
President, Chief Associates, Los Angeles
Executive Officer, Illustration: Marc Rosenthal,
and Chairman New York
Ocal Communications Corp. Copywriting: Lindsay Beaman,
San Francisco
Kevin R. Compton
Partner
Kleiner Perkins
Caufield & Byers
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Global Village Communication, Inc.:
We consent to incorporation by reference in the registration statements
(Nos. 33-89844, 33-76772 and 33-76886) on Form S-3 and Forms S-8, respectively,
of Global Village Communication, Inc. of our reports dated April 24, 1996,
except as to Note 11 which is as of May 31, 1996, relating to the consolidated
balance sheets of Global Village Communication, Inc. and subsidiaries as of
March 31, 1996 and 1995, and related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended March 31, 1996, and the related schedule, which reports appears in
the March 31, 1996 annual report on Form 10-K of Global Village Communication,
Inc.
KPMG Peat Marwick LLP
Palo Alto, California
June 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PAGES 16
THROUGH 28 OF THE 1996 ANNUAL REPORT
</LEGEND>
<CIK> 0000875983
<NAME> GLOBAL VILLAGE COMMUNICATION, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
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0
0
<COMMON> 17
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<SALES> 144,479
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<CGS> 81,907
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<OTHER-EXPENSES> 49,553
<LOSS-PROVISION> 8,412
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> 13,996
<INCOME-TAX> 5,160
<INCOME-CONTINUING> 8,836
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<NET-INCOME> 8,836
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
