<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO
SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
GLOBAL VILLAGE COMMUNICATION, INC.
- -----------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- -----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(6) Amount Previously Paid:
-------------------------------------------------------------------------
(7) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(8) Filing Party:
-------------------------------------------------------------------------
(9) Date Filed:
-------------------------------------------------------------------------
<PAGE> 2
[GLOBAL VILLAGE COMMUNICATION LETTERHEAD]
Dear Fellow Stockholders,
You are cordially invited to attend a special meeting of stockholders to be held
at the Sunnyvale Hilton Hotel on June 8, 1998. At this meeting, you will be
asked to approve the sale of our modem business to Boca Research, and the
renaming of the Company to OneWorld Systems, Inc.
These events represent an important and exciting new direction for Global
Village. As both a fellow stockholder and as the president of the company, I
would like to take a moment to acquaint you with the decisions we have made,
share with you the reasons for these decisions, and ask for your support. Both
the board of directors and I believe that this transaction, and the resultant
new direction, are advantageous to both the Company and its stockholders. Please
read the entire proxy statement for a complete discussion of the opportunities
and risks associated with the sale of the Company's modem business to Boca
Research, and the new product direction that the Company has elected to follow.
YOUR VOTE IS VERY IMPORTANT TO THE COMPANY
The proposed transaction must be approved by holders of at least a majority of
the outstanding shares of the Company's Common Stock. Therefore, it is important
that your shares be represented at the Annual Meeting, whether or not you are
able to attend. Accordingly, please complete, sign and date the accompanying
PROXY voting card and return it in the enclosed envelope as soon as possible. If
you attend the Annual Meeting, you may vote in person if you wish, even if you
previously returned your proxy. Your prompt cooperation will be greatly
appreciated.
Summary of the decisions
The Company has decided to sell its modem business to Boca Research, in exchange
for $10 million in cash and notes. The sale will include a transfer of
intellectual property, including the Global Village name, logo and trademarks,
as well as the modem hardware and software products, and the inventory,
receivables and other assets of the modem business. Boca Research will also
assume the liabilities of the modem business, including responsibility for
product warranty, technical support, product returns, ongoing marketing and
sales programs, and certain accounts payable and accrued liabilities. Boca
Research will also receive a warrant to purchase up to 425,000 shares of the
Company's common stock.
The Company will focus its efforts on a new family of communications server
products aimed at the small and medium office market. These products, expected
to be launched in June or July, will combine Internet access, routing, remote
access, fax server, and shared modem capabilities in a single, easy-to-use
hardware/software product line.
As a part of this transaction, the Company will change its name to OneWorld
Systems, Inc., and will be traded on the NASDAQ exchange using the symbol OWLD.
Why did we make these decisions?
Over the last two years, the Company's modem business has changed from a growth
business driven by software content and the integration of hardware and software
to one where purchasing volumes and manufacturing scale have become the
important drivers. In addition, the Macintosh market has markedly declined over
the last two years, while the Windows modern market has been plagued with
confusion and uncertainty over the whole 56K transition resulting in lower
prices and significant gross margin pressure. The ability of Global Village to
compete in today's modem market as an independent modem company is affected by
all of these factors, our own financial resources, and the increasing focus on
price competitiveness in the market.
<PAGE> 3
Global Village has always been a company that prides itself on software
differentiation, and on integrating software and hardware into easy-to-use,
reliable products. In 1994, we first turned these core competencies to the small
business market with the introduction of our OneWorld servers for Macintosh
networks. The success of these products clearly indicated that small businesses
needed an easy-to-use communications product that everyone in the office could
use to send faxes, dial out to on-line services, and dial into for remote
access, and Global Village was able to satisfy this need with an award-winning
product line.
For more than a year, we have been developing a brand-new product family that
will extend and expand on this idea to today's small and medium offices. Focused
primarily on Windows users, the new products will combine many of the key
communications functions that small offices need to connect to the world around
them. These products, and the market they address, are described more fully in
the enclosed proxy materials.
When the Board of Directors and I examined the best opportunity to increase the
value of your stock, it was clear that the Company did not have the resources to
maintain a competitive position in the modem business, while also developing and
launching this new line of communications servers. We carefully evaluated
whether we could significantly increase the value of the Company by focusing on
the modem business, and concluded that while it was a business we understood,
the dynamics of the industry and the financial condition of the Company both
worked against seeing significant stock price appreciation. On the other hand,
we examined the opportunity in the small office market. It is a large market,
with relatively low penetration by wide-area communications devices. No single
player has a major share of this market. Perhaps most important, we believe that
our new communications server adopts an approach quite different from our
competitors, in that it integrates client software, server software, and an
expandable, versatile hardware architecture into a single, easy-to-use platform.
Given these choices, the Board of Directors and I strongly feel that there is a
significantly better opportunity to increase the value of the Company by
focusing on the communications server business, and selling the modem business.
This transaction raises cash needed to fund the development, marketing and
selling efforts needed in the server business, and eliminates the risk of
continued losses and further cash needs from the modem business.
As you will read in the proxy materials, we looked at a variety of alternatives,
including selling the entire company, raising public or private financing, and
selling the modem business. After months of effort, the only alternative that
presented itself was selling the modem business. The Board of Directors and I
are convinced that this alternative is the best one for our stockholders.
We need your support
You are being asked to vote on two proposals: first, the sale of the modem
business, and second, the renaming of the Company to OneWorld Systems, Inc.
Please read the proxy materials and other enclosed materials carefully. These
documents will explain in more detail why we are convinced that this is the best
decision for stockholders. On behalf of the Company and the Board of Directors,
I thank you for taking the time to consider these materials, and I look forward
to your continued support.
Sincerely,
/s/ Neil Selvin
Neil Selvin
President and Chief Executive Officer
<PAGE> 4
GLOBAL VILLAGE COMMUNICATION, INC.
1144 EAST ARQUES AVENUE
SUNNYVALE, CALIFORNIA 94086
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 8, 1998
TO THE STOCKHOLDERS OF GLOBAL VILLAGE COMMUNICATION, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Global
Village Communication, Inc., a Delaware corporation (the "Company"), will be
held on June 8, 1998 at 8:30 a.m. local time at the Sunnyvale Hilton Hotel,
located at 1250 Lakeside Drive, Sunnyvale, California, for the following
purposes as more fully described in the proxy statement accompanying this
Notice:
1. To approve and adopt that certain Asset Purchase Agreement dated March
31, 1998 (the "Agreement") and the transactions contemplated thereby,
substantially as described in the proxy statement accompanying this
Notice, pursuant to which Boca Research, Inc., a Florida corporation
("Boca Research"), and Boca Global, Inc., a Florida corporation and a
wholly owned subsidiary of Boca Research ("Boca Global," and together
with Boca Research, "Buyer"), will purchase from the Company
substantially all of the Company's assets related to the single user
modem products offered by the Company (collectively, the "Modem
Business").
2. To approve and adopt an amendment to the Company's Certificate of
Incorporation, as amended, to change the name of the Company to
"OneWorld Systems, Inc."
3. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Information relating to the above matters is set forth in the attached
proxy statement. In addition, the Company has included with the attached proxy
statement copies of certain recent Company press releases containing information
related to the above matters. The Board of Directors has fixed the close of
business on April 24, 1998 as the record date for the determination of
stockholders entitled to notice of and to vote at this Special Meeting and at
any adjournment or postponement thereof. Both the approval of the Agreement and
the approval of the amendment to the Company's Certificate of Incorporation
require the affirmative vote of the holders of a majority of the outstanding
shares of the Company's Common Stock.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE SALE OF THE
MODEM BUSINESS AND THE CHANGE IN THE CORPORATE NAME TO "ONEWORLD SYSTEMS, INC."
ARE IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND STRONGLY
RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF EACH OF THESE PROPOSALS.
By Order of the Board of Directors
/S/ Marc E. Linden
Marc E. Linden
Secretary
Sunnyvale, California
April 30, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU STILL MAY VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 5
GLOBAL VILLAGE COMMUNICATION, INC.
1144 EAST ARQUES AVENUE
SUNNYVALE, CALIFORNIA 94086
------------------------
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Global Village Communication, Inc., a Delaware corporation (the "Company"), for
use at the Special Meeting of Stockholders to be held on June 8, 1998, at 8:30
a.m. local time (the "Special Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Special Meeting. The Special Meeting will be held at the Sunnyvale Hilton Hotel
located at 1250 Lakeside Drive, Sunnyvale, California. The Company intends to
mail this proxy statement and accompanying proxy card on or about April 30,
1998, to all stockholders entitled to vote at the Special Meeting.
RECORD DATE, VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on April
24, 1998 will be entitled to notice of and to vote at the Special Meeting. At
the close of business on April 24, 1998, the Company had outstanding and
entitled to vote 17,162,771 shares of Common Stock. Each holder of record of
Common Stock on such date will be entitled to one vote for each share held on
all matters to be voted upon at the Special Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted toward the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted toward a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services. In addition, the Company anticipates engaging a
proxy solicitor to assist it in obtaining proxies.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Special
Meeting of Stockholders must be received by the Company not later than April 17,
1998 to be included in the proxy statement and proxy relating to that Special
Meeting.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. The proxy may be revoked by filing
with the Secretary of the Company at the Company's principal executive office,
1144 East Arques Avenue, Sunnyvale, California 94086, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the meeting and voting in person. Attendance at the meeting will
not, by itself, revoke a proxy.
<PAGE> 6
PROPOSAL 1
APPROVAL OF ASSET SALE
At the Special Meeting, stockholders are being asked to approve the Asset
Sale (as defined herein) pursuant to the Asset Purchase Agreement (the
"Agreement") which has been entered into on March 31, 1998 between the Company,
Boca Research, Inc., a Florida corporation ("Boca Research"), and Boca Global,
Inc., a Florida corporation and a wholly owned subsidiary of Boca Research,
("Boca Global," and together with Boca Research, "Buyer"). Pursuant to the terms
of the Agreement, the Company will sell to Buyer, and Buyer will purchase from
the Company, substantially all of the Company's assets related to the single
user modem products offered by the Company (the "Modem Business"), and the
Company will assign certain of its liabilities to Buyer, (collectively, the
"Asset Sale").
The affirmative vote of the holders of a majority of the outstanding shares
of the Company's Common Stock will be required to approve this Proposal. All
votes will be tabulated by the inspector of election appointed for the meeting,
who will separately tabulate affirmative and negative votes, abstentions and
broker non-votes. Abstentions will be counted toward the tabulation of votes
cast on proposals presented to the stockholders and will have the same effect as
negative votes. Broker non-votes are counted toward a quorum, but are not
counted for any purpose in determining whether a matter has been approved.
BACKGROUND FOR THE ASSET SALE
Changes in the Modem Industry
During 1997, the modem industry experienced several changes that adversely
affected the Company's ability to remain competitive as a stand-alone modem
company.
The introduction of two competing protocols for modems that operate at
56Kbps, one by Rockwell Systems and one by US Robotics (now part of 3COM) caused
confusion and delays in market deployment and customer acceptance of this new
generation of modems, which caused a market slowdown throughout the industry.
Several factors contributed to the slowdown in the market for consumer modems.
The two protocols for 56K modems, K56Flex and x2, were not compatible, so modems
using different protocols would not connect at 56Kbps, but would communicate at
33.6Kbps or slower speeds. This incompatibility led customers to question the
benefits of purchasing a 56K modem. In addition, because of the competing
protocols and discussions regarding a standard, Internet Service Providers
(ISPs) chose not to deploy the new 56K modems in large volumes. These delays in
deployment due to the uncertainty of which technology to choose, and the
additional uncertainty about the timing of a standard, caused consumers to wait
before purchasing a 56K modem.
As it became apparent that a significant number of consumers and ISPs were
delaying their purchases of 56K modems, prices on 56K modems dropped. In the
first half of 1997, typical prices for 56K modems were $180-250. By the end of
1997, typical prices for 56K modems were $99-149. The reduced average selling
prices caused industry-wide pressure on gross margins and modem manufacturers'
profitability. During much of 1997, many modem manufacturers were not
profitable, including Zoom Telephonics, Hayes, Boca Research, Global Village,
and others.
As the industry became more price competitive, the ability of modem
manufacturers to use production volume as a strategic tool became more
important. The impact of volume on purchasing power, manufacturing utilization
and efficiency, distribution channel program spending, and other business
factors increased in importance. In today's modem market, these factors continue
to be an important element of the success of a modem company. As a result of
these and other factors, the industry has seen some consolidation during 1997.
Several acquisitions took place, including 3COM's acquisition of US Robotics and
Hayes' acquisition of Cardinal.
2
<PAGE> 7
Decline in the Macintosh Market
The Company has competed in the Macintosh market since its founding in
1989. During the last several years, the Company has maintained a significant
share of the Macintosh consumer modem market. However, during the last two
years, the share of the personal computer industry held by Macintosh computer
products has declined in both unit shipments and revenues. According to industry
sources cited by Apple Computer, Apple's estimated market share during this same
period has declined from 4.3% to 2.6% worldwide, and has declined from 5.2% to
3.3% in the United States.
The decline in the unit shipments of Apple Computer products, and the
decline in Apple's market share caused a decline in the Company's Macintosh
revenue over this same period. In order to attempt to replace this revenue with
additional revenue from the Windows market, and return the Company to growth, in
the first half of 1997, the Company developed and marketed a line of 56K modems
targeted toward Windows users. The Company spent significant resources to
develop these products, develop channel and marketing programs, and implement
sales programs designed to increase the proportion of its revenue from
Windows-based products. However, due to the factors that influenced the entire
modem industry in 1997, the Company was not successful in significantly
increasing its Windows market share, nor its proportion of revenues derived from
the Windows market.
Impact on the Company's Financial Position
When faced with larger competitors in the Windows market who were better
equipped to purchase key components at lower prices, manufacture in higher
volumes, and spend more money on channel development, marketing and sales
programs, the Company faced several financial constraints that adversely
affected its ability to remain competitive as a stand-alone company.
First, the significant price drops discussed earlier caused gross margins
to decline. For example, gross margins in the fourth fiscal quarter of 1997 were
39.4%; by the third quarter of fiscal 1998, gross margins had declined to 29.8%.
The Company believes that continued price pressure in the industry, coupled with
lower manufacturing volumes when compared to the Company's competitors, will
continue to cause gross margins in the Company's modem business to decline over
time.
Second, the efforts to increase sales of Windows-based modems required
significant cash expenditures, both on inventory, and on marketing and sales
programs. The Company was only able to fund these cash expenditures by selling
certain assets, including the sale of the assets of its subsidiary, Global
Village Communication, Ltd., to Mitel, the sale of its investment in
GlobalCenter, Inc, and the sale of its investment in AirMedia, Inc. Despite
these sales, however, the Company's cash balance declined from $9.7 million at
the end of fiscal 1997 to $5.6 million at the end of the third quarter of fiscal
1998. At this time, the Company does not have any material, non-strategic assets
that it could sell to continue operating the Modem Business.
Strategic Considerations
During 1997, the Board of Directors discussed the impact of the modem
industry slowdown and consolidation, the decline of the Macintosh market, and
the eroding financial position of the Company, with an intent of improving the
future prospects of the Company. During these discussions, the board believed
that several of the trends discussed above would continue or worsen over time.
These included continued decline in gross margins in the modem industry, further
declines in the market share position of Apple Computer, and an inability of the
Company to attain profitability with reasonable growth prospects as a
stand-alone modem company. The combination of reduced market opportunity,
reduced cash reserves, and the increasingly competitive nature of the modem
industry caused the Board of Directors to examine various alternative strategies
for the Company.
In June 1997, the board engaged the services of Hambrecht & Quist LLC
("Hambrecht & Quist"), an investment banking firm, to advise them on the various
alternatives available to the Company. During the next three months, Hambrecht &
Quist contacted a variety of companies in the personal computer and peripherals
industry to determine if there was a possibility of a strategic transaction. In
addition, both Hambrecht & Quist
3
<PAGE> 8
and the Company's management contacted various financial organizations to
determine the feasibility of raising additional capital through public or
private financing.
In September 1997, conversations between the Company and another company
were held relating to a possible strategic investment in, or acquisition of, the
Company. These discussions did not lead to a positive outcome, and the
discussions were terminated. At the Board of Directors' direction, Hambrecht &
Quist continued to look for opportunities for the Company to raise capital, or
be acquired.
Throughout the second half of 1997, the Board of Directors also reviewed
the market opportunity for, and the progress of, a new internal development
program focused on producing a communications server for the small and medium
sized office market. This product would integrate several communications
functions into a single hardware/software solution. Management recommended, and
the Board of Directors approved, the continued development of this new product
line. It was determined that this product showed considerable promise, that the
market opportunity was large, that the opportunities for higher margin products
that focused on the Windows small office market were more attractive, and that
the Company's skills in software development and integration of hardware and
software were well suited to the target market.
In January 1998, the Board of Directors again reviewed the financial
condition of the Company, the status of the modem industry, and the prospects of
remaining a stand-alone company whose revenues were largely derived from the
Macintosh market. The Board of Directors increasingly believed that remaining an
independent modem company was not financially viable, would require significant
infusions of cash with no assurance of a return to profitability, and that
funding the modem business and the development and launch of a server product
line were not simultaneously achievable. The inability of the Company's
resources to support both the ongoing losses of the modem business and the
continued development and launch of a new server product line, coupled with
unsuccessful efforts to attract a suitable investor or buyer for the Company,
caused the Board of Directors to consider the sale of the Modem Business as a
strategic alternative.
At that time, the Board of Directors and the management of the Company
believed that the sale of the modem business and a refocus of the Company's
direction on a new server product line would represent a better opportunity to
create value for stockholders than remaining an independent modem company.
Several factors caused the Board of Directors to view the server business as an
attractive alternative to the modem business:
(i) as has been discussed above, the modem business offers limited
possibilities for growth and profitability, while the server product line
is targeted toward an underserved market, since most small offices do not
have a breadth of wide area communications capabilities today;
(ii) this market segment would reduce the Company's dependence on the
Macintosh market, since the product is being designed for small and medium
offices that have a Novell or Windows NT network, and support Windows
users, as well as Macintosh users;
(iii) the server product family represents a good fit with Global
Village's traditional strengths, that of developing software and hardware
that could be integrated into easy-to-use systems. While the modem business
is becoming more reliant on purchasing volume and manufacturing efficiency,
the server business relies on software value and ease-of-use as key
differentiating factors, which could lead to less competition based solely
on price and, consequently, could lead to higher gross margins.
For all of these reasons, the Board of Directors determined that refocusing the
Company around the server business offered the best opportunity for enhancing
stockholder value.
4
<PAGE> 9
REASONS FOR THE ASSET SALE
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE ASSET SALE IS IN
THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, AND STRONGLY RECOMMENDS
A VOTE IN FAVOR OF THE ASSET SALE.
The Board of Directors' reasons are as follows:
The Board of Directors strongly believes that the efforts by both Hambrecht
& Quist and management made to date indicate that the $10.0 million that Boca
Research will pay for the Modem Business represents the best offer that could be
obtained for the Company's Modem Business (please see "Opinion of the Company's
Financial Advisor", and the Fairness Opinion of Hambrecht & Quist LLC attached
hereto as Annex C). No offer for purchase or acquisition of the Company as a
whole was ever presented to the Company.
The sale of the Modem Business to Boca Research maximizes the Company's
modem products' future chances for success, and therefore maximizes the value of
this business. In addition, the terms of the sale also require Boca Research to
assume the liabilities of the Modem Business, thereby reducing the Company's
future obligations. Boca Research will assume responsibility for product
warranty, ongoing technical support of the products, channel and end-user return
of products, and ongoing channel sales and marketing programs, as well as
certain accounts payable and other accrued liabilities. The Company will be
relieved of these obligations and will be able to use the funds received from
the sale of the Modem Business to pay for further development, product launch,
support, marketing and sales programs associated with the new server product
line.
Finally, the sale of the Modem Business will allow the Company's management
to focus entirely on the strategic challenges associated with the small and
medium office server market. The focus solely on this opportunity, and the lack
of distractions from the Modem Business, will improve the Company's ability to
execute on this transition.
Description of the Server Business
Reflecting its new corporate direction, the Company proposes to change its
name to "OneWorld Systems, Inc." (please see "Proposal 2"), and will focus on a
new family of communications servers aimed at the small and medium office
market. The Company's new product family will combine Internet access, routing,
remote access, fax server and shared modem capabilities all in a single,
easy-to-use product.
Not only is the number of small businesses with networks expected to double
from 1.1 million in 1996 to 2.2 million by the year 2001 (Source: IDC/LINK), the
communications needs of small offices are expected to dramatically increase.
Businesses will need to implement and manage multiple communications functions,
such as fax, Internet access, on-line service access, remote access and routing.
But small and medium size offices rarely have the technical expertise and large
IS budgets to manage complex technology. The time is ripe for a company to
simplify communications for the small office.
The first problem with most small office communications solutions today is
that most products are designed to handle only a single function: remote access
is handled by one server; Internet access is provided by a different piece of
equipment; and fax servers are yet a different product. Each of these products
must be installed and managed separately using different administration
software, no common user interfaces, maintenance of multiple user/password
lists, and different security methods. Among other issues, this poses a problem
for the small office manager who must update each and every product whenever an
employee joins or leaves the company, for example. Not only is this
time-consuming, but can be a complex process for small office network
administrators.
In addition, existing, single-function products are an inefficient way to
manage both capital and telecommunications costs. Purchased separately, each
single-function product typically ranges in cost between $2,000 and $4,000, and
can cost significantly more. Small offices that need to purchase an Internet
router, fax server, remote access server and banks of modems could easily spend
$10,000 to $15,000 simply to accommodate their basic data communications needs,
a significant cost for a small office. Additionally, single-function products
generally require their own dedicated phone lines for their particular
communications function: phone lines for Internet access; phone lines for
modems; phone lines for faxing; phone lines for
5
<PAGE> 10
remote access, etc. And since these phone lines cannot be easily moved between
functions, phone line usage becomes inefficient, causing wasted money on monthly
telephone fees.
As small offices grow in size, their technology needs frequently expand as
well. Today, a small office may need Internet access for 20 employees, and a
year later might need Internet access, routing and fax capabilities for 100
employees. Today's products frequently can't expand to accommodate more users,
or lack the ability to add new communications functions in a simple, efficient
manner. Current product offerings often have fixed ports and only allow a single
communications function to be handled.
Communications products available today are often developed by enterprise
networking companies that traditionally view their end customer as a highly
trained network administrator or IS manager. The small and medium office market
needs communications products that have been developed specifically for them
from the start. The Company, newly focused as OneWorld Systems, Inc., will
provide such products.
With a history of understanding how people use communications every day,
OneWorld Systems will provide a family of communications servers specifically
designed for the small and medium size office. Leveraging the Global Village
heritage and experience, OneWorld Systems is designing hardware, server software
and client software, and integrating these elements into a complete
hardware/software solution. These communications servers will provide versatile,
easy-to-use, cost-effective and expandable solutions that will meet a small
office's growing communications needs and modest budget.
The OneWorld Systems family of communications servers will provide the
major data communications functions required by small businesses, including
sending and receiving faxes; Internet access and routing so that the entire
office has access to the Internet (not just one PC in the office); modem pooling
so that the entire office can share modems and access on-line services from any
desk at anytime; and remote access so that employees can dial into the office
network from home or on the road. In addition, the OneWorld Systems family of
communications servers will be among the first to offer all these capabilities
simultaneously to both Windows and Macintosh users.
These products are designed to be simple for the small office to administer
and manage. A Wizard, software designed to simplify installation and
configuration, is being developed to guide the small office manager through the
process of setting up all the communications functions. A single graphical
administration program will allow the network administrator to easily manage the
various communications functions and user profiles from any PC on the network.
In addition, client software is based on Global Village's award-winning
software, including GlobalFax and FaxWorks, known to many users for their
ease-of-use.
To address the budgetary concerns of the small office, the OneWorld Systems
products will enable offices to purchase a suite of data communications
functions in one multi-function product for a fraction of the price of a
collection of single-function products.
Phone line allocation will be handled by "Dynamic Port Allocation", a
proprietary technology developed by OneWorld Systems so that every telephone
port is available for every function and can be assigned by the server on
demand, and on the fly, with no user or network administrator intervention
required. For example, employees can fax by day, and use remote access by night,
taking full advantage of the phone lines installed. In contrast to a collection
of single function servers, each with their own dedicated phone lines, the
result is the need for fewer phone lines and reduced monthly telecommunications
costs, one of the largest expenses for small and medium businesses.
Future growth and expansion has been designed into the OneWorld Systems
communications servers. Additional ports can be added as a small office grows.
Functionality can be added as offices need it without the extra expense of a
new, separate product. As a small office grows, new communications capabilities
can be added, which could include ISDN, frame relay, T1 or DSL, for example. New
functions such as firewalls and support for Virtual Private Networks (VPNs), and
other new capabilities will be available in the future. Multiple OneWorld
Systems communications servers can be added to different departments or banded
together for higher capacity. OneWorld Systems products will expand as needed,
thereby protecting the investment of the small business.
6
<PAGE> 11
The initial launch of the OneWorld Systems family of communications servers
is expected to take place in June or July, and will consist of multiple
configurations. Four or eight v.90 56K modems can be installed inside the unit,
so that no external modems are required. Digital expansion modules, such as ISDN
or T-1, can also be installed inside the unit, through the addition of a plug-in
card, making expansion an easy task. The OneWorld servers are designed for
maximum flexibility, so that customers can begin by purchasing as small as a
four port analog unit, and expanding as their needs grow to incorporate T-1 and
beyond.
In addition, various combinations of client and server software will be
available so that value added resellers (VARs) or end customers will have a
choice of configurations that lead to a complete solution incorporating both
clients and servers. Multiple units can be stacked on the network, either
physically or logically, and all units can be administered using a single,
unified administration program. Multiple units can share the same database of
users, passwords, and preferences, simplifying the task of keeping these lists
up-to-date. Typical street prices are expected to be in the range of $2,500 to
$6,000, depending on the choice of software and hardware configurations.
In summary, OneWorld Systems communications servers are designed to address
the real needs of small and medium offices and businesses, by combining
versatility, ease-of-administration and use, cost-effectiveness and
expandability into a family of products.
OneWorld Systems Market and Sales Strategy
There are several target markets for the OneWorld product line. The primary
target market is small and medium businesses. This market is defined as
businesses with 10-300 employees, who have an existing network, and who need a
variety of wide-area communications capabilities. These customers will typically
have a Novell or Windows NT based network, and individual computers using one or
more varieties of the Windows operating system, as well as possibly having
Macintosh users. For this market, ease-of-administration and ease-of-use for
individuals are of paramount importance, and the Company's new communications
servers are designed to meet this need.
In addition, there are over 13,000 OneWorld servers for Macintosh installed
today. Many of these Macintosh networks have added Windows personal computers
and are now comprised of mixed networks. The Company's surveys show that
existing OneWorld customers have been very satisfied, and have asked for a
growth path that provides at least the functionality of their current servers,
but with the ability to serve both Windows and Macintosh users, and with more
growth and expandability. The new OneWorld Systems communications servers will
answer both these needs. The Company will market to its installed base of
OneWorld servers for Macintosh to leverage both the installed base and the brand
recognition of these products.
The third target market segment is small or branch offices and departments
of larger organizations. Often, large companies have installed an infrastructure
at the corporate headquarters site, or at large facilities, but the small branch
office has been ignored, or left to fend for itself. By using OneWorld Systems'
servers, small offices will be able to communicate with their customers and
vendors, and also be able to connect to the corporate infrastructure.
OneWorld Systems has developed a sales strategy to incorporate national and
regional VARs, and corporate resellers, particularly those with a focus on
serving the needs of the small and medium size office. The Company will leverage
its previous experience in the VAR channel from its FaxWorks ProLAN product line
by expanding the products available to its VARs to include its new
communications server products. In addition, the Company intends to increase the
number of VARs by launching VAR recruiting, training and support programs.
While it is difficult to predict revenues for a new product category, the
Company anticipates that revenues in calendar 1999 will fall within a range of
$10 - 15 million, with profitability achieved late in the year. For the
following year, the Company anticipates revenues of $20 - 30 million. The target
operating model calls for gross margin percent to be in the mid-to-high fifties,
and typical operating expenses to be around $2.5 million per quarter throughout
calendar 1999. The Company's statements regarding the timing of product launch,
revenue expectations for calendar 1999 and calendar 2000, and expectations of
profitability, gross margins and
7
<PAGE> 12
operating expenses are forward-looking and involve risks and uncertainties, and
actual results could differ materially as a result of certain risks, including
those identified below.
The Company's planned launch of its server products is dependent upon the
completion of the development of the product line, which the Company believes
can be resolved expeditiously. However, the Company may have difficulty
completing development, or resolving any other issues that may arise, in a
timely manner, which could delay the planned launch of the new OneWorld Systems
communications server product line.
The Company's statements regarding its revenue expectations are preliminary
and are dependent on certain assumptions relating to the introduction and market
acceptance of the new products. Commercial acceptance of these products is
dependent on certain factors including the Company's sales and marketing
efforts, technical reviews by third parties, introductions of new technologies
or standards, performance of the Company's VARs, distributors and suppliers and
announcements by the Company's competitors. Many of the Company's future
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.
The Company's statements regarding profitability, gross margin and
operating expenses are based on certain assumptions regarding the Company's
revenue expectations, sales and marketing costs, costs of production and
overhead costs. In addition, the Company may face pricing pressure, which could
lead to reductions in the average sales prices for the Company's products and
could have a material adverse effect on gross margins. There is no assurance
that the Company will ever achieve profitability.
OneWorld Systems products will have a significantly higher selling price
than many of the Company's current products and will require the Company to
expand its VAR channel. There can be no assurance that the Company will be
successful in establishing an effective distribution channel for its new
products.
It is not the Company's practice to provide forward-looking information
with respect to anticipated product launches, revenues, gross margins, operating
expenses or profitability, and the Company does not intend to provide such
information in the future. Moreover, the forward-looking statements are based on
the information presently available to the Company, and the Company does not
believe that it has a duty to update the information in the above
forward-looking statements and does not intend to update such information.
Timeline of Discussions/Principal Contracts Between the Parties
In June 1997, the Board of Directors engaged Hambrecht & Quist to advise
them on the various alternatives available to the Company. From June 1997 to
October 1997 Hambrecht & Quist contacted 32 companies who declined to purchase
the Company. In August 1997, Marc Linden, Senior Vice President Finance and
Business Development and CFO, was engaged in discussions with a potential
partner, which developed into an expression of interest in a strategic
transaction with the Company, including the potential of an acquisition. During
August and September, Mr. Linden and Neil Selvin, President and CEO, held
numerous discussions with senior management of this company. In September 1997,
discussions ended without an offer being made.
On January 15, 1998, the Company held a Board of Directors meeting; the
entire Board was present. Also present at the meeting were representatives of
the Company's legal counsel Wilson Sonsini Goodrich & Rosati and Hambrecht &
Quist. The Board discussed the state of the Company's business and its
objectives and prospects for the future. The Board also reviewed the results of
Hambrecht & Quist's efforts as well as the outcome of Mr. Selvin's and Mr.
Linden's discussions mentioned above. Mr. Selvin and Mr. Linden presented
strategic and financial alternatives for the Company. The Board authorized Mr.
Selvin and Mr. Linden to pursue the possibility of refocusing the Company around
its new server product line. The Board also authorized Mr. Selvin to directly
contact a number of companies to determine their interest in acquiring the Modem
Business, or the Company as a whole.
From January 15 to January 28, 1998, Mr. Selvin contacted these companies.
Two such companies expressed significant interest in opening discussions with
the Company. On January 27, Mr. Selvin met with senior management of one
interested party and held preliminary discussions about the possibility of
acquiring either the Company or the Modem Business. On January 28, Mr. Selvin
met with Anthony Zalenski,
8
<PAGE> 13
President and CEO, and R. Michael Brewer, Senior Vice President Finance and CFO,
of Boca Research and held preliminary discussions about the possibility of
acquiring either the Company or the Modem Business.
On February 10, Mr. Selvin, Mr. Linden, Mr. Zalenski, Mark Zanoli of
Hambrecht & Quist, and Timothy Mahoney of Union Atlantic LC, Boca Research's
investment banker, met for further discussions and explored possible financial
alternatives including acquiring the Company as a whole or the Modem Business.
On February 11, Mr. Selvin and Mr. Linden met with senior management of the
other interested party and held similar discussions. Over the course of the next
two weeks, numerous discussions were held between management of the Company and
both interested parties.
Between February 23 and February 25, the Company received draft term sheets
from both Boca Research and the other interested party. Both proposed the
purchase of the Company's Modem Business. On February 25, the Company held a
Board of Directors meeting; the entire Board was present either in person or
telephonically. Also present at the meeting were Mr. Linden and representatives
of Wilson Sonsini Goodrich & Rosati and Hambrecht & Quist. The Board discussed
the elements of each offer, alternative means of financing, the prospect of
continued losses if the Modem Business were to be retained, and the cash needs
of the new server product line. The Board authorized Mr. Selvin to negotiate the
terms under which a sale of the assets of the Modem Business could be closed.
Mr. Selvin proceeded to hold additional discussions with both parties.
On February 26, the Company received a revised draft term sheet from the
other interested party. On February 27, the Company received a revised draft
term sheet from Boca Research. On February 27, the Company held a telephonic
Board of Directors meeting. Also present at the meeting were Mr. Linden and
representatives of Wilson Sonsini Goodrich & Rosati and Hambrecht & Quist. The
Board reviewed the revised offers, the risks inherent in each and the risks
inherent in continuing to operate the Modem Business. After full discussion, the
Board duly authorized Mr. Selvin and Mr. Linden to proceed to negotiation of a
definitive agreement with the other interested party.
On March 4, the Company received a draft agreement from the other
interested party. On March 5 and 6, Mr. Selvin, Mr. Linden and Mr. Zanoli held
negotiations with the other party's senior management. On March 6, these
negotiations reached an impasse. Also on March 6, the Company received a revised
draft term sheet from Boca Research.
On March 9, the Company held a telephonic Board of Directors meeting. Also
present at the meeting were Mr. Linden and representatives of Wilson Sonsini
Goodrich & Rosati and Hambrecht & Quist. The Board reviewed the status of
negotiations with the other interested party and the revised offer from Boca
Research. After due consideration and discussion of both, the Board determined
the offer from Boca Research to be superior, and directed Mr. Selvin and Mr.
Linden to negotiate a definitive agreement with Boca Research.
During the next three weeks, senior management of the Company and Boca
Research, along with their respective legal counsels and investment bankers,
held numerous meetings and discussions for the purpose of negotiating and
drafting the definitive agreement and completing due diligence.
On March 30, the Company held a Board of Directors meeting; the entire
Board was present. Also present at the meeting were Mr. Linden and
representatives of Wilson Sonsini Goodrich & Rosati and Hambrecht & Quist. At
this meeting, representatives of Hambrecht & Quist presented their opinion as to
the fairness of the proposed transaction with Boca Research. The Board, after
full discussion and review of the proposed definitive Agreement, duly authorized
management to execute the Agreement. Also on March 30, the Board of Directors of
Boca Research met and authorized management to execute the proposed Agreement,
subject to resolution of several items. On the morning of March 31, management
of both companies and their respective legal counsel met, resolved the
outstanding issues and signed the Agreement.
The Parties
Boca Research has its principal address at 1377 Clint Moore Road, Boca
Raton, Florida 33487, telephone number (561) 997-6227. Boca Global was formed
solely for the purposes of the Asset Sale. Boca Research's principal business is
the design, manufacture, marketing and support of data communications,
videoconferenc-
9
<PAGE> 14
ing, multimedia and networking products to facilitate the transmission of
information on personal computers, computer networks, and the Internet.
The Company is a Delaware corporation having its principal address at 1144
East Arques Avenue, Sunnyvale, California 94086, telephone number (408)
523-1000. The Company is a leader in the design, development and marking of
easy-to-use integrated communications products for personal computers with
Windows, Macintosh, OS/2 and DOS operating systems.
Prior to negotiations in connection with the Agreement, there have been no
material contracts, arrangements, understandings, relationships, negotiations or
transactions between the Company and any of its affiliates and the Buyer and any
of its affiliates.
PRINCIPAL TERMS OF THE AGREEMENT
Assets Affected
The Company shall sell to the Buyer substantially all of the assets of the
Modem Business, including accounts receivable, inventory, property and
equipment, intellectual property, and other production and research and
development assets. Additionally, the Company shall issue to the Buyer a Warrant
to purchase up to 425,000 shares of the Company's Common Stock.
Consideration
On the Closing Date, the Buyer shall assume certain of the Company's
liabilities related to the Modem Business, including all product warranty,
upgrade, and support liabilities, as well as all accounts payable obligations
related to the Modem Business. In addition, the Buyer may, at its option, assume
the lease on the Company's headquarters in Sunnyvale, California.
At the Closing, the Company is obligated to deliver to the Buyer net
current assets with a value equal to or in excess of $1.1 million, based upon a
valuation methodology agreed upon by the parties. In the event that the net
current assets are less than $1.1 million, an adjustment to the purchase price
will be made on a dollar for dollar basis. At the time of the signing of the
Agreement, the net current asset value, calculated using this methodology, was
in excess of $1.1 million.
Subject to any adjustments pursuant to the preceding paragraph, the Buyer
shall pay the Company an aggregate of $10.0 million in cash, payable in
installments. On the Closing Date, Buyer shall deliver to the Company an initial
payment of $4.0 million and a Promissory Note in the amount of the remaining
$6.0 million to be paid. The first installment of $3.0 million will be due on
September 30, 1998, and the remaining $3.0 million will be due on December 31,
1998. The Promissory Note shall bear no interest, and shall be unconditionally
guaranteed by Boca Research. In the event that payment under the Promissory Note
is not made when due, the Company has the right to force Boca Research to issue
up to 19.99% of its Common Stock in satisfaction of the debt owing to the
Company.
Representations and Warranties
The Company, Boca Global and Boca Research have made certain
representations and warranties to each other which relate to, among other
things, each party's organization and qualification, authority and liabilities,
SEC reports and financial statements, brokers and disclosure of material
information, and absence of certain changes and undisclosed liabilities. In
addition, the Company made certain additional, standard representations and
warranties regarding the character and quality of the assets to be transferred.
Covenants
Until the Closing of the Asset Sale, the Company has agreed to operate its
business as a going concern consistent with prior practice and in the ordinary
course of business, provided that the Company may not engage in certain
activities without the consent of Boca Research, including, among other things:
(i) increasing any salary or other form of compensation payable or to become
payable to any of the Company's
10
<PAGE> 15
employees to which Buyer wishes to offer employment (the "Business Employees");
(ii) purchasing, leasing or otherwise acquiring any real estate or any interest
therein that would be assumed by Buyer; (iii) selling, leasing, or otherwise
disposing of any of the Transferred Assets; (iv) incurring any liability,
guarantee or obligation that would be assumed by Buyer; (v) placing or
permitting to be placed any Lien on any of the Transferred Assets, other than
statutory Liens arising in the ordinary course of business; (vi) making or
authorizing any amendments to the Company's Charter or Bylaws that would prevent
the consummation of the transactions contemplated by the Agreement; (vii) making
any aggregate investment in excess of $50,000.00 in property, plant, equipment
and other items of capital expenditure that would be transferred to Buyer;
(viii) accelerating receivables or delaying payment of any liability; or (ix)
abandoning any part of the Modem Business. In addition, the Company has agreed
not to engage in discussions or negotiations of any level with any other person
or entity regarding the sale of the Modem Business or its assets or properties
prior to Closing, except in satisfaction of the fiduciary obligations of the
Company's Board of Directors.
Conditions Precedent to Closing of Asset Sale
Buyer's obligations to consummate the Agreement and the transactions
contemplated thereby are subject to the satisfaction of certain standard
conditions to Closing. In connection with the Agreement, Buyer and the Company
have agreed to enter into the following additional agreements:
(i) a Non-Competition Agreement, which will prevent the Company from
competing with Buyer in the Modem Business;
(ii) an Information Systems Agreement, whereby the Company agrees to
provide Buyer access to relevant corporate information;
(iii) an Inter-Company Manufacturing Agreement, whereby Buyer will
manufacture certain of the Company's products if commercially beneficial to
the Company;
(iv) a Warrant issued to Buyer by the Company to purchase up to
425,000 shares of the Company's Common Stock within five (5) years of the
Closing Date at an exercise price equal to 110% of the average closing
price of the Company's Common Stock for the ten days prior to the Closing;
and
(v) a License Agreement, whereby Buyer and the Company agree to
cross-license certain of each other's intellectual property.
Indemnification
The Company and Buyer have agreed to indemnify each other, and each other's
employees and affiliates, for certain matters, including but not limited to any
qualifying damage, claim, cost, or expense, arising out of the breach of certain
of the warranties, representations, covenants or agreements of the Company and
Buyer contained in the Agreement.
Termination of the Agreement
The Agreement and the transactions contemplated thereby may (at the option
of the party having the right to do so) be terminated at any time on or prior to
the Closing Date upon the occurrence of certain events, including: (i) by mutual
written consent of Buyer and the Company; (ii) by Buyer, or the Company if any
court of competent jurisdiction shall have issued an order pursuant to the
request of a third party restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by the Agreement; (iii) by Buyer
or the Company if the transactions contemplated by the Agreement shall not have
been consummated on or before June 30, 1998 or if one of the parties is in
material default which cannot be cured by such date, provided, however, that
such right to terminate the Agreement shall not be available to any party whose
failure to fulfill any obligation of the Agreement has been the cause of, or
resulted in, the failure of the transactions contemplated thereby to be
consummated on or before such date; (iv) by Buyer or the Company by notice to
the other party if the Company enters into any agreement with a third party that
would have a Material Adverse Effect on the Company's ability to perform its
obligations under the Agreement, or any public announcement by the Company of a
proposal, plan or intention to enter into such a transaction.
11
<PAGE> 16
Effect of Termination
If the Company elects to terminate the Agreement because it has agreed to
accept a superior offer for the Modem Business or the Company, the Company shall
pay the Buyer $3.0 million.
ACCOUNTING TREATMENT
The Asset Sale will be treated as a sale for financial reporting and
accounting purposes, in accordance with generally accepted accounting
principles.
CERTAIN INCOME TAX CONSEQUENCES
The following is a general discussion of certain of the expected U.S.
federal income tax consequences of the disposition by the Company of the Modem
Business pursuant to the Asset Sale in exchange for cash. Stockholders of the
Company should also be aware that the tax consequences of the transactions are
governed by the Internal Revenue Code of 1986, as amended, and interpretations,
rulings and regulations which are subject to change, including changes which may
be applied retroactively.
The Company will recognize a gain on the proposed sale reportable on the
Company's income tax returns for the fiscal year ending March 31, 1999. The
Company expects to fully offset the gain with the current year net operating
loss.
However, if the gain exceeds the current year operating loss, the Company
may incur alternative minimum tax (AMT) due to limitations on the utilization of
prior year net operating loss carryovers within the AMT system. If the Company
is required to pay AMT, it will earn AMT credits equal to the excess of AMT over
regular tax which can be carried forward and used to offset future regular tax,
but not below future AMT.
The above tax discussion was developed by the Company after consultation
with its tax and legal advisors.
12
<PAGE> 17
SELECTED FINANCIAL DATA
The following selected financial information for the years ended March 31,
1993 through March 31, 1997 is derived from the Company's consolidated financial
statements, which have been audited by the Company's independent auditors. The
information set forth below is qualified by reference to and should be read in
conjunction with the financial statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are incorporated by reference in this proxy statement.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)(2):
Net revenue.......................... $22,853 $46,637 $80,021 $136,941 $ 90,174
Income (loss) from operations........ 2,270 6,764 (3,239) 16,154 (42,029)
Income (loss) from continuing
operations........................ 1,478 4,302 (6,206) 12,148 (35,852)
Loss from discontinued operations.... (499) (408) (1,466) (3,312) (4,029)
Net income (loss).................... $ 979 $ 3,900 $(7,674) $ 8,836 $(39,881)
Basic earnings per share:
Income (loss) from continuing
operations...................... $ (0.42) $ 0.73 $ (2.13)
Net income (loss)................. $ (0.51) $ 0.53 $ (2.37)
Shares used in computing
income(loss) per share.......... 14,633 16,529 16,844
Diluted income (loss) per share:
Income (loss) from continuing
operations...................... $ (0.42) $ 0.68 $ (2.13)
Net income (loss)................. $ (0.51) $ 0.49 $ (2.37)
Shares used in computing income
(loss) per share................ 14,633 17,861 16,844
BALANCE SHEET DATA:
Working capital...................... $ 5,628 $27,011 $28,468 $ 36,402 $ (3,760)
Total assets......................... 11,318 36,407 53,722 72,035 35,200
Total liabilities.................... 4,445 7,269 17,587 24,204 27,850
Stockholders' equity................. $ 6,873 $29,138 $36,135 $ 47,831 $ 7,350
</TABLE>
The selected consolidated financial data has been derived from, and should be
read in conjunction with, the related consolidated financial statements.
- ---------------
(1) The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share" which modifies the computation and
presentation of earnings per share (EPS) in a manner comparable to
international guidelines. The information presented above has been restated
to reflect the adoption of this standard. For further discussion of the
calculation of EPS, please see the Company's Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 1997.
(2) In the second quarter of fiscal 1997, the Company adopted a formal plan to
discontinue the operations of its enterprise network server operation based
in the United Kingdom (formerly the Company's ISDN Division). Therefore,
operating results for the ISDN Division are classified as discontinued
operations on the Company's Consolidated Statements of Operations, and all
periods have been restated accordingly.
13
<PAGE> 18
The following selected quarterly financial information for the fiscal year
ended March 31, 1998 is derived from the Company's consolidated financial
statements. The information set forth below is qualified by reference to and
should be read in conjunction with the financial statements and the related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," for the applicable periods which are incorporated by
reference in this proxy statement.
<TABLE>
<CAPTION>
FISCAL YEAR 1998:
------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER
------------- -------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Net revenue....................................... $15,907 $17,100 $16,185
Loss from operations.............................. (2,032) (1,913) (1,607)
Loss from continuing operations................... (1,975) (52) (1,607)
Income from discontinued operations............... -- -- 1,331
Net loss.......................................... $(1,975) $ (52) $ (276)
Basic and diluted earnings per share:
Loss from continuing operations................ $ (0.12) $ (0.00) $ (0.09)
Net loss....................................... $ (0.12) $ (0.00) $ (0.02)
Shares used in computing loss per share........ 16,934 16,979 16,981
BALANCE SHEET DATA:
Working capital................................... $(4,751) $ (26) $ 535
Total assets...................................... 25,182 28,011 23,048
Total liabilities................................. 19,700 22,581 17,860
Stockholder's equity........................... $ 5,482 $ 5,430 $ 5,188
</TABLE>
The selected consolidated financial data has been derived from, and should be
read in conjunction with, the related quarterly reports on Form 10-Q filed by
the Company with the Securities and Exchange Commission.
- ---------------
(1) The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share" which modifies the computation and
presentation of earnings per share (EPS) in a manner comparable to
international guidelines. All periods presented above have been restated to
reflect the adoption of this standard. For further discussion of the
calculation of EPS, please see the Company's Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 1997.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated balance sheet at
March 31, 1997, and the discussion of the unaudited pro forma condensed
consolidated statements of operations data for the fiscal year ended March 31,
1997 and the nine months ended December 31, 1997 give pro forma effect to the
estimated financial impact of the Agreement. The pro forma condensed
consolidated balance sheet at March 31, 1997 gives pro forma effect to the
transaction contemplated by the Agreement as if consummated on March 31, 1997.
The discussion of the unaudited pro forma condensed consolidated statements of
operations data for the fiscal year ended March 31, 1997 and the nine months
ended December 31, 1997 present the results of operations of the Company as if
the transaction contemplated in the Agreement occurred on April 1, 1996.
The pro forma information is based on the historical consolidated financial
statements of the Company giving effect to the assumptions and adjustments set
forth in the following notes and discussions. The overall assumption has been
made that the effect of the Agreement would have been to transfer the
substantial majority of the Company's products and operating activities and
associated revenues, assets (excluding cash and any tax related benefits) and
liabilities, and a significant amount of related expenses to the Buyer. The
Company would have retained primarily its OneWorld, FaxWorks ProLAN, FocalPoint
and NewsCatcher products, the development efforts associated with its new family
of server products and corporate general and administrative activities, and
associated revenues, expenses, assets and liabilities, henceforth referred to as
the "Retained Business."
14
<PAGE> 19
The unaudited pro forma condensed financial data and discussions have been
prepared by the Company's management and are not necessarily indicative of how
the Company's balance sheet and operating results would have been presented had
the transaction contemplated in the Agreement been consummated on the assumed
dates, nor are they necessarily indicative of the presentation of the Company's
balance sheet and statements of operations for any future period. The unaudited
pro forma condensed consolidated balance sheet at March 31, 1997, and the
discussion of the unaudited pro forma condensed consolidated statements of
operations data, should be read in conjunction with the financial statements and
related notes thereto and Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Form 10-K and
Form 10-Q, annexed herein.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------------------
COMPANY PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS RESULTS
---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 9,687 $ 4,000(A) $13,687
Accounts receivable, net............................... 4,324 (3,564)(B) 760
Inventories, net....................................... 2,071 (1,930)(B) 141
Income tax receivable.................................. 7,665 7,665
Notes receivable....................................... -- 5,860(A) 5,860
Other current assets................................... 343 (223)(B) 120
------- -------- -------
Total current assets................................ 24,090 4,143 28,233
Property and equipment, net.............................. 6,929 (4,213)(C) 2,716
Investment in AirMedia, Inc.............................. 4,043 4,043
Other assets............................................. 138 138
------- -------- -------
Total assets................................... $35,200 $ (70) $35,130
======= ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit borrowings.............................. $ 4,241 $ 4,241
Accounts payable....................................... 15,971 $(14,442)(D) 1,529
Accrued and other liabilities.......................... 7,638 (1,709)(E) 5,929
------- -------- -------
Total current liabilities........................... 27,850 (16,151) 11,699
Stockholders' equity:
Common Stock............................................. 17 17
Additional paid-in capital............................... 42,873 42,873
Retained earnings........................................ (35,540) 16,081(F) (19,459)
------- -------- -------
Total stockholders' equity.......................... 7,350 16,081 23,431
------- -------- -------
Total liabilities and stockholders' equity..... $35,200 $ (70) $35,130
======= ======== =======
</TABLE>
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
(A) The Company will receive consideration of $10.0 million on the Closing Date.
The consideration will be in the form of $4.0 million in cash on the Closing
Date, and a Promissory Note for $6.0 million, of which $3.0 million is
payable on September 30, 1998 and $3.0 million on December 31, 1998. As the
Promissory Note is non-interest bearing, its value has been discounted
assuming a rate of 6% per annum. These pro forma calculations assume that,
had the transaction been consummated on March 31, 1997, the purchase price
would not have been reduced based upon the net current asset position at
that time. It is anticipated that the net current asset position of the
Company at the actual closing date will be higher than that at March 31,
1997.
15
<PAGE> 20
(B) As stipulated in the Agreement, the Buyer will purchase all of the Company's
current assets related to its Modem Business with the exception of cash, tax
assets, assets related to the Retained Business and certain corporate
assets. This adjustment represents the net value of those assets which would
have been transferred to the Buyer, as well as the elimination of certain
reserves associated with those assets as they would no longer be required by
the Company.
(C) The Agreement stipulates that the Buyer will purchase property and equipment
associated with the Company's Modem Business and the Company's facility in
Sunnyvale, California, if Buyer elects to assume the lease. This adjustment
represents an estimate of the net book value of the property and equipment
that is to be transferred to the Buyer, if the Buyer assumes the lease.
(D) As stipulated in the Agreement, the Buyer will assume all of the Company's
liabilities related to its Modem Business with the exception of employee
related liabilities, tax liabilities, liabilities related to the Retained
Business and certain corporate liabilities. This adjustment represents the
net value of the accounts payable portion of those liabilities which would
have been assumed by the Buyer, as well as certain other liabilities that
would not have been assumed by the Buyer but would have been eliminated by
the consummation of the transaction.
(E) As stipulated in the Agreement, the Buyer will assume all of the Company's
liabilities related to its Modem Business with the exception of employee
related liabilities, tax liabilities, liabilities related to the Retained
Business and certain corporate liabilities. This adjustment represents the
net value of the accrued and other portions of those liabilities which would
have been assumed by the Buyer, as well as certain other liabilities that
would not have been assumed by the Buyer but would have been eliminated by
the consummation of the transaction. In addition, this adjustment includes
an accrual of $1.2 million for estimated expenses related to the
transaction.
(F) This adjustment represents the amount of the gain that would have been
realized had the transaction been consummated on March 31, 1997. No income
tax expense associated with the gain has been assumed based upon an analysis
of the Company's available tax benefits. The actual amount of the gain will
not be determined until the Closing Date. While the Company expects to
realize a substantial gain upon Closing, it believes any such gain will be
materially less than the amount of this pro forma adjustment.
Discussion of the Unaudited Pro Forma Condensed Consolidated Statements of
Operations Data
The assets being purchased by the Buyer include products that represent the
overwhelming majority of the Company's consolidated revenues. For the year ended
March 31, 1997, these products accounted for approximately 94% of the Company's
reported net revenues, and for the nine months ended December 31, 1997,
approximately 95%. Had the transaction contemplated in the Agreement been
consummated on April 1, 1996, the Company's net revenues would have been reduced
by approximately these amounts.
Similarly, these products represent the overwhelming majority of the
Company's gross profit. For the year ended March 31, 1997, these products
accounted for in excess of 100% of the Company's reported gross profit, and for
the nine months ended December 31, 1997, approximately 90%. Had the transaction
contemplated in the Agreement been consummated on April 1, 1996, the Company's
gross profits would have been reduced by these amounts.
The operations of the Modem Business being sold to the Buyer are not
separate from, nor are they accounted for separately from, the other activities
of the Company. There are numerous instances of shared resources including
facilities, management, systems, development, marketing and sales personnel and
corporate general and administrative functions. Therefore, the Company is unable
to accurately estimate the operating expenses associated with the assets being
purchased by the Buyer. However, the Company is able to estimate the operating
expenses directly attributable to the Retained Business, which represent the
minimum operating expenses that would have been incurred by the Company had the
transaction contemplated in the Agreement been consummated on April 1, 1996,
excluding any allocations of general and indirect operating expenses associated
with shared resources of the Company. Giving effect to the transaction based on
this methodology, for the year ended March 31, 1997, the minimum operating
expense that would have been
16
<PAGE> 21
incurred by the Company would have been approximately 30% of the reported
operating expenses, and for the nine months ended December 31, 1997,
approximately 35%.
The aforementioned results also do not consider the amount of any gain or
loss on the transaction itself that would have been realized had the transaction
been consummated on April 1, 1996. The Company expects to realize a substantial
gain upon closing, however it believes any such gain will be materially less
than that implied in these pro forma statements.
Had the transactions contemplated in the Agreement been consummated on
April 1, 1996 it would have had no effect on the Company's provision for income
taxes as reported for the fiscal year ended March 31, 1997 and for the nine
months ended December 31, 1997.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated June 9, 1997 (the "Engagement
Letter"), the Company retained Hambrecht & Quist to act as its financial advisor
in connection with the potential sale of the Company or all or part of its
operating businesses and to render an opinion as to the fairness from a
financial point of view to the Company in connection with a potential
transaction. Hambrecht & Quist rendered its oral opinion on March 30, 1998, and
subsequently confirmed in writing to the Board of Directors that, as of March
31, 1998, the consideration to be received by the Company in connection with the
sale of the Modem Business is fair to the Company from a financial point of
view. A COPY OF HAMBRECHT & QUIST'S OPINION DATED MARCH 31, 1998, WHICH SETS
FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, THE SCOPE AND LIMITATIONS OF THE
REVIEW UNDERTAKEN AND THE PROCEDURES FOLLOWED BY HAMBRECHT & QUIST IS ATTACHED
AS ANNEX C TO THIS PROXY STATEMENT. THE COMPANY'S STOCKHOLDERS ARE ADVISED TO
READ THE OPINION IN ITS ENTIRETY. The assumptions made, matters considered and
limits of review contained in Hambrecht & Quist's opinion delivered March 31,
1998 were substantially the same as those contained in the opinion attached
hereto. No limitations were placed on Hambrecht & Quist by the Board of
Directors of the Company with respect to the investigation made or the
procedures followed in preparing and rendering its opinion. Hambrecht & Quist's
engagement included discussions with parties other than Boca Research regarding
the possibility of a transaction or series of transactions involving a business
combination with the Company or the Modem Business.
In its review of the Asset Sale, and in arriving at its opinion, Hambrecht
& Quist, among other things: (i) reviewed the publicly available consolidated
financial statements of the Company for recent years and interim periods to date
and certain other relevant financial and operating data of the Company made
available to Hambrecht & Quist from published sources and from the internal
records of the Company; (ii) reviewed certain internal financial and operating
information, including certain projections of the Modem Business and the Company
as a whole, relating to the Company and prepared by the management of the
Company; (iii) discussed the business, financial condition and prospects of the
Company with certain of its officers; (iv) reviewed the publicly available
consolidated financial statements of Boca Research for recent years and interim
periods to date and certain other relevant financial and operating data of Boca
Research made available to Hambrecht & Quist from published sources and from the
internal records of Boca Research; (v) reviewed certain internal financial and
operating information, including certain cash flow projections, relating to Boca
Research and prepared by the management of Boca Research; (vi) discussed with
parties other than Boca Research the possibility of a transaction or series of
transactions involving a business combination with the Company or the Modem
Business; (vii) actively participated in the negotiations involving the Proposed
Transaction; (viii) reviewed the recent reported prices and trading activity for
the Common Stock of the Company and compared such information and certain
financial information for the Company with similar information for certain other
companies engaged in businesses Hambrecht & Quist considered comparable; (ix)
reviewed the financial terms, to the extent publicly available, of certain
comparable merger and acquisition transactions; (x) reviewed the Agreement; and
(xi) performed such other analyses and examinations and considered such other
information, financial studies, analyses and investigations and financial,
economic and market data as Hambrecht & Quist deemed relevant.
17
<PAGE> 22
Hambrecht & Quist did not independently verify any of the information
concerning the Company or Boca Research considered in connection with their
review of the Asset Sale and, for purposes of the opinion set forth herein,
Hambrecht & Quist assumed and relied upon the accuracy and completeness of all
such information. In connection with its opinion, Hambrecht & Quist did not
prepare or obtain any independent evaluation or appraisal of any of the assets
or liabilities of the Company or Boca Research, nor did they conduct a physical
inspection of the properties and facilities of the Company or Boca Research.
With respect to the financial forecasts and projections made available to
Hambrecht & Quist and used in their analyses, Hambrecht & Quist, on the advice
of the managements of the Company and Boca Research, assumed that they reflected
the best currently available estimates and judgments of the expected future
financial performance of the Company and Boca Research. Hambrecht & Quist also
assumed that neither the Company nor Boca Research was a party to any pending
transactions, including external financings, recapitalizations or merger
discussions, other than the Asset Sale and those in the ordinary course of
conducting their respective businesses. Hambrecht & Quist's opinion is based
upon market, economic, financial and other conditions as they exist and can be
evaluated as of the date of the opinion and any subsequent change in such
conditions would require a reevaluation of such opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The summary
of the Hambrecht & Quist analyses set forth below does not purport to be a
complete description of the presentation by Hambrecht & Quist to the Company's
Board of Directors. In arriving at its opinion, Hambrecht & Quist did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Hambrecht & Quist believes that its analyses
and the summary set forth below must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, or of the summary
set forth below, without considering all factors and analyses, could create an
incomplete view of the processes underlying the analyses set forth in the
Hambrecht & Quist presentation to the Board of Directors and its opinion. In
performing its analyses, Hambrecht & Quist made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of the Company and Boca
Research. The analyses performed by Hambrecht & Quist (and summarized below) are
not necessarily indicative of actual values or actual future results, which may
be significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to be
appraisals or to reflect the prices at which businesses actually may be sold.
Sale Process
Hambrecht & Quist initially explored the sale of the entire Company to a
strategic partner. From June 1997 to October 1997, Hambrecht & Quist contacted
32 companies who declined to purchase the Company for reasons ranging from the
Company's deteriorating financial condition, the Company's reliance on the
Macintosh platform and the perceived commoditization of modems in the
marketplace. The broad lack of interest in a business combination with the
Company (including a lack of interest in proposed transactions at the public
market value for the Company) led Hambrecht & Quist to conclude that a purchase
price for the Company as a whole was likely to be below its publicly-traded
market value. Subsequent to this process, the Company decided to explore the
sale of the Modem Business and to use the proceeds to fund ongoing product
development efforts. Mr. Selvin then contacted a number of potential acquirors
for the purpose of determining whether there was any interest in purchasing the
Modem Business. Based on these contacts, Hambrecht & Quist engaged two parties
in discussions resulting in bids for the Modem Business within the confines of a
competitive auction-type process, with Boca Research submitting the bid deemed
to be superior.
Comparable Company Analysis
Hambrecht & Quist compared selected historical and projected financials of
the Modem Business to the corresponding data of certain publicly traded
technology companies (the "Comparable Companies") that Hambrecht & Quist
considered comparable based on product focus or financial condition. Such data
and ratios included the ratio of enterprise value to last-twelve-months ("LTM")
revenue. The Comparable
18
<PAGE> 23
Companies included modem manufacturers Boca Research and Zoom Telephonics, and
"distressed" communications companies including Centigram Communications, Cidco,
Madge Networks and Netopia. The Modem Business was also compared with Asante
Technologies, a peripherals company focused on users of Apple Computers.
Hambrecht & Quist determined for the Comparable Companies that the
Enterprise Value/LTM revenue multiple ranged from 0.2x to 0.8x. Based on this
revenue multiple range, the Modem Business's implied equity value using
historical results of the Modem Business for the LTM period ending December 31,
1997 ranged from approximately $14.9 million to $56.7 million. As the Modem
Business had an operating loss over the last-twelve months' period, the
corresponding Comparable Company multiples for LTM EBITDA, EBIT, and net income
were not meaningful in attempting to obtain an implied equity value for the
Modem Business.
Although Hambrecht & Quist uses the Comparable Companies in its analysis of
the Modem Business, Hambrecht & Quist believes that because of inherent
differences between financial and operating characteristics among the Comparable
Companies, and the lack of meaningful multiples, a purely quantitative
comparative analysis of the Comparable Companies is not particularly meaningful.
In Hambrecht & Quist's judgment, an appropriate use of a comparable company
analysis in this instance necessarily involves a qualitative assessment of the
different financial, product and operating characteristics of the Comparable
Companies.
Discounted Cash Flow Analysis
Hambrecht & Quist performed a discounted cash flow analysis for the Modem
Business. The analysis aggregated (a) the present value of the projected free
cash flow (defined as EBIT taxed at 0%, less increases in working capital, plus
depreciation and amortization and less capital expenditures) through FY 2003 and
(b) the present value of a range of terminal values for the fiscal year 2003.
The EBIT projections were based on Company estimates and a tax rate of 0.0% was
used to reflect the net operating loss carryforward of the Modem Business.
The terminal values for the Modem Business were determined by applying
multiples ranging from 0.25x to 0.75x the Modem Business's estimated revenue for
FY 2003. The free cash flow streams and terminal values were discounted to
present values using discount rates ranging from 15% to 35%. Such analysis
indicated a range of implied values for the Modem Business of between negative
$3.7 million and $8.2 million.
Selected Comparable Transaction Analysis
Hambrecht & Quist compared the Asset Sale with five selected comparable
"distressed" merger and acquisition transactions (the "Selected Transactions").
In examining these transactions, Hambrecht & Quist analyzed certain income
statement parameters of the acquired company relative to the consideration
offered, including consideration offered to LTM revenues, EBITDA, EBIT and net
income. Selected transactions included Cerplex Group/Aurora Electronics, Ground
Round Restaurants/GRR Holdings, Micron Electronics/NetFrame Systems, Ultimate
Electronics/Audio King and Cross Country Group/Homeowners Group.
Hambrecht & Quist determined for the Selected Transactions that the
consideration offered to LTM revenue multiple ranged from 0.2x to 0.4x. Based on
this revenue multiple range, the Modem Business's implied equity value using
historical results of the Modem Business for the LTM period ending December 31,
1997 ranged from approximately $13.6 million to $27.3 million.
Hambrecht & Quist did not attempt to prepare any further quantitative
valuations analyses based on this comparable transaction analysis because
Hambrecht & Quist believed that any comparative multiples that might be derived
based upon earnings or other financial data of such companies would not be
meaningful. This view is based upon the same reasons that Hambrecht & Quist did
not believe a quantitative comparison between the Modem Business and the
companies comprising the Comparable Companies would be meaningful, namely that
because the companies in the Comparable Transaction analysis generally were
experiencing operating losses, a comparison of transaction multiples of
operating earnings and net income would not be relevant.
19
<PAGE> 24
No company or transaction used in the above analyses is identical to the
Modem Business or the proposed Asset Sale. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading values of the companies or company to which they are compared.
Dilution Analysis
Hambrecht & Quist also examined the dilutive effects of a follow-on
offering required for the Company to pursue a stand-alone strategy. Based on
Hambrecht & Quist's analysis of Company estimates, the Company would need to
raise approximately $18.2 million to fund the Modem Business for the next five
years and an additional amount of approximately $10.0 million to fund ongoing
product development efforts which are critical to the Company's long-term
strategy. This $28.2 million offering was modeled at offering stock prices
ranging from $1.00 to $2.50, resulting in significant dilution to pre-offering
stockholders ranging from 62% to 40%.
The foregoing description of Hambrecht & Quist's opinion is qualified in
its entirety by reference to the full text of such opinion which is attached at
Annex C to this proxy statement.
Hambrecht & Quist, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, corporate restructurings, strategic alliances,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
Hambrecht & Quist is familiar with the Company, having acted as a managing
underwriter in the Company's initial public offering. In the ordinary course of
business, Hambrecht & Quist acts as a market maker and broker in the publicly
traded securities of the Company and receives customary compensation in
connection therewith, and also provides research coverage for the Company. In
the ordinary course of business, Hambrecht & Quist actively trades in the equity
and derivative securities of the Company for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities. Hambrecht & Quist may in the future provide
additional investment banking or other financial advisory services to the
Company.
Pursuant to the Engagement Letter, the Company has agreed to pay Hambrecht
& Quist a $1.0 million fee in connection with its services as financial advisor
to the Board of Directors and the rendering of a fairness opinion. In addition,
the Company has agreed to reimburse Hambrecht & Quist for its reasonable out-of-
pocket expenses, and to indemnify Hambrecht & Quist against certain liabilities,
including liabilities under the federal securities laws or relating to or
arising out of Hambrecht & Quist's engagement as financial advisor.
STOCK PRICES BEFORE AND AFTER ANNOUNCEMENT OF ASSET SALE
On March 30, 1998, the day preceding the public announcement of the Asset
Sale, the high and low sales prices of the Company's Common Stock on the NASDAQ
National Market were $2.688 and $2.094, respectively. The day following the
public announcement, April 1, 1998, the high and low sales prices of the
Company's Common Stock on the NASDAQ National Market were $1.375 and $1.125,
respectively.
AVAILABILITY OF PRINCIPAL ACCOUNTANTS
The Company's independent auditors will be available to answer questions at
the Special Meeting.
INTERESTS OF CERTAIN PERSONS IN THE MATTERS TO BE ACTED UPON
Financial Advisors
Hambrecht & Quist, the Company's financial advisor, will receive a fee of
$1.0 million for its services in connection with the Asset Sale, including the
delivery of its fairness opinion.
20
<PAGE> 25
Management and Directors
The Compensation Committee of the Board of Directors has granted certain
bonuses to Neil Selvin, the Company's President and Chief Executive Officer and
Marc Linden, the Company's Senior Vice President, Finance and Business
Development and CFO, in an aggregate amount of $240,000 in recognition of their
efforts in connection with the proposed sale of the Modem Business. Mr. Selvin's
bonus was payable upon signing the Agreement, and Mr. Linden's bonus is payable
upon closing of the transaction.
Employees
As of the Closing, Buyer will offer equivalent positions to at least 48 and
up to 60 employees or temporary contract workers. As a condition of the
Agreement, employees hired by Buyer are to be offered a salary no less than
their current salary with the Company, including all salary increases given in
the ordinary course of business.
Approximately 50 employees of the Company, including the executive
management, will continue to develop the server business of the Company. The
balance of the employees are being terminated, with a number assisting the
Company through the transition of the Modem Business to Buyer. All such
employees have been offered severance packages by the Company.
ANNEXED DOCUMENTS
To aid the stockholders in their review of information contained herein
before voting upon the matters to be decided at the Special Meeting, the Company
has attached the following documents as Annexes to this proxy statement:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1997, attached hereto as Annex A;
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended December 31, 1997, attached hereto as Annex B;
3. The Fairness Opinion of Hambrecht & Quist LLC, the Company's
financial advisors, attached hereto as Annex C.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE ASSET SALE IS IN
THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND STRONGLY RECOMMENDS A
VOTE IN FAVOR OF THE ASSET SALE.
21
<PAGE> 26
PROPOSAL 2
APPROVAL OF CHANGE OF NAME TO "ONEWORLD SYSTEMS, INC."
In conjunction with its approval of the Agreement and the Asset Sale, the
Company is required to change its corporate name. The Board of Directors
determined on March 30, 1998 that it would be in the best interest of the
Company and its stockholders to amend the Company's Certificate of Incorporation
to change the name of the Company to "OneWorld Systems, Inc."
The affirmative vote of the holders of a majority of the outstanding shares
of the Company's Common Stock will be required to approve the above-proposed
amendment to the Certificate of Incorporation in substantially the form attached
hereto as Annex D. All votes will be tabulated by the inspector of election
appointed for the meeting, who will separately tabulate affirmative and negative
votes, abstentions and broker non-votes. Abstentions will be counted toward the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted toward a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
Please note that a change in the corporate name will not require current
stockholders of the Company to exchange their share certificates for
certificates reflecting the change of corporate name. Stockholders whose stock
is held by a financial institution will have the designation of those shares
changed to "OneWorld Systems, Inc." automatically. Share certificates bearing
the name "Global Village Communication, Inc." will continue to represent share
ownership in the Company under its new name.
ANNEXED DOCUMENTS
To aid the stockholders in their review of information contained herein
before voting upon the matters to be decided at the Special Meeting, the Company
has attached the following documents as Annexes to this proxy statement:
1. The Company's Amended and Restated Certificate of Incorporation,
attached hereto as Annex D.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE CHANGE IN
CORPORATE NAME IS IN THE BEST INTEREST OF THE COMPANY AND ITS STOCKHOLDERS, AND
STRONGLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE CHANGE IN
CORPORATE NAME.
22
<PAGE> 27
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998, with respect to:
(i) each person (or group of affiliated persons) who is known by the Company to
own beneficially more than 5% of the Common Stock, (ii) each of the Company's
directors, (iii) each of the four highest paid executive officers of the
Company, and (iv) all directors and executive officers of the Company as a
group. Except as set forth below, the address of each individual is the address
of the Company as set forth herein.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
BENEFICIAL OWNER(1) SHARES TOTAL(2)(3)
------------------- --------- -----------
<S> <C> <C>
KOPP Investment Advisors, Inc............................... 963,583 5.6%
6600 France Avenue, Suite 672
Edina, MN 55435
Leonard A. Lehmann(4)....................................... 509,185 3.0%
Neil Selvin(5).............................................. 551,624 3.2%
Kevin R. Compton(6)......................................... 15,659 *
Eugene Eidenberg(7)......................................... 6,200 *
Kenneth A. Goldman(8)....................................... 10,200 *
Marc E. Linden(9)........................................... 42,705 *
Charles R. Oppenheimer(10).................................. 77,053 *
Marsha Raulston(11)......................................... 78,000 *
All directors and officers as a group (8 persons)(12)....... 1,290,626 7.6%
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
(2) Percentage of Beneficial Ownership is based on 17,162,771 shares of Common
Stock as of March 31, 1998.
(3) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission that deem shares to be beneficially
owned by any person who has or shares voting or investment power with
respect to such shares. Unless otherwise indicated, the persons named in
this table have sole voting and sole investment power with respect to all
shares shown as beneficially owned, subject to community property laws
where applicable. Common Stock subject to options that are currently
exercisable or are exercisable within 60 days of the date of this proxy
statement are deemed to be outstanding and to be beneficially owned by the
person holding such options for the purpose of computing the percentage
ownership of any other person.
(4) Includes 507,985 shares held by Lehmann family trusts and 1,200 shares
subject to stock options exercisable within 60 days of March 31, 1998.
(5) Includes 242,252 shares subject to stock options exercisable within 60 days
of March 31, 1998.
(6) Includes 11,200 shares subject to stock options exercisable within 60 days
of March 31, 1998.
(7) Includes 6,200 shares subject to stock options exercisable within 60 days
of March 31, 1998.
(8) Includes 6,200 shares subject to stock options exercisable within 60 days
of March 31, 1998.
(9) Includes 40,729 shares subject to stock options exercisable within 60 days
of March 31, 1998.
(10) Includes 77,053 shares subject to stock options exercisable within 60 days
of March 31, 1998.
(11) Includes 78,000 shares subject to stock options exercisable within 60 days
of March 31, 1998.
(12) Includes 827,792 shares held by officers and directors or entities
affiliated with officers and directors of the Company and 462,834 shares
subject to stock options held by officers and directors, exercisable within
60 days of March 31, 1998.
23
<PAGE> 28
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Special Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ Marc E. Linden
Marc E. Linden
April 30, 1998 Secretary
24
<PAGE> 29
Annex A
[FORM 10-K/A LOGO]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[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, 1997
Commission File Number 000-23260
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. [ ]
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 $54,625,396 as of May 31, 1997.(1)
The number of shares of Common Stock outstanding as of May 31, 1997 was
16,932,279.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement dated on or about June 20, 1997 to be
delivered to shareholders in connection with the Annual Meeting of Shareholders
to be held July 31, 1997 are incorporated by reference into Part III.
(1) Excludes 1,394,278 shares of Common Stock held by directors, officers and
affiliates as of May 31, 1997.
<PAGE> 30
GLOBAL VILLAGE COMMUNICATION, INC.
ANNUAL REPORT
ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------
INDEX PAGE
[PART 1 GRAPHIC]
<TABLE>
<C> <S> <C>
Item 1. Business 3
Item 2. Properties 16
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
</TABLE>
[PART 2 GRAPHIC]
<TABLE>
<C> <S> <C>
Item 5. Market for the Registrant's Common Equity and Related Stockholder 17
Matters
Item 6. Selected Consolidated Financial Data 17
Item 7. Management's Discussion and Analysis of Financial Condition and 18
Results of Operations
Item 8. Consolidated Financial Statements and Supplementary Data 25
Item 9. Changes in or Disagreements with Accountants on Accounting and 43
Financial Disclosure
</TABLE>
[PART 3 GRAPHIC]
<TABLE>
<C> <S> <C>
Item 10. Directors and Executive Officers of the Company 44
Item 11. Executive Compensation 44
Item 12. Security Ownership of Certain Beneficial Owners and Management 44
Item 13. Certain Relationships and Related Transactions 44
</TABLE>
[PART 4 GRAPHIC]
<TABLE>
<C> <S> <C>
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 44
</TABLE>
<PAGE> 31
[PART 1 GRAPHIC]
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,
1997. 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") (founded
in June 1989 and incorporated in Delaware), 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 access the Internet and information
services, connect to a remote organization's internal network, view personalized
Internet content and communicate efficiently with colleagues, customers and
suppliers.
The Company 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; market acceptance of new products and technology;
introductions of new technologies or standards; seasonality of revenues;
customer order deferrals, accelerations, and payments of accounts receivable 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 an
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 TelePort Platinum product from $171 to $139 during the 1997 fiscal
year. In particular, the Company expects the trend of reduced average selling
prices for its individual use products to continue during fiscal 1998. There can
be no assurance that the trend of reduced average selling prices will not
accelerate during fiscal 1998.
Unit sales volumes and market share of Macintosh compatible computers have
declined over the past year. 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 communication server products or recently
introduced Windows personal-use products to compensate for any shortfall in
revenues from its Apple products.
In May 1997, the Company introduced four new 56 Kbps modem products, two of
which operate utilizing the Windows operating system. The market for personal
use modems is mature and highly competitive. Most of the Company's competitors
have greater financial resources, brand recognition and
3
<PAGE> 32
marketing strength than Global Village. The successful introduction of new
products often requires companies to dramatically increase sales and marketing
activities in advance of, as well as during, the product launch. The Company's
financial condition has constrained its ability to dramatically increase its
sales and marketing activities in advance of its introduction of its 56 Kbps
line of products. In addition, the standards process governing interoperability
among 56 Kbps modems is not complete. In the interim, consumers must choose from
among multiple non-interoperable implementations and anticipate the need to
upgrade or replace those modems to comply with the emerging standard for
interoperability or defer purchasing modems until the standards are established.
Therefore, there can be no assurance that the Company's newly released products
will be accepted by the marketplace. If the Company's sales of such products are
below its expectations, the Company's business, financial condition and results
of operations will be materially adversely affected.
During the year ending March 1996, the Company operated four major divisions:
the Communication Systems Division, the Communication Software Division, the
ISDN Division, and the GlobalCenter Internet Services Division.
In April 1996, the Company announced that it had incorporated its Internet
Services Division as a standalone business called GlobalCenter, Inc. At the same
time, the Company announced that UUNET Technologies, Inc. had acquired an equity
interest in GlobalCenter, Inc. At that time, the Company no longer had the
ability to exercise significant control over GlobalCenter. Accordingly, the
Company no longer consolidated the results of GlobalCenter and began to account
for its investment using the equity method of accounting. As a result of the
refinancing and operating performance of GlobalCenter during the first quarter
of fiscal 1997, the Company recorded an investment loss of $2.2 million and
reduced the book value of its investment to zero. In December 1996, GlobalCenter
entered into a definitive merger agreement whereby GlobalCenter and
Phoenix-based Primenet Services for the Internet, Inc. merged, reducing the
Company's percentage ownership below 10%. Accordingly, in the third quarter of
fiscal 1997, the Company began accounting for its investment in GlobalCenter
using the cost method of accounting. The Company's investment balance as of
March 31, 1997 remains zero.
In December 1996, the Company announced a restructuring plan aimed at restoring
profitability, stabilizing the balance sheet, and regaining market focus. This
plan was necessitated by a sharp reduction in PowerPort revenues as a result of
Apple's minimal unit volume shipments of PowerBooks following a repair program
announced in May 1996, by a reduction in TelePort revenues, and by disappointing
performance of the Company's newly released NewsCatcher and Focal Point
products. The Company recorded a restructuring charge of $1.3 million related
primarily to severance costs, write-offs of fixed assets and purchased software
technology and a lease abandonment.
As a result of these changes in the Company's business in fiscal 1997, the
Company was consolidated into a single products organization from the previous
divisional structure.
During fiscal 1997, a substantial majority of the Company's revenue was
attributable to sales of Apple Macintosh compatible versions of its TelePort
product line, 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 products as well as the Company's ability to generate increased sales
of Windows-compatible versions of TelePort 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
4
<PAGE> 33
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 by 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.
TECHNOLOGY AND PRODUCTS
Global Village produces modems, telecommunications servers, and proprietary
communications software for two customer groups of the communications
marketplace: individual users and network users.
The Company's individual-use system products include TelePort modems for
Macintosh and Windows desktop computer users, PowerPort modems for Macintosh
PowerBook computer users, and NewsCatcher, a wireless information display
accessory for desktop Windows users. The Company's modem and wireless products
for Macintosh and Windows based personal computers are characterized by a highly
integrated, proprietary software and hardware design which makes computer
communications easy for the average user.
The Company's line of network products includes FaxWorks Server NT and FaxWorks
Pro LAN, software for providing fax services to office workgroups utilizing
Windows NT, Windows 3.1, and OS/2 operating systems. The OneWorld series of
telecommunication server systems for Macintosh provides shared fax, dial-out
modem, and remote network access capabilities to small workgroups.
The Company's core software technologies, FaxWorks communications software for
Windows, OS/2 and DOS operating systems, GlobalFax communications software for
Macintosh systems, and embedded software underlying Global Village's server
systems, provide a consistent, user-friendly interface across individual and
network product lines. For Windows, the Company also provides integrated
communication software to original equipment manufacturers (OEMs).
COMMUNICATIONS SYSTEMS FOR INDIVIDUALS
The Company continues to develop new additions to its TelePort and PowerPort
modem product lines. In fiscal 1997, Global Village introduced higher speed 33.6
Kbps modems and new TelePort models with proprietary speakerphone and voice
messaging features for Macintosh and Windows users. In May 1997, the Company
released four new 56 Kbps modems and broadened its Windows modem product line.
For the Macintosh modem market, Global Village announced support for both
k56flex and x2 technologies.
The Company's Macintosh modems feature GlobalFax software. Its Windows modems
feature the Company's FaxWorks communications software. Both software packages
support fax, Internet, and (for speakerphone models) telephony, voice messaging,
and speakerphone functions. Speakerphone units are usable as standalone
speakerphones even when the computer is powered off.
Global Village's PowerPort Platinum Pro, PowerPort Platinum, and PowerPort Gold
PC Card modems all provide easy to use communications capabilities for users of
Macintosh PowerBook notebook computers.
Targeted toward users who require instant electronic communication, the TelePort
and PowerPort products provide a solution for connecting to on-line services and
the Internet, accessing bulletin board services and using remote network access.
In fiscal 1997, Global Village released NewsCatcher, a unique wireless product
using "push" technology and a nationwide paging network to bring personalized
information to the desktop of individuals who rely on modems for connection to
the Internet. NewsCatcher is compatible with Windows 95 desktop systems.
5
<PAGE> 34
The following table shows the Company's major communications systems products
for individual users:
INTEGRATED COMMUNICATIONS SYSTEMS FOR INDIVIDUAL USERS
TELEPORT MODEMS FOR WINDOWS DESKTOP COMPUTERS
TelePort 56 ISA
(56,000 bps data, 14,400 bps send/receive-fax modem, x2 technology, Internal)
TelePort 56 External
(56,000 bps data, 14,400 bps send/receive-fax modem, x2 technology, External)
TelePort 33.6 Speakerphone
(33,600 bps data, 14,400 bps send/receive fax external modem, with standalone
speakerphone)
TELEPORT MODEMS FOR MACINTOSH DESKTOP COMPUTERS
TelePort 56 x2 technology
(56,000 bps data, 14,400 bps send/receive-fax modem, x2 technology)
TelePort 56 k56flex technology
(56,000 bps data, 14,400 bps send/receive-fax modem, k56flex technology)
TelePort Speakerphone Edition
(33,600 bps data, 14,400 bps send/receive-fax modem, with standalone
speakerphone and voice messaging)
TelePort Internet Edition
(33,600 bps data, 14,400 bps send/receive-fax modem)
TelePort Platinum
(28,800 bps data, 14,400 bps send/receive-fax modem)
POWERPORT INTERNAL MODEMS FOR MACINTOSH POWERBOOK
NOTEBOOK COMPUTERS
PowerPort Platinum Pro PC Cards
(28,800 bps data, 14,400 bps send/receive fax modem, 10Base-T ethernet
connector)
PowerPort Platinum PC Cards
(28,800 bps data, 14,400 bps send/receive fax modem)
WIRELESS INFORMATION SYSTEMS
NewsCatcher for Windows 95 desktop systems
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVERS FOR WORKGROUPS
For small and medium-sized organizations, the Company offers FaxWorks Pro LAN
and FaxWorks Server NT fax server software for use in Windows, OS/2, and Windows
NT environments. FaxWorks integrates advanced fax software features into a
single user interface, allowing users to send and receive faxes directly from
their computer on the network.
The Company's OneWorld line of server appliances for Macintosh networks provides
complete, easy-to-use communication solutions for workgroups. The OneWorld Combo
server features fax, remote access, and network modem capabilities, giving each
user on a Macintosh network the ability to send and receive faxes and dial out
to on-line services or bulletin board systems. OneWorld Combo is also a complete
Apple Remote Access 1.0/2.0 server that allows offsite Macintosh users to
connect to their company
6
<PAGE> 35
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 Company's major workgroup server products:
COMMUNICATIONS SERVERS FOR WORKGROUPS
ONEWORLD SERIES TELECOMMUNICATION
SERVERS FOR MACINTOSH NETWORKS
OneWorld Network Modem
(network modem server for Ethernet and LocalTalk networks)
OneWorld Fax
(network fax modem server for Ethernet and LocalTalk networks)
OneWorld Combo
(network modem, fax, and ARA 1.0/2.0 server for Ethernet and LocalTalk networks)
FAXWORKS PRO LAN SERVER SOFTWARE
FaxWorks Server NT
FaxWorks Pro LAN for Windows
FaxWorks Pro LAN for OS/2
- --------------------------------------------------------------------------------
FOCAL POINT AND FAXWORKS SOFTWARE FOR INDIVIDUALS
In the fourth quarter of fiscal 1996, the Company introduced Focal Point
integrated communications software, providing Windows-based computer users with
an easy way to streamline their communications. Focal Point 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, Focal Point 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.
The Company also offers FaxWorks communications software to users of computers
running Windows, OS/2 or DOS operating systems and licenses FaxWorks to original
equipment manufacturers (OEMs).
7
<PAGE> 36
The following table shows the major products in the Company's Focal Point and
FaxWorks software product line:
INTEGRATED COMMUNICATIONS SOFTWARE FOR INDIVIDUAL PC USERS
Focal Point for Windows 3.1 and Windows 95
FaxWorks for Windows
FaxWorks Pro for OS/2
FaxWorks 3.0 for DOS
- --------------------------------------------------------------------------------
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 customers accounted for
approximately 21% and 11%, respectively, of the Company's net revenue in fiscal
1997. The Company's largest customer accounted for approximately 33% of net
revenue in fiscal 1996. Accordingly, the Company relies significantly on these
sales and their subsequent resales.
Many of the Company's 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 business, financial condition
and results of operations. The Company's agreements with its 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 reserves for
inventory that it considers to be excess 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 sells products to certain computer manufacturers for inclusion in
certain of their systems. Apple Computer, Power Computing, and UMAX purchase
Macintosh modems as hardware/software components. In addition, Global Village
has licensing agreements with Gateway 2000, Dell, Megahertz and others for
shipment of Global Village software with their modems and systems.
International sales represented approximately 15%, 19%, and 11% of the Company's
net revenue in fiscal 1997, 1996, and 1995, respectively. The Company utilizes
distributors in Europe, the Middle East, Australia and Asia. 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. 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 requirements, each country has local competitors with
significant market
8
<PAGE> 37
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 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 usually 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 PC Magazine's "Best Internet Tool of the
Year" (January 1997) and Windows Sources "Stellar Product Award" (December 1996)
for NewsCatcher, PC Magazine's "Editor's Choice Award" (February 1997) and
Mobile Computing & Communications' "First Class Award" (February 1997) for Focal
Point, ComputerLife's "Five Stars" (March 1997) for TelePort 33.6 Speakerphone
modem for Windows, MacHome Journal's 1996 Annual Reader's Choice, Modem category
(February 1997) for TelePort and GlobalFax Software, two MacWorld's "Editor's
Choice Awards" (July 1996) for TelePort Platinum and PowerPort Platinum PC Card
in independent contests, American Facsimile Association's 1996 "Best PC Card
Fax/Modem Award" for PowerPort Platinum Pro PC Card, PC World "Best Buy" and
OS/2 Magazine "Editors' Choice" awards for FaxWorks Pro, Byte Magazine's
"Product Excellence Award" for One World Fax, Windows NT Magazine's "Editors'
Choice Award" for FaxWorks Server for Windows NT, and Windows Magazine's
"Recommended Product List" for Focal Point.
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 its communications product line. The Company also
markets add-on products and convenience items directly to its installed base of
customers. However, such sales do not currently constitute a significant portion
of the Company's business.
Global Village has worked with OEMs such as Apple, Power Computing, Dell,
Gateway 2000, IBM and Packard Bell throughout the Company's product development
process and has developed a working relationship with them, which includes
sharing of information, product sales, and licensing technology. The Company
currently has several agreements with OEMs encompassing development and
licensing of certain technology. See "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. The OEMs
are not contractually obligated to continue information sharing activities with
the
9
<PAGE> 38
Company and could discontinue such activities at any time. In addition, the OEMs
are not contractually obligated to renew licenses with the Company or purchase
the Company's products. In general, the OEMs also collaborate with other vendors
of communications products that compete with the Company's products.
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, reduced Macintosh unit
sales, 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, financial condition,
and results of operations unless the Company can generate sufficient revenues
from its Windows-based and other products to compensate for any shortfall in
revenues from its Apple products. The market for personal computers is extremely
competitive and rapidly changing. Apple's Macintosh system unit volumes have
declined in recent periods and its Macintosh market share has fallen. Company
revenues from the Apple Macintosh compatible products may decline in future
periods. There can be no assurance that personal computers competing with the
Apple Macintosh family of computers will not displace Macintosh products 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 can be no assurance as to the market acceptance of
those solutions.
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 had being adversely
impacted by Apple Computer's recently announced repair program for Macintosh
PowerBook 5300 and 190 models.
Additionally, any time one of the Company's OEM customers 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.
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.
10
<PAGE> 39
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,
including U.S. Robotics, Diamond Multimedia, Hayes, Shiva, Zoom, and 3Com, 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 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. There can be no assurance, however, that the
Company would be able to increase its unit sales or maintain its present level
of net revenue. Any failure to so increase unit sales or maintain the Company's
net revenue would have a material adverse effect on the Company's financial
condition and results of operations.
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 certain 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 financial condition and 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 remote access server products produced
by competitors such as Shiva, 3Com, and others.
Focal Point and FaxWorks, the Company's integrated communications software for
computers running Windows, faces competition from Symantec, Quarterdeck, 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.
Global Village's NewsCatcher product competes indirectly with alphanumeric pager
based information services and with wired alternatives for accessing news
summaries using personal computers. Competitors in this segment include
PointCast, Individual Inc., and others.
11
<PAGE> 40
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
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 is aware of products in addition to its own that are marketed under
the trademarks "PowerPort," "TelePort," "GlobalFax," "Focal Point," 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.
There can be no assurance that 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, hardware development, and systems integration. The Company's
expenditures for research and development were $12.0 million, $14.6 million and
$8.8 million for the fiscal years ended March 31,
12
<PAGE> 41
1997, 1996 and 1995, respectively. Customer-sponsored research and development
was immaterial during these periods.
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 computer platforms and new technical standards resulting from increases
in data transmission speed and wireless communication. 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 down inventory that it considers to be excess
or obsolete, the Company has in the past recorded inventory write-offs in excess
of previous write downs. There can be no assurance that the Company's recorded
allowances for such write-offs will be adequate in the future, and material
write-offs could have a material adverse effect on the Company's results of
operations and working capital. 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 CMC, 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 Rockwell International and Texas Instruments. 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 Rockwell, 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 and difficulties in manufacturing
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 the Company's suppliers will be able to meet the Company's requirements for
key
13
<PAGE> 42
components and failure to meet such requirements in the future could have a
material adverse effect on the Company's results of operations.
Because the Company generally ships products within a short period after receipt
of an order, the Company does not usually have a material backlog of unfilled
orders. The Company's inventory purchases are based in part on its expectations
as to future orders. Therefore, the Company may be unable to reduce parts orders
in a timely manner to compensate for any unexpected product orders shortfall.
Accordingly, any significant shortfall of demand in relation to the Company's
expectations or any material delay of customer orders could have a material
adverse effect on the Company's financial condition and results of operations.
SOFNET
In August 1994, the Company acquired SofNet, a supplier of fax software for PCs
running Windows, OS/2 or DOS. In fiscal 1996, Global Village relocated SofNet's
telesales operation to the Company's headquarters in Sunnyvale, California. In
fiscal 1997, the Company relocated most of the remaining SofNet operations to
Sunnyvale and refocused emphasis from the development of communications software
for OEMs and consumers to the production of communications server software and
Windows-based communications systems for sale under the Company's name and
through retail, VAR, and direct channels. There can be no assurance that the
Company will not experience difficulties in connection with the transition of
its SofNet operations to Sunnyvale.
KNX LIMITED
In January 1996, the Company acquired KNX Limited, a UK-based provider of ISDN
remote access products. KNX's products served two distinct markets: Its ISDN
branch office router served large organizations wishing to extend the
organizational network infrastructure to remote offices. KNX's personal product
line, primarily ISDN terminal adapter cards, served consumers who sought higher
speed connections to the Internet or to the office network.
In the second quarter of fiscal 1997, the Company adopted a formal plan to
discontinue its enterprise network server operation based in the United Kingdom
(formerly, the Company's ISDN division). The disposition of the division has
been accounted for as a discontinued operation in accordance with Accounting
Principles Board (APB) Opinion No. 30 and prior period financial statements have
been restated to reflect the discontinuation of the enterprise network server
operation. The loss from discontinued operations of $1.8 million, $3.3 million
and $1.5 million in fiscal years 1997, 1996 and 1995, respectively, represents
the operation's operating losses. The loss on disposal of discontinued
operations of $2.2 million in fiscal 1997 represents the cost to dispose of the
operation (including estimated contingent liabilities of $2.0 million at March
31, 1997) net of $3.8 million of cash received from the sale of the operation's
assets to Mitel Telecom Limited. Global Village retained a royalty free license
for portions of KNX's ISDN technology and relocated a number of the KNX staff to
the Company's headquarters in Sunnyvale, California.
EMPLOYEES
As of March 31, 1997, the Company employed a total of 218 persons, including 82
in sales, marketing and customer support, 45 in operations, 67 in engineering
and product development and 24 in finance and administration. The Company had 2
employees located in Canada, and 1 employee in England, and 215 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
14
<PAGE> 43
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
operations. 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.
EXECUTIVE OFFICERS OF THE COMPANY
The current executive officers of the Company and their ages as of March 31,
1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Neil Selvin 43 President, Chief Executive Officer and
Director
Leonard A. Lehmann 42 Chairman of the Board
John M. Peterson 52 Vice President, Finance, Chief Financial
Officer and Secretary
James Brown 42 Vice President, Operations
Charles R. Oppenheimer 38 Vice President and General Manager, Products
Group
Jack Battaglia(1) 52 Vice President, Sales
Marsha Raulston 48 Vice President, Customer Satisfaction and
Human Resources
Marc Linden 36 Vice President of New Business Development
</TABLE>
(1) Jack Battaglia joined the company in April 1997.
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 is also a director of two privately held corporations, GlobalCenter, Inc.
and AirMedia, Inc. 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 served as
Vice President, Advanced Products and 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
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 received a B.S. in
electrical engineering from Cornell University, and an M.S. and a Ph.D. in
electrical engineering from Stanford University.
John M. Peterson became the Company's Vice President, Finance, and Chief
Financial Officer and Secretary in March 1997. From 1988 to 1995, Mr. Peterson
was Chief Financial Officer and Vice President of Finance and Administration at
Calera Recognition Systems. From 1984 to 1988, he was the Senior Vice President
and Chief Financial Officer at E-H International. Previously, Mr. Peterson
worked for Atari, Inc. where he held several key management positions. Mr.
Peterson received a B.S. in accounting at San Jose State University, and is a
certified public accountant in the State of California.
15
<PAGE> 44
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,
Mac Division in October 1994. He 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. Mr. Oppenheimer received a B.S. in computer science
from Union College, and an M.B.A. from The Wharton School.
Jack Battaglia became the Company's Vice President of Sales in April 1997. From
April 1996 to April 1997, Mr. Battaglia was Vice President of Sales-Americas of
Syquest Technology, a manufacturer of removable hard drives for computers. From
May 1995 to April 1996, he was employed by Beau Vallon Group Technology
Consultants. From 1969 to 1995, Mr. Battaglia held various senior sales and
marketing management positions with Memorex Brand Consumer Products. Mr.
Battaglia attended Long Beach State University.
Marsha Raulston became the Company's Vice President, Customer Satisfaction in
January 1994 and, in January 1997, also assumed responsibility for Human
Resources. From October 1991 to January 1994, Ms. Raulston was Vice President of
Customer Service of Intuit, a personal finance software company. From June 1987
to October 1991, Ms. Raulston served as Corporate Coordinator, Quality of Work
Life at American Airlines, Inc., 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.
Marc Linden became the Company's Vice President of New Business Development in
June 1996. From October 1992 to June 1996, Mr. Linden was Director of Business
Development and Planning of Octel Communications, a voicemail equipment
manufacturer. From 1987 to 1992, he was employed as a consultant with McKinsey &
Co. Mr. Linden received a A.B. in Economics from the University of California
Berkeley, and an M.B.A. from Harvard Business School.
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 $108,000. Approximately 64,835 square feet of this office
space is subleased at a monthly income of $85,000.
The Company's manufacturing and distribution operation consists of a 23,940
square foot facility in Plano, Texas. The lease expires in December 2002 and
monthly rent is approximately $9,975.
The Company also leases approximately 21,000 square feet of office space in
Marietta, Georgia. The lease expires in January 2000 and the monthly rent is
approximately $18,000. In May 1997, approximately 16,000 square feet was
subleased at a monthly income of $13,000. Also, the Company leases sales office
space at five other facilities, including three in the United States, one in
England and one in Canada.
16
<PAGE> 45
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
In the ordinary course of business, the Company may be involved in legal
proceedings from time to time. As of the date of this submission, there are no
material proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
[PART 2 GRAPHIC]
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 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
Fiscal 1997
First Quarter $ 8.25 $18.25
Second Quarter 5.88 9.50
Third Quarter 3.00 9.25
Fourth Quarter 1.06 3.56
</TABLE>
On March 31, 1997, there were approximately 391 holders of record of the
Company's Common Stock. This number does not include beneficial owners of the
Common Stock whose shares are held in the names of various dealers, clearing
agencies, banks, brokers and other fiduciaries.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information for the years ended
March 31, 1993 through March 31, 1997 is derived from the Company's consolidated
financial statements, which have been audited by the Company's independent
auditors. The information set forth below is qualified by reference to and
should be read in conjunction with the Financial Statements and related notes
thereto and
17
<PAGE> 46
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere in this report.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
In thousands, except per share data
STATEMENTS OF OPERATIONS DATA(A):
Net revenue $22,853 $46,637 $80,021 $136,941 $ 90,174
Income (loss) from operations 2,270 6,764 (3,239) 16,154 (42,029)
Income (loss) from continuing
operations 1,478 4,302 (6,206) 12,148 (35,852)
Loss from discontinued operations (499) (408) (1,466) (3,312) (4,029)
Net income (loss) $ 979 $ 3,900 $(7,672) $ 8,836 $(39,881)
Income (loss) per share:
Income (loss) from continuing
operations $ 0.12 $ 0.33 $ (0.41) $ 0.68 $ (2.13)
Net income (loss) $ 0.08 $ 0.30 $ (0.51) $ 0.49 $ (2.37)
Shares used in computing income
(loss) per share 12,403 13,127 15,013 17,872 16,835
BALANCE SHEET DATA:
Working capital $ 5,628 $27,011 $28,468 $ 36,402 $ (3,760)
Total assets 11,318 36,407 53,722 72,035 35,200
Total liabilities 4,445 7,269 17,587 24,204 27,850
Stockholder's equity $68,735 $29,138 $36,135 $ 47,831 $ 7,350
- ---------------------------------------------------------------------------------------------
</TABLE>
The selected consolidated financial data has been derived from, and should be
read in conjunction with, the related Consolidated Financial Statements.
(a) In the second quarter of fiscal 1997, the Company adopted a formal plan to
discontinue the operations of its enterprise network server operation based
in the United Kingdom (formerly, the Company's ISDN Division). Therefore,
operating results for the ISDN Division are classified as discontinued
operations on the Company's Consolidated Statements of Operations, and all
periods have been restated accordingly.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto for the year ended
March 31, 1997. 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 Communication, 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 personal computer users with Windows,
Macintosh, OS/2 and 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.
18
<PAGE> 47
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; 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 an
indication 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 1997, 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 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 1998.
In May 1996, Apple announced a repair program for its Powerbook 5300 and 190
laptop computers which was effectively a recall of defective Apple Macintosh
computers. As a result of the repair program, the Company experienced
significantly reduced sales of its PowerPort products, particularly, its
PowerPort PC cards. Sales of such products have not returned to the levels
achieved prior to Apple's announcement and the Company does not believe that it
will achieve such sales levels for the foreseeable future. The Company therefore
expects that revenues and/or gross margins from its products for the Apple
Macintosh family could 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 products to
compensate for any shortfall in revenues from its Apple platform products. Any
price reduction or decrease in sales volume could have a material adverse effect
on the Company's results of operations.
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.
The Company's Apple Macintosh 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 communications software to original equipment
manufacturers (OEMs) such as Gateway and Dell Computers, and through other
distribution channels to end users. In addition, the Company has a wireless
Internet receiver that provides multimedia news, sports and weather information
direct to the desktop.
To date, a substantial majority of the Company's revenue has been attributable
to sales of its TelePort and PowerPort product lines (all of which are designed
around the Apple Macintosh family of computers),
19
<PAGE> 48
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 and PowerPort
products, the Company's ability to successfully reduce or control various
operating expenses as well as the Company's ability to generate increased sales
of PC, 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 has written down inventory that it considers to be excess or
obsolete, there can be no assurance that the Company's write downs will be
adequate, and a material increase in such write downs and returns over
historical rates would have a material adverse effect on the Company's results
of operations and working capital. 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 is dependent on sole or limited source suppliers for certain key
components and services used in its products particularly the modem chip sets
designed and manufactured by Rockwell International and Texas Instruments. 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 and working capital.
20
<PAGE> 49
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 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenue 100% 100% 100%
Cost of revenue 89 57 54
- --------------------------------------------------------------------------------------
Gross profit 11 43 46
- --------------------------------------------------------------------------------------
Operating expenses:
Research and development 14 11 11
Marketing and sales 32 17 18
General and administrative 8 4 5
Restructuring costs 1 -- --
Loss from investment in GlobalCenter, Inc. 2 -- --
In-process research and development -- -- 16
- --------------------------------------------------------------------------------------
Total operating expenses 57 32 50
- --------------------------------------------------------------------------------------
Income (loss) from operations (46) 11 (4)
Other income, net 1 1 1
- --------------------------------------------------------------------------------------
Income (loss) before income taxes (45) 12 (3)
Provision for income taxes (benefit) (5) 3 5
- --------------------------------------------------------------------------------------
Income (loss) from continuing operations (40) 9 (8)
- --------------------------------------------------------------------------------------
Loss from discontinued operations (2) (2) (2)
Loss on disposal of discontinued operations (2) -- --
- --------------------------------------------------------------------------------------
Loss from discontinued operations (4) (2) (2)
- --------------------------------------------------------------------------------------
Net income (loss) (44)% 7% (10)%
- --------------------------------------------------------------------------------------
</TABLE>
NET REVENUE
Net revenue includes revenue from gross shipments, licenses and royalties, less
reserves for returns and allowances. Net revenue decreased to $90.2 million in
fiscal 1997 from $137.0 million in fiscal 1996. Net revenue increased to $137.0
in fiscal 1996 from $80.0 in fiscal 1995. The fiscal 1997 decrease in net
revenue is primarily attributable to Apple Computer's repair program for the
Macintosh PowerBook 5300 and 190 models and reduced shipments of other Macintosh
products. The repair program significantly reduced the number of Apple computers
available for the Company's products. The Company's products most impacted by
Apple's repair program were its PowerPort PC cards. The fiscal 1996 increase in
net revenue was primarily attributable to the introduction of PCMCIA modems, an
increase in international sales, and a general increase in volume of shipments
of Company's products through distribution channels.
21
<PAGE> 50
Aggregate returns and allowances have approximated 18%, 6% and 5% of gross
revenue for fiscal 1997, 1996 and 1995, respectively. The increase in fiscal
1997 is primarily due to returns and reserves associated with several slow
moving products.
International net revenue decreased to $13.3 million or 15% of net revenues in
fiscal 1997 from $25.7 million or 19% of net revenue in fiscal 1996.
International net revenue increased in fiscal 1996 from $8.9 million or 11% of
net revenues in fiscal 1995. The fiscal 1997 decrease in international net
revenue is primarily attributable to the decrease in the Company's sales in the
Asia region to Apple Japan. The fiscal 1996 increase in international net
revenue was due to a substantial OEM agreement with Apple Japan.
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. 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 operations and 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. Revenue reserves and
allowances are established for estimated future returns due to stock balancing
and discontinued and nonsaleable products based on the Company's past experience
and internal forecasts. There can be no assurance that the Company's historical
experience regarding returns and allowances will continue or that its
projections will prove accurate. If the Company experiences returns in excess of
its reserves, the Company's results of operations could be materially, adversely
effected.
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 11% in
fiscal 1997 from 43% in fiscal 1996 and 46% in fiscal 1995. The gross profit
decreases were primarily attributable to both minimal revenue produced by high
margin products, such as the PowerPort PC cards which were adversely impacted by
Apple Computer's repair program for the Macintosh PowerBook 5300 and 190 models,
and an increase in inventory and sales return reserves due to several slow
moving products. Gross margins are likely to fluctuate as a result of the sales
mix between lower and higher margin products, the nature and amount of licensing
and royalty income, 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 from the Company's products for
the Apple platform. The Company does not expect gross margin to return to its
higher historical levels.
RESEARCH AND DEVELOPMENT
The Company's research and development ("R&D") expenses decreased to $12.0
million in fiscal 1997 from $14.6 million in fiscal 1996. Fiscal 1996 research
and development expenses of $14.6 million increased from $8.8 million in fiscal
1995. The decline in fiscal 1997 is a result of the elimination of R&D expenses
associated with the divestiture of GlobalCenter. The increase in research and
development expenses in fiscal 1996 as compared to fiscal 1995 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 14%, 11%, and 11% in
fiscal 1997, 1996,
22
<PAGE> 51
and 1995, respectively. 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 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.
MARKETING AND SALES
The Company's marketing and sales expenses increased to $28.9 million in fiscal
1997 from $23.0 million in fiscal 1996 and from $14.1 million in fiscal 1995.
Marketing and sales expenses were 32%, 17%, and 18% of net revenue in fiscal
1997, 1996, and 1995, respectively. Fiscal 1997 expenses increased due to
advertising and promotion costs associated with new products such as Focal
Point, NewsCatcher and speakerphone modems.
The increase in marketing and sales expense in fiscal 1996, as compared to
fiscal 1995, resulted from the inclusion, beginning in August 1994 of marketing
and sales expenses from the acquisition of SofNet, 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
expects that advertising activities will probably decrease in fiscal 1998 in
absolute terms and as a percentage of total net revenue.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased to $7.4 million in fiscal 1997
from $5.7 million in fiscal 1996 and from $4.1 million in fiscal 1995. The
increase in general and administrative expense in fiscal 1997 was primarily due
to legal expenses associated with the settlement of two lawsuits, additional bad
debt reserves and other general operating expenses. General and administrative
expenses as a percentage of net revenue were 8%, 4%, and 5% in fiscal 1997,
1996, and 1995, respectively.
RESTRUCTURING COSTS
In December 1996, the Company announced a restructuring plan to streamline its
operations, reduce its workforce and enable the Company to improve its operating
results. The Company recorded a restructuring charge of $1.3 million related
primarily to severance costs, write-offs of fixed assets and purchased software
technology and a lease abandonment.
LOSS FROM INVESTMENT IN GLOBALCENTER
In April 1996, Global Village announced that it had incorporated its Internet
Services Division as a standalone business called GlobalCenter, Inc. At the same
time, the Company announced that UUNET Technologies, Inc. had acquired an equity
interest in GlobalCenter, Inc. At that time, the Company no longer had the
ability to exercise significant control over GlobalCenter. Accordingly, the
Company no longer consolidated the results of GlobalCenter and began to account
for its investment using the equity method of accounting. As a result of the
refinancing and operating performance of GlobalCenter during the first quarter
of fiscal 1997, the Company recorded an investment loss of $2.2 million and
reduced the book value of its investment to zero. In December 1996, GlobalCenter
entered into a definitive merger agreement whereby GlobalCenter and
Phoenix-based Primenet Services for the Internet, Inc. merged, reducing the
Company's percentage ownership below 10%. Accordingly, in the third quarter of
fiscal 1997, the Company began accounting for its investment in GlobalCenter
using the cost method of accounting. The Company's investment balance as of
March 31, 1997 remains zero.
23
<PAGE> 52
IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the Company's acquisition of SofNet 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 decreased to $0.8 million in fiscal 1997 from
$1.2 million in fiscal 1996 and from $0.8 million in fiscal 1995. Other income
was 1% of net revenue in each of fiscal 1997, 1996, and 1995. The dollar
decrease in fiscal 1997 is the result of a decrease in interest income
associated with lower cash balances and an increase in interest expense related
to the line of credit borrowings, partially offset by an increase in other
income. The increase in fiscal 1996 over fiscal 1995 is primarily attributable
to an increase in interest income.
PROVISION FOR INCOME TAXES
The combined federal, state and foreign effective income tax rates for
continuing operations were 13% in fiscal 1997, 30% in fiscal 1996, and 37% in
fiscal 1995 (excluding the impact of the one-time in-process research and
development charge).
The fiscal 1997 rate differs from the combined statutory rates primarily due to
the establishment of a full valuation allowance against the deferred tax assets.
The Company's increased foreign activities during fiscal 1996 was the primary
differential from the combined statutory rates for that period. In addition, the
rates also differ from the combined statutory rates in effect during these
periods as a result of tax exempt interest, available research credits, and
foreign sales corporation tax benefits.
DISCONTINUED OPERATIONS
In the second quarter of fiscal 1997, the Company adopted a formal plan to
discontinue its enterprise network server operation based in the United Kingdom
(formerly, the Company's ISDN division). The disposition of the division has
been accounted for as a discontinued operation in accordance with Accounting
Principles Board (APB) Opinion No. 30 and prior period financial statements have
been restated to reflect the discontinuation of the enterprise network server
operation. The loss from discontinued operations of $1.8 million, $3.3 million,
and $1.5 million in fiscal years 1997, 1996 and 1995, respectively, represents
the operation's operating losses, with no associated tax benefits. The loss on
disposal of discontinued operations of $2.2 million in fiscal 1997 (no income
tax benefits) represents the cost of disposal of the operation (including
estimated contingent liabilities of $2.0 million at March 31, 1997) net of $3.8
million of cash received from the sale of the operation's assets. The $2.2
million loss on disposal of discontinued operations also includes a $2.1 million
loss from operations, from the measurement date to the disposal date.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and short-term investments totaled $9.7 million at March 31,
1997, representing 28% of total assets. Working capital was $36.4 million at
March 31, 1996, and a negative $3.8 million at March 31, 1997, a decline of
$40.2 million. The decrease in working capital was primarily attributable to
24
<PAGE> 53
losses from continuing and discontinued operations, investments in AirMedia,
Inc. and GlobalCenter, Inc., and repurchases of common stock.
Since its last fiscal year end, the Company has used approximately $24.1 million
in cash to finance both its continuing and discontinued operations. Any further
operating losses, inventory buildups or inability to collect its accounts
receivable could necessitate further reductions in expenses and would have a
material adverse affect on the Company's business, financial condition and
results of operations. At March 31, 1997, the Company's principal source of
liquidity was $9.7 million in cash which includes $4.2 million in borrowings
against its bank line of credit. The Company is in the process of evaluating
various measures to improve its operating performance and manage its cash
requirements for fiscal 1998.
At March 31, 1997, the Company had borrowings against its bank line of credit of
$4.2 million. At December 31, 1996, the Company was in violation of certain
financial covenants under its line of credit and had been notified by its lender
that it was in default of its borrowing agreement. In February 1997, the Company
renegotiated the terms of the line of credit and was in compliance with such
terms as of March 31, 1997. In April 1997, the Company entered into a new line
of credit agreement with another bank which provides for borrowings of up to
$5.0 million based on eligible accounts receivable. The Company's accounts
receivable (net of reserves) dropped over the fiscal year from $12.4 million on
March 31, 1996 to $4.3 million on March 31, 1997, consequently reducing the
Company's borrowing capacity through its new line of credit.
The Company does not expect fiscal 1998 capital expenditures to exceed
historical levels and may possibly be reduced. During the past year, the Company
has experienced significant negative cash flows. However, the Company currently
believes that its existing cash and new credit facility, along with a reduction
in overhead and direct costs, resizing its business, and the recovery of certain
tax assets, should enable the Company to meet its cash requirements for at least
the next twelve months. The preceding sentence is a forward-looking statement.
The Company's funding requirements may change at any time due to various
factors, including the Company's operating results, the results and timing of
the Company's launch of new products and services, the Company's ability to
reduce or control various operating expenses through cost containment measures
or operating reductions, the success of the Company's marketing efforts,
technological advances and competition. The Company may be required to issue
additional debt or equity securities which could substantially dilute the
ownership of existing stockholders. Any shortfall in funding could result in the
Company having to curtail the introduction or development of new products and
its entry into new markets, any of which could have a material adverse affect on
the Company's business, financial condition and results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
<C> <S> <C>
(1) Consolidated Financial Statements
Independent Auditors' Report 26
Consolidated Balance Sheets as of March 31, 1997 and 1996 27
Consolidated Statements of Operations for the three years ended March 31, 1997 28
Consolidated Statements of Stockholders' Equity for the three years ended March 31, 29
1997
Consolidated Statements of Cash Flows for the three years ended March 31, 1997 30
Notes to Consolidated Financial Statements 31
(2) Consolidated Financial Statement Schedule for the three years ended March 31, 1997.
Schedule II -- Consolidated Valuation and Qualifying Accounts 43
</TABLE>
Schedules other than those listed above have been omitted since they are either
not applicable, not required or the information is included elsewhere herein.
25
<PAGE> 54
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Global Village Communication, Inc.
We have audited the consolidated financial statements of Global Village
Communication, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule 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 financial position of Global Village
Communication, Inc. and subsidiaries as of March 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 1997, in conformity with generally accepted
accounting principles. Also in our opinion, the related 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 23, 1997
26
<PAGE> 55
GLOBAL VILLAGE COMMUNICATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 1997 1996
- --------------------------------------------------------------------------------------
In thousands, except share and per share data
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,687 $15,900
Short-term investments -- 21,819
Accounts receivable, net 4,324 12,449
Inventories, net 2,071 5,779
Income tax receivable 7,665 --
Deferred income taxes -- 2,384
Other current assets 343 1,998
Net assets of discontinued operations -- 277
- --------------------------------------------------------------------------------------
Total current assets 24,090 60,606
- --------------------------------------------------------------------------------------
Property and equipment, net 6,929 10,055
Investment in AirMedia, Inc. 4,043 --
Other assets 138 1,374
- --------------------------------------------------------------------------------------
Total assets $ 35,200 $72,035
- --------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit borrowings $ 4,241 $ --
Accounts payable 15,971 18,046
Accrued and other liabilities 7,638 5,823
Income taxes payable -- 335
- --------------------------------------------------------------------------------------
Total current liabilities 27,850 24,204
- --------------------------------------------------------------------------------------
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;
16,929,690 and 16,744,837 shares issued and outstanding 17 17
Additional paid-in capital 42,873 43,226
Cumulative translation adjustment -- 247
Retained earnings (accumulated deficit) (35,540) 4,341
- --------------------------------------------------------------------------------------
Total stockholders' equity 7,350 47,831
- --------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 35,200 $72,035
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
27
<PAGE> 56
GLOBAL VILLAGE COMMUNICATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1997 1996 1995
- ----------------------------------------------------------------------------------------
In thousands, except per share data
<S> <C> <C> <C>
Net revenue $ 90,174 $136,941 $80,021
Cost of revenue 80,439 77,583 43,407
- ----------------------------------------------------------------------------------------
Gross profit 9,735 59,358 36,614
- ----------------------------------------------------------------------------------------
Operating expenses:
Research and development 12,008 14,550 8,824
Marketing and sales 28,900 22,976 14,094
General and administrative 7,367 5,678 4,126
Restructuring costs 1,298 -- --
Loss from investment in GlobalCenter, Inc. 2,191 -- --
In-process research and development -- -- 12,809
- ----------------------------------------------------------------------------------------
Total operating expenses 51,764 43,204 39,853
- ----------------------------------------------------------------------------------------
Income (loss) from operations (42,029) 16,154 (3,239)
Other income (expense), net:
Interest income 411 1,000 832
Interest expense (248) -- (2)
Other income 613 154 13
- ----------------------------------------------------------------------------------------
Total other income, net 776 1,154 843
- ----------------------------------------------------------------------------------------
Income (loss) before income taxes (41,253) 17,308 (2,396)
Provision for income taxes (benefit) (5,401) 5,160 3,810
- ----------------------------------------------------------------------------------------
Income (loss) from continuing operations (35,852) 12,148 (6,206)
- ----------------------------------------------------------------------------------------
Discontinued operations:
Loss from discontinued operations (1,822) (3,312) (1,466)
Loss on disposal of discontinued operations (2,207) -- --
- ----------------------------------------------------------------------------------------
Loss from discontinued operations (4,029) (3,312) (1,466)
- ----------------------------------------------------------------------------------------
Net income (loss) $(39,881) $ 8,836 $(7,672)
- ----------------------------------------------------------------------------------------
Income (loss) per share from continuing operations $ (2.13) $ 0.68 $ (0.41)
Loss per share from discontinued operations (0.24) (0.19) (0.10)
Net income (loss) per share $ (2.37) $ 0.49 $ (0.51)
- ----------------------------------------------------------------------------------------
Shares used in computing per share amounts 16,835 17,872 15,013
- ----------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
28
<PAGE> 57
GLOBAL VILLAGE COMMUNICATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Common Stock Additional Cumulative Earnings Total
------------------- Paid-in Translation (Accumulated Stockholders'
Shares Amount Capital Adjustment Deficit) Equity
-------------------------------------------------------------------------------------------------
In thousands, except share data
<S> <C> <C> <C> <C> <C> <C>
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
Exercise of stock options 288,967 -- 575 -- -- 575
Shares issued under ESPP 74,386 -- 367 -- -- 367
Treasury shares acquired (178,500) -- (1,295) -- -- (1,295)
Foreign currency translation
adjustment -- -- -- (247) -- (247)
Net loss -- -- -- -- (39,881) (39,881)
- -------------------------------------------------------------------------------------------------
Balances as of March 31, 1997 16,929,690 $17 $42,873 $ -- $(35,540) $ 7,350
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
29
<PAGE> 58
GLOBAL VILLAGE COMMUNICATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1997 1996 1995
- ------------------------------------------------------------------------------------------
In thousands
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(39,881) $ 8,836 $ (7,672)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 3,782 2,879 1,279
Loss on disposal of property and equipment 220 -- --
Deferred income taxes 3,234 -- (1,150)
Acquired in-process research and development -- -- 12,809
Write-off of GlobalCenter, Inc. investment 2,191 -- --
Tax benefits related to stock plans -- 1,632 866
Changes in operating assets and liabilities:
Accounts receivable, net 7,913 (1,059) (6,620)
Inventories 3,627 (1,881) (200)
Income taxes (7,665) -- --
Other current assets 1,474 (685) (1,064)
Accounts payable (1,462) 5,968 7,099
Accrued and other liabilities (174) 742 283
Income taxes payable (335) (1,505) 74
- ------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities
of:
Continuing operations (27,076) 14,927 5,704
Discontinued operations 2,977 1,228 1,448
- ------------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities (24,099) 16,155 7,152
- ------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (1,802) (6,514) (5,724)
Proceeds from sale of property and equipment 71 -- --
Cash used in acquisition of SofNet, Inc., net of
cash acquired -- -- (583)
Other assets (386) 93 188
Purchases of short-term investments (23,217) (78,747) (55,253)
Proceeds from sales and maturities of short-term
investments 45,036 77,897 55,513
Investment in AirMedia, Inc. (4,043) -- --
Investment in GlobalCenter, Inc. (1,548) -- --
- ------------------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 14,111 (7,271) (5,859)
- ------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings under line of credit 8,000 -- --
Repayments under line of credit (3,759) -- --
Payments of capital lease obligations -- -- (33)
Proceeds from issuance of Common Stock, net 942 2,086 744
Repurchases of Common Stock (1,161) (984) --
- ------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,022 1,102 711
- ------------------------------------------------------------------------------------------
Effect of foreign currency exchange rate changes on
cash and cash equivalents (247) 125 13
Net increase (decrease) in cash and cash equivalents (6,213) 10,111 2,017
- ------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 15,900 5,789 3,772
- ------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 9,687 $ 15,900 $ 5,789
- ------------------------------------------------------------------------------------------
Supplemental disclosures:
Cash paid during the year for:
Interest $ 211 $ 100 $ 2
Income taxes $ -- $ 5,033 $ 4,074
Non-cash investing and financing activities:
Non-cash net assets contributed to GlobalCenter,
Inc. $ 643 $ -- $ --
Value of Common Stock issued for purchase of
SofNet, Inc. $ -- $ -- $ 13,080
- ------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
30
<PAGE> 59
GLOBAL VILLAGE COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Global Village Communication, Inc. (the Company), a Delaware corporation, was
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 computer users 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.
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 in consolidation.
The preparation of consolidated 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
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
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 maturities of three months or
less at the time of purchase.
Short-term investments generally consist of U.S. Treasury Bills, commercial
paper, and municipal bonds with original maturities in excess of 90 days. 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 cost of
securities sold is based upon the specific identification method.
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.
Fair Value of Financial Instruments. The carrying amounts of cash, cash
equivalents, accounts receivable, accounts payable and accrued liabilities
approximate fair values due to the short maturity of those instruments. The
amounts of the short-term debt approximates fair value because the interest
rates change with market interest rates.
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.
31
<PAGE> 60
GLOBAL VILLAGE COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition. Revenue is generally recognized at the time of shipment.
Revenue from sales to distributors and dealers are 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 (OEM's) 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."
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, 1997, 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, the weighted average number of shares of Common Stock, and
common equivalent shares from stock options outstanding (when dilutive using the
treasury stock method).
Impact of Recently Issued Accounting Standards. The Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," ("SFAS No.
121") effective for the fiscal year ended March 31, 1997. SFAS No. 121 requires
that impairment losses be recorded on long-lived assets and certain identifiable
intangibles when indicators of impairment are present and the undiscounted cash
flows estimated by those assets are less than the assets' carrying amounts.
Adoption of this standard did not have a material impact on the Company's
consolidated financial statements.
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123") effective for the fiscal year ended March 31, 1997. SFAS No.
123 establishes a fair value method of accounting for stock-based employee
compensation plans. As allowed under provisions of SFAS No. 123, the Company has
chosen to continue the intrinsic value based method for stock-based employee
compensation plans and provide pro forma disclosures of results and results per
share as if the accounting provisions of SFAS No. 123 had been adopted. As the
Company has elected to adopt only disclosure requirements of SFAS No. 123, such
adoption had no effect on the Company's consolidated net loss or cash flows.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share." SFAS No. 128 requires dual presentation of basic earnings
per share ("EPS") and diluted EPS on the face of all statements of operations
issued after December 15, 1997, for all entities with complex capital
structures.
Basic EPS is computed using net earnings divided by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common
32
<PAGE> 61
GLOBAL VILLAGE COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
shares issuable through stock-based compensation including stock options,
restricted stock awards, warrants, and other convertible securities using the
treasury stock method. The Company expects basic EPS for profitable periods will
be higher than primary EPS as presented in the accompanying consolidated
financial statements and diluted EPS for profitable periods will not differ
materially from primary EPS as presented in the accompanying consolidated
financial statements. Computations for loss periods should not change
significantly.
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 and realized translation adjustments are included
in the consolidated statements of operations.
Reclassifications. Certain amounts in prior years' consolidated financial
statements have been reclassified to conform with the fiscal 1997 consolidated
financial statement presentation.
NOTE 2. DISCONTINUED OPERATIONS
In January 1996, the Company acquired KNX Limited, a leading 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 was accounted for using the pooling of interests method of accounting.
In the second quarter of fiscal 1997, the Company adopted a formal plan to
discontinue its enterprise network server operation based in the United Kingdom
(formerly, the Company's ISDN division). The disposition of the division has
been accounted for as a discontinued operation in accordance with Accounting
Principles Board (APB) Opinion No. 30 and prior period consolidated financial
statements have been restated to reflect the discontinuation of the enterprise
network server operation. The loss from discontinued operations of $1.8 million,
$3.3 million, and $1.5 million in fiscal years 1997, 1996 and 1995,
respectively, represents the operation's operating losses, with no associated
tax benefits. The loss on disposal of discontinued operations of $2.2 million in
fiscal 1997 (no income tax benefit) represents the cost of disposal of the
operation (including estimated contingent liabilities of $2.0 million at March
31, 1997), net of $3.8 million of cash received from the sale of the operation's
assets. The $2.2 million loss on disposal of discontinued operations also
includes a $2.1 million loss from operations from the measurement date to the
disposal date.
33
<PAGE> 62
GLOBAL VILLAGE COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
MARCH 31 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
In thousands
Short-term investments:
U.S. government securities -- $ 1,647
Municipal securities -- 20,172
- ------------------------------------------------------------------------------------
Total short-term investments -- $21,819
- ------------------------------------------------------------------------------------
Accounts receivable:
Trade accounts receivable $10,712 $14,303
Less allowance for returns and doubtful accounts (6,388) (1,854)
- ------------------------------------------------------------------------------------
Net accounts receivable $ 4,324 $12,449
- ------------------------------------------------------------------------------------
Inventories:
Purchased parts $ 199 $ 131
Work in process 369 217
Finished goods 1,503 5,431
- ------------------------------------------------------------------------------------
Total inventories $ 2,071 $ 5,779
- ------------------------------------------------------------------------------------
Property and equipment:
Computer, test, and production equipment $ 9,847 $10,280
Furniture and fixtures 3,193 3,057
Leasehold improvements 2,428 2,108
- ------------------------------------------------------------------------------------
15,468 15,445
Less accumulated depreciation and amortization (8,539) (5,390)
- ------------------------------------------------------------------------------------
Total property and equipment, net $ 6,929 $10,055
- ------------------------------------------------------------------------------------
Accrued and other liabilities:
Warranty and other product related obligations $ 2,090 $ 1,503
Accrued compensation and benefits 740 3,058
Other 4,808 1,262
- ------------------------------------------------------------------------------------
Total accrued and other liabilities $ 7,638 $ 5,823
- ------------------------------------------------------------------------------------
</TABLE>
NOTE 4. INVESTMENT IN GLOBALCENTER, INC. AND AIRMEDIA, INC.
In April 1996, the Company announced that it had incorporated its Internet
Services Division as a standalone business called GlobalCenter, Inc. At the same
time, the Company announced that UUNET Technologies, Inc. had acquired an equity
interest in GlobalCenter, Inc. At that time, the Company no longer had the
ability to exercise significant control over GlobalCenter. Accordingly, the
Company no longer consolidated the results of GlobalCenter and began to account
for its investment using the equity method of accounting. As a result of the
refinancing and operating performance of GlobalCenter during the first quarter
of fiscal 1997, the Company recorded an investment loss of $2.2 million, and
reduced the book value of its investment to zero. In December 1996, GlobalCenter
entered into a definitive merger agreement whereby GlobalCenter and
Phoenix-based Primenet Services for the Internet, Inc. merged, reducing the
Company's percentage ownership below 10%. Accordingly, in the third quarter of
fiscal
34
<PAGE> 63
GLOBAL VILLAGE COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1997, the Company began accounting for its investment in GlobalCenter using the
cost method of accounting. The Company's investment balance as of March 31, 1997
remains zero.
In the second quarter of fiscal 1997, the Company completed an equity investment
in AirMedia, Inc. (formerly ExMachina, Inc.) of $4,043,000. The Company
manufactures, markets and distributes receivers for AirMedia's AirMedia Live!
Network. The Company accounts for its investment in AirMedia using the cost
method of accounting. The Company believes its investment is recoverable.
However, it is possible that circumstances could change in the near term and
that such change could have a material adverse effect on the Company's financial
position and results of operations.
NOTE 5. LINE OF CREDIT
As of March 31, 1997, the Company's borrowings under its line of credit were
subject to the terms of a forbearance agreement it negotiated with its bank in
February 1997 which expires in August 1997. Borrowings under the forbearance
agreement bear interest at the bank's prime rate plus 5% (13.5% at March 31,
1997) and are collateralized by all of the Company's assets. Total borrowings
are limited to the lesser of $4,200,000 or 50% of eligible accounts receivable
through April 15, 1997; 40% through May 15, 1997; 30% through June 15, 1997; 20%
through July 15, 1997; and 10% through August 15, 1997. The agreement places
restrictions on the Company's ability to pay dividends or 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.
In April 1997, the Company entered into a new line of credit agreement with
another bank, expiring in April 1999, which replaced the Company's prior line of
credit. Borrowings under the agreement bear interest at the bank's prime rate
plus 2.5%. The total borrowings are limited to the lessor of $5,000,000 or 80%
of eligible receivables, as defined, and are collateralized by all of the
Company's assets. This new facility contains various financial covenants and
restrictions, including restrictions on the Company's ability to pay dividends
or to effect mergers or acquisitions.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Lease Commitments. The Company leases facilities under noncancelable operating
leases expiring in January 2000, April 2000, and December 2002. The lease
expiring in April 2000 has a renewal option for an additional five-year term.
Space associated with this lease has been subleased for various periods through
April 2000. Future minimum lease payments as of March 31, 1997 are:
<TABLE>
<CAPTION>
LEASE SUBLEASE NET LEASE
FISCAL YEAR PAYMENTS INCOME PAYMENTS
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
In thousands
1998 $1,656 $ (978) $ 678
1999 1,681 (379) 1,302
2000 1,679 (183) 1,496
2001 172 -- 172
2002 90 -- 90
- ---------------------------------------------------------------------------
Total $5,278 $(1,540) $3,738
- ---------------------------------------------------------------------------
</TABLE>
35
<PAGE> 64
GLOBAL VILLAGE COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rent expense was approximately $1,188,000, $1,352,000 and $791,000 for the
fiscal years ended March 31, 1997, 1996, and 1995, respectively.
Legal Matters. The Company is a party to certain lawsuits and claims arising out
of the normal 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.
NOTE 7. STOCKHOLDERS' EQUITY
Common and Preferred Stock. As of March 31, 1997, the number of Common 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.
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
9).
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
2).
Stock Option Plan. The Company has adopted a stock option plan (the "Plan")
under which incentive stock options may be granted to employees and officers,
and non-qualified (supplemental) stock options may be granted to employees,
officers, directors, and consultants to purchase an aggregate of 5,100,000
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 one year and the balance vesting monthly over the remaining 3
to 4 years. As of March 31, 1997, options to purchase 372,568 shares of Common
Stock were exercisable under the Plan. In May 1996 and January 1997, the
Company's Board of Directors authorized the repricing of approximately 410,000
and 1,352,000 outstanding options, respectively, to purchase the Company's
common stock to an exercise price of $10.19 and $3.063 per share, respectively.
The repricings have been reflected in the plan activity below.
Director's 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 200,000
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 five annual installments
commencing on the date of grant and are contingent upon the continuous service
of the director. As of March 31, 1997, options representing 7,666 shares were
exercisable under the Directors' Plan.
36
<PAGE> 65
GLOBAL VILLAGE COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the combined stock option activity under the Plan and Directors'
Plan is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------------
1997 1996 1995
---------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of year 2,315,955 $ 9.25 2,350,444 $ 4.66 2,348,695 $1.71
Granted 1,779,330 5.78 1,011,485 15.64 832,278 9.26
Exercised (288,967) 1.99 (583,711) 2.70 (638,481) 0.57
Canceled (1,320,883) 10.00 (462,263) 8.24 (192,048) 2.27
Repriced -- granted 1,762,384 4.68 -- -- -- --
Repriced -- canceled (1,762,384) 10.96 -- -- -- --
- -------------------------------------------------------------------------------------------------
Outstanding -- end of year 2,485,435 $ 2.76 2,315,955 $ 9.25 2,350,444 $4.66
- -------------------------------------------------------------------------------------------------
Weighted average fair value of
options, calculated under SFAS
No. 123 (see below) $ 2.47 $ 9.64
- -------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information as of March 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------------------------- Options Exercisable
Weighted Average ----------------------------
Range of Remaining Weighted Average Weighted Average
Exercise Prices Number Contractual Life Exercise Price Number Exercise Price
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.04 -- $ 3.00 659,255 6.61 $1.19 81,807 $0.77
3.06 1,674,080 8.33 3.06 289,602 3.06
3.38 -- 14.88 152,100 8.98 6.17 8,825 8.88
-------------------------------------------------------------------------------------------------
0.04 -- 14.88 2,485,435 7.91 $2.76 380,234 $2.70
-------------------------------------------------------------------------------------------------
</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,
1997, 193,463 shares had been purchased under the Purchase Plan.
Common Stock Reserved for Future Issuance.
<TABLE>
<CAPTION>
Shares
- -------------------------------------------------------------------------------------
<S> <C>
Exercise of stock options 2,986,558
Employee stock purchase plan 106,537
Directors' plan 192,000
- -------------------------------------------------------------------------------------
Total reserved shares 3,285,095
- -------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 66
GLOBAL VILLAGE COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting for Stock-Based Compensation Under SFAS No. 123. At March 31, 1997,
the Company had three stock-based compensation plans, which are described above.
As the Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock plans, no
compensation cost has been recognized for such plans.
Had compensation cost for the Company's stock plans been determined based on the
fair value at the grant dates for awards under those plans consistent with the
method prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation",
the Company's net loss and net loss per share would have changed to the pro
forma amounts indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) -- as reported $ (39,881) $8,836
Net income (loss) -- pro forma $ (42,976) $6,820
Net income (loss) per share -- as reported $ (2.37) $ 0.49
Net income (loss) per share -- pro forma $ (2.55) $ 0.38
</TABLE>
The fair value of each option grant and Purchase Plan shares issuable is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions for grants in 1997 and 1996,
respectively: no dividend yield is expected for all years; expected volatility
of 96% and 90%; risk-free interest rates of 6.25% and 5.93%; and expected lives
of 4 years and 3 years.
NOTE 8. RESTRUCTURING COSTS
In December 1996, the Company announced a restructuring plan ("Plan") to
streamline its operations, reduce its workforce and enable the Company to
improve its operating results. The Company recorded a restructuring charge of
$1.3 million related primarily to severance costs ($270,000), write-offs of
fixed assets and purchased software ($490,000), a lease abandonment ($340,000)
and other one-time charges associated with the Plan ($200,000).
The Company began implementing this Plan during the third quarter and terminated
approximately 40 employees. As of March 31, 1997, the restructuring accrual
balance was approximately $540,000 and relates primarily to remaining lease
payments and miscellaneous costs associated with its Atlanta facility. All
termination benefits have been paid as of March 31, 1997.
38
<PAGE> 67
GLOBAL VILLAGE COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. ACQUISITION OF SOFNET, INC.
On August 30, 1994, the Company purchased all of the outstanding stock of
SofNet, Inc. (SofNet), a Georgia corporation. SofNet is a developer and marketer
of communications 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>
<S> <C>
- ------------------------------------------------------------------------------------
In thousands
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 were amortized over four years with the remaining balance written off
in the third quarter of fiscal 1997.
The following unaudited pro forma combined results of operations for the years
ended March 31, 1995 are presented as if the acquisition had occurred at the
beginning of the year. The onetime charge for the write-off of in-process
research and development 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 consolidated entity during such period.
<TABLE>
<CAPTION>
1995
- ------------------------------------------------------------------------------------
<S> <C>
In thousands
Net revenue from continuing operations $82,275
Net income 4,435
Net income per share $ 0.25
- ------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 68
GLOBAL VILLAGE COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. INCOME TAXES
The Company's pretax income (loss) from continuing and discontinued operations
consisted of the following components:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
In thousands
Continuing operations (primarily domestic) $(41,253) $17,308 $(2,396)
Discontinued operations (primarily foreign) (4,029) (3,312) (1,466)
- ----------------------------------------------------------------------------------------
Total pretax income (loss) $(45,282) $13,996 $(3,862)
- ----------------------------------------------------------------------------------------
</TABLE>
The components of income tax expense (benefit) from continuing operations are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
In thousands
Current:
Federal $ (8,637) $ 2,749 $ 3,040
State 2 677 1,054
- ----------------------------------------------------------------------------------------
Total current (8,635) 3,426 4,094
- ----------------------------------------------------------------------------------------
Deferred:
Federal 2,845 46 (820)
State 389 56 (330)
- ----------------------------------------------------------------------------------------
Total deferred 3,234 102 (1,150)
- ----------------------------------------------------------------------------------------
Charge in lieu of income tax associated with
exercise of stock options -- 1,632 866
- ----------------------------------------------------------------------------------------
$ (5,401) $ 5,160 $ 3,810
- ----------------------------------------------------------------------------------------
</TABLE>
No income tax expense or benefit has been recorded in any of the results of
discontinued operations.
40
<PAGE> 69
GLOBAL VILLAGE COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
In thousands
Deferred tax assets:
Accounts receivable, due to allowance for returns and
doubtful accounts $ 3,316 $ 419
Inventories, due to additional costs inventoried for tax
purposes and reserves 2,531 471
Warranty accrual deducted for financial purposes not
taken for tax purposes 851 637
Accruals for financial purposes not taken for tax
purposes 418 936
Net operating loss carryforward, federal and state 16,347 4,390
Tax credits, federal and state 1,572 --
Other 610 29
- --------------------------------------------------------------------------------------
25,645 6,882
Less valuation allowance (25,645) (3,648)
- --------------------------------------------------------------------------------------
Net deferred tax asset $ -- $ 3,234
- --------------------------------------------------------------------------------------
</TABLE>
As of March 31, 1997, the Company had established a full valuation allowance
against its deferred tax assets based on the belief that there was sufficient
uncertainty regarding the realizability of the deferred tax assets.
The difference between the effective income tax rate and the U.S. federal
statutory income tax rate for continuing operations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate (34)% 35 % (34)%
State tax, net of federal benefit -- 5 % 16 %
Foreign loss without tax benefit 3 % 7 % 12 %
Foreign sales corporation benefit -- (2)% --
Tax exempt interest -- (2)% (7)%
Insolvent investment in foreign subsidiary (25)% -- --
Increase in valuation allowance 48 % -- --
In process research and development not deductible for
tax purposes -- -- 113 %
Research and experimental tax credit (2)% (4)% (2)%
Other (2)% (2)% 1 %
- --------------------------------------------------------------------------------------
(12)% 37 % 99 %
- --------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 70
GLOBAL VILLAGE COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 unused 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.
Additionally, as of March 31, 1997, the Company had net operating loss
carryforwards of approximately $33.8 million for federal income tax purposes,
which expire in 2012, and $28.3 million for state income tax purposes, which
expire in 2002.
At March 31, 1997, the Company had unused research and development credits of
approximately $841,000 for federal income tax purposes, which expire through
2012, and $200,000 for California income tax purposes, which expire in 2002.
There are also minimum tax credits of approximately $530,000 available to reduce
future federal income taxes, which will carryforward indefinitely.
NOTE 11. CUSTOMERS AND CREDIT CONCENTRATIONS
The Company sells primarily to distributors, dealers, and OEMs in North America,
Europe, and the Pacific Rim. 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, 1997, sales to
two customers accounted for 21% and 11%, respectively, of net revenue and
represented accounts receivable of $1,694,000 and $1,435,000, respectively, as
of March 31, 1997. For the fiscal year ended March 31, 1996, sales to one
customer accounted for 33% of net revenue and represented $4,903,000 of accounts
receivable as of March 31, 1996. For the fiscal year ended March 31, 1995, sales
to two customers represented 31% and 12%, respectively, of net revenue and
represented $2,895,000 and $679,000 of accounts receivable, respectively, as of
March 31, 1995.
The Company's international sales for the fiscal years ended March 31, 1997,
1996, and 1995 represented approximately 15%, 19%, and 11% of net revenue,
respectively.
42
<PAGE> 71
SCHEDULE II
GLOBAL VILLAGE COMMUNICATION, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
In thousands
Year ended March 31, 1997
Allowance for returns and doubtful accounts $ 1,854 $ 20,090 $ (15,556) $ 6,388
Warranty and other product-related obligations 1,503 2,774 (2,187) 2,090
- -------------------------------------------------------------------------------------------------
Total allowance $ 3,357 $ 22,864 $ (17,743) $ 8,478
- -------------------------------------------------------------------------------------------------
Year ended March 31, 1996
Allowance for returns and doubtful accounts $ 1,807 $ 8,268 $ (8,221) $ 1,854
Warranty and other product-related obligations 1,559 4,479 (4,535) 1,503
- -------------------------------------------------------------------------------------------------
Total allowance $ 3,366 $ 12,747 $ (12,756) $ 3,357
- -------------------------------------------------------------------------------------------------
Year ended March 31, 1995
Allowance for returns and doubtful accounts $ 475 $ 4,516 $ (3,184) $ 1,807
Warranty and other product-related obligations 1,058 2,730 (2,229) 1,559
- -------------------------------------------------------------------------------------------------
Total allowance $ 1,533 $ 7,246 $ (5,413) $ 3,366
- -------------------------------------------------------------------------------------------------
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
43
<PAGE> 72
[PART 3 GRAPHIC]
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, 1997 (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.
[PART 4 GRAPHIC]
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K
(a) Financial Statements and Schedule
The Financial Statements and Schedule filed as part of this Annual Report on
Form 10-K are listed in the index under Item 8.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended March
31, 1997.
44
<PAGE> 73
(c) Exhibits
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
<C> <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 Agreements among the
Company and certain other person 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>
45
<PAGE> 74
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
<C> <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 Jr. and Raymond
P. Christensen and the Company dated July 14, 1994. *
10.17 Loan and Security Agreement between Silicon Valley Bank and
the Company, dated April 23, 1997
10.18 Schedule to Loan and Security Agreement between Silicon
Valley Bank and the Company, dated April 23, 1997
10.19++ Management Incentive Plan
11.1 Statement Regarding Computation of Per Share Results
13.0 Annual Report to Stockholders x
16.1 Letter regarding change in accountants x
23.1 Consent of KPMG Peat Marwick LLP
25.1 Power of Attorney
</TABLE>
* Filed as a exhibit to the Registrant's Registration Statement of Form S-1
(Registration No 33-73878 as amended) and incorporate by reference hereby.
+ 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.
x 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.
X 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.
46
<PAGE> 75
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/A Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 13th day of
June, 1997.
GLOBAL VILLAGE COMMUNICATION, INC.
BY: /s/ NEIL SELVIN
-----------------------------------
Neil Selvin, President, Chief
Executive
Officer and Director
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
--------- ----- ----
<S> <C> <C>
/s/ LEONARD A. LEHMANN Chairman of the Board June 13, 1997
- ------------------------------------------------
Leonard A. Lehmann
/s/ NEIL SELVIN President, Chief Executive June 13, 1997
- ------------------------------------------------ Officer and Director
Neil Selvin (Principle Executive
Officer)
/s/ JOHN M. PETERSON Vice President, Finance, June 13, 1997
- ------------------------------------------------ Chief Financial Officer
John M. Peterson and Secretary (Principle
Financial and Accounting
Officer)
/s/ KEVIN R. COMPTON Director June 13, 1997
- ------------------------------------------------
Kevin R. Compton
/s/ EUGENE EIDENBERG Director June 13, 1997
- ------------------------------------------------
Eugene Eidenberg
/s/ KENNETH A. GOLDMAN Director June 13, 1997
- ------------------------------------------------
Kenneth A. Goldman
/s/ JEREMY JAECH Director June 13, 1997
- ------------------------------------------------
Jeremy Jaech
</TABLE>
47
<PAGE> 76
EXHIBIT 11.1
GLOBAL VILLAGE COMMUNICATION, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1997 1996 1995
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
In thousands, except per share data
Statement of operations data:
Income (loss) from continuing operations $ (35,852) $ 12,148 $ (6,206)
Loss from discontinued operations (4,029) (3,312) (1,466)
- ----------------------------------------------------------------------------------------
Net income (loss) $ (39,881) $ 8,836 $ (7,672)
- ----------------------------------------------------------------------------------------
Weighted average shares outstanding 16,835 16,478 15,013
Common equivalent shares from stock options -- 1,394 --
- ----------------------------------------------------------------------------------------
Average common and equivalent shares
outstanding(1) 16,835 17,872 15,013
- ----------------------------------------------------------------------------------------
Income (loss) per share from continuing
operations $ (2.13) $ 0.68 $ (0.41)
Loss per share from discontinued operations (0.24) (0.19) (0.10)
- ----------------------------------------------------------------------------------------
Net income (loss) per share $ (2.37) $ 0.49 $ (0.51)
- ----------------------------------------------------------------------------------------
</TABLE>
(1)The difference between primary and fully diluted earnings per share is not
material.
48
<PAGE> 77
================================================================================
Annex B
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
--------------- TO
--------------- .
COMMISSION FILE NUMBER: 000-23260
GLOBAL VILLAGE COMMUNICATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 94-3095680
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
1144 EAST ARQUES AVE.
SUNNYVALE, CA 94086
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(408) 523-1000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock outstanding as of December 31, 1997
was 17,014,237.
================================================================================
<PAGE> 78
GLOBAL VILLAGE COMMUNICATION, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
a) Condensed Consolidated Balance Sheets
as of December 31, 1997 and March 31, 1997............... 3
b) Condensed Consolidated Statements of Operations
for the three and nine months ended December 31, 1997 and
1996........................................................ 4
c) Condensed Consolidated Statements of Cash Flows
for the nine months ended December 31, 1997 and 1996..... 5
d) Notes to Condensed Consolidated Financial Statements..... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and
Results of Operations....................................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 19
Item 2. Changes in Securities....................................... 19
Item 3. Defaults Upon Senior Securities............................. 19
Item 4. Other Information........................................... 19
Item 5. Exhibits and Reports on Form 8-K............................ 19
SIGNATURES........................................................... 20
</TABLE>
2
<PAGE> 79
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GLOBAL VILLAGE COMMUNICATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1997
(UNAUDITED) (AUDITED)
ASSETS ----------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 5,623 $ 9,687
Accounts receivable, net.................................. 9,402 4,324
Inventories, net.......................................... 2,882 2,071
Income tax receivable..................................... -- 7,665
Other current assets...................................... 488 343
------- -------
Total current assets.............................. $18,395 $24,090
Property and equipment, net................................. 4,599 6,929
Investment in AirMedia, Inc................................. -- 4,043
Other assets................................................ 54 138
------- -------
Total assets...................................... $23,048 $35,200
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $11,753 $15,971
Accrued and other liabilities............................. 6,107 7,638
Line of credit borrowings................................. -- 4,241
------- -------
Total current liabilities......................... $17,860 $27,850
Stockholders' equity........................................ 5,188 7,350
------- -------
Total liabilities and stockholders' equity........ $23,048 $35,200
======= =======
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
3
<PAGE> 80
GLOBAL VILLAGE COMMUNICATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue..................................... $ 16,185 $ 10,466 $ 49,192 $ 71,207
Cost of revenue................................. 11,358 25,451 33,712 68,939
-------- -------- -------- --------
Gross profit (deficit)........................ 4,827 (14,985) 15,480 2,268
-------- -------- -------- --------
Operating expenses:
Research and development...................... 2,099 3,132 7,243 9,575
Marketing and sales........................... 3,634 11,653 10,637 25,234
General and administrative.................... 812 2,564 3,263 5,930
Restructuring costs........................... -- 1,297 -- 1,297
Loss from investment in Global Center, Inc.... -- -- -- 2,191
-------- -------- -------- --------
Total operating expenses...................... 6,545 18,646 21,143 44,227
-------- -------- -------- --------
Loss from operations.......................... (1,718) (33,631) (5,663) (41,959)
Loss from sale of investment in AirMedia,....... -- -- (2,074) --
Gain from sale of investment in Global Center,
Inc........................................... -- -- 3,691 --
Other income, net............................... 111 80 412 633
-------- -------- -------- --------
Loss before income taxes...................... (1,607) (33,551) (3,634) (41,326)
Income tax benefit............................ -- (2,605) -- (5,401)
-------- -------- -------- --------
Loss from continuing operations............... (1,607) (30,946) (3,634) (35,925)
Discontinued operations:
Loss from discontinued operations............. -- -- -- (1,822)
Gain (loss) on disposal of discontinued
operation, net of taxes.................... 1,331 (9,800) 1,331 (7,667)
-------- -------- -------- --------
Net Loss........................................ $ (276) $(40,746) $ (2,303) $(45,414)
======== ======== ======== ========
Basic earnings per share:
Loss from continuing operations............... $ (0.09) $ (1.85) $ (0.21) $ (2.14)
Income (loss) from discontinued............... 0.07 (0.59) 0.07 (0.57)
-------- -------- -------- --------
Net loss per share.............................. $ (0.02) $ (2.44) $ (0.14) $ (2.71)
======== ======== ======== ========
Basic weighted average shares outstanding....... 16,981 16,725 16,965 16,771
======== ======== ======== ========
Diluted earnings per share:
Loss from continuing operations............... $ (0.09) $ (1.85) $ (0.21) $ (2.14)
Income (loss) from discontinued operation..... 0.07 (0.59) 0.07 (0.57)
======== ======== ======== ========
Net loss per share.............................. $ (0.02) $ (2.44) $ (0.14) $ (2.71)
======== ======== ======== ========
Diluted weighted average shares outstanding..... 16,981 16,725 16,965 16,771
======== ======== ======== ========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
4
<PAGE> 81
GLOBAL VILLAGE COMMUNICATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (2,303) $(45,414)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 2,512 2,592
Deferred income taxes................................ -- 3,234
(Gain) loss on GlobalCenter, Inc. investment......... (3,691) 2,191
Loss from sale of investment in AirMedia, Inc. ...... 2,074 --
Non cash restructuring costs......................... -- 1,176
Loss on disposal of property and equipment........... 121 --
Changes in assets and liabilities:
Accounts receivable, net............................. (5,078) 7,017
Inventories.......................................... (811) (1,995)
Income taxes receivable.............................. 7,665 (8,344)
Other current assets................................. (145) 1,246
Accounts payable..................................... (4,218) 13,052
Accrued and other liabilities........................ (1,476) 248
Income taxes payable................................. -- (335)
-------- --------
Net cash used in operating activities of:
Continuing operations................................ (5,350) (25,332)
Discontinued operations.............................. (55) 4,814
-------- --------
Net cash used in operating activities............. (5,405) (20,518)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment in GlobalCenter,
Inc................................................. 3,691 --
Proceeds from sale of investment in AirMedia, Inc.... 1,969 --
Purchases of property and equipment.................. (303) (1,598)
Other assets......................................... 84 (1)
Purchases of short-term investments.................. -- (23,217)
Proceeds from sales and maturities of short-term
investments......................................... -- 45,035
Investment in AirMedia, Inc.......................... -- (4,043)
Investment in GlobalCenter, Inc...................... -- (1,548)
-------- --------
Net cash provided by investing activities......... 5,441 14,628
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under line of credit...................... (4,241) 8,000
Payments on repurchases of Common Stock.............. -- (1,161)
Proceeds from issuance of Common Stock, net.......... 141 785
-------- --------
Net cash used in financing activities............. (4,100) 7,624
-------- --------
Effect of exchange rate changes on cash and cash
equivalents........................................... -- (247)
-------- --------
Net increase (decrease) in cash and cash equivalents........ (4,064) 1,487
Cash and cash equivalents at beginning of period............ 9,687 15,900
-------- --------
Cash and cash equivalents at end of period.................. $ 5,623 $ 17,387
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest............................................... $ 172 $ 8
Income taxes........................................... $ -- $ 44
Non-cash investing and financing activities:
Non-cash net assets contributed to GlobalCenter,
Inc................................................... $ -- $ 643
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
5
<PAGE> 82
GLOBAL VILLAGE COMMUNICATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim condensed consolidated financial statements as of December 31,
1997 and for the three and nine months ended December 31, 1997 and 1996, include
all adjustments (consisting of only normal recurring adjustments) that in the
opinion of management are necessary to present fairly the financial information
set forth therein, in accordance with generally accepted accounting principles.
Certain reclassifications have been made for consistent presentation. These
financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto contained in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1997.
The Company's interim results are subject to fluctuation. As a result, the
Company believes the results of operations for the interim periods are not
necessarily indicative of the results to be expected for any future period.
2. NET INCOME (LOSS) PER SHARE
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share", which modified the computation and presentation of
earnings per share (EPS) in a manner comparable to international guidelines. The
new standard requires the Company to present both "basic" and "diluted" EPS data
on the face of the income statement for all periods presented. This replaced
"primary" and "fully diluted" EPS, as prescribed by Accounting Principles Board
(APB) No. 15, "Earnings Per Share".
Basic EPS excludes dilution from common stock equivalents and is computed
by dividing income (loss) available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
potential dilution from common stock equivalents and is calculated by dividing
net income (loss) by the weighted average number of common and common equivalent
shares outstanding during the period. No common stock equivalents are considered
in periods such as those presented in which a net loss is reported because such
common stock equivalents are antidilutive.
All prior periods have been restated, as required, to reflect the adoption
of this standard. The following table sets forth the results of that
restatement:
6
<PAGE> 83
GLOBAL VILLAGE COMMUNICATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RESTATED COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997
THREE MONTHS ENDED: -------- ------------- ------------
<S> <C> <C> <C>
Net loss from continuing operations........................ $ (1,975) $ (52) $ (1,607)
-------- -------- --------
Discontinued Operations:
Loss from discontinuing operations....................... $ -- $ -- $ --
Gain (loss) on disposal of discontinued operations, net
of taxes.............................................. -- -- 1,331
-------- -------- --------
Net income (loss).......................................... $ (1,975) $ (52) $ (276)
======== ======== ========
Shares used in the computation of net income (loss) per
share:
Basic.................................................... 16,934 16,979 16,981
Dilutive effect of stock options......................... -- -- --
-------- -------- --------
Diluted.................................................. 16,934 16,979 16,981
======== ======== ========
Basic earnings per share:
Loss from continuing operations.......................... $ (0.12) $ (0.00) $ (0.09)
Income (loss) from discontinued operations............... -- -- 0.07
-------- -------- --------
Net income (loss).......................................... $ (0.12) $ (0.00) $ (0.02)
======== ======== ========
Diluted earnings per share:
Loss from continuing operations.......................... $ (0.12) $ (0.00) $ (0.09)
Income (loss) from discontinued operations............... -- -- 0.07
-------- -------- --------
Net income (loss).......................................... $ (0.12) $ (0.00) $ (0.02)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997
YEAR ENDED MARCH 31: -------- ------------- ------------
<S> <C> <C> <C>
Net income (loss) from continuing operations............... $ (6,206) $ 12,148 $(35,852)
-------- -------- --------
Discontinued Operations:
Loss from discontinuing operations....................... $ (1,466) $ (3,312) $ (1,822)
Gain (loss) on disposal of discontinued operations, net
of taxes.............................................. -- -- (2,207)
-------- -------- --------
Net income (loss)................................ $ (7,672) $ 8,836 $(39,881)
======== ======== ========
Shares used in the computation of net income (loss) per
share:
Basic.................................................... 14,633 16,529 16,844
Dilutive effect of stock options......................... -- 1,332 --
-------- -------- --------
Diluted.................................................. 14,633 17,861 16,844
======== ======== ========
Basic earnings per share:
Income (loss) from continuing operations................. $ (0.42) $ 0.73 $ (2.13)
Income (loss) from discontinued operations............... (0.10) (0.20) (0.24)
-------- -------- --------
Net income (loss).......................................... $ (0.52) $ 0.53 $ (2.37)
======== ======== ========
Diluted earnings per share:
Income (loss) from continuing operations................. $ (0.42) $ 0.68 $ (2.13)
Income (loss) from discontinued operations............... (0.10) (0.19) (0.24)
-------- -------- --------
Net income (loss).......................................... $ (0.52) $ 0.49 $ (2.37)
======== ======== ========
</TABLE>
7
<PAGE> 84
GLOBAL VILLAGE COMMUNICATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVENTORIES
Inventories are stated at standard cost, which approximates the lower of
cost (first-in, first-out method) or market. Inventories consisted of (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1997
----------------- --------------
<S> <C> <C>
Purchased parts............................... $ -- $ 199
Work in process............................... -- 369
Finished goods................................ 2,882 1,503
------ ------
$2,882 $2,071
====== ======
</TABLE>
4. LINE OF CREDIT
The Company has a line of credit agreement with a bank which expires in
April 1999. Borrowings under the agreement bear interest at the bank's prime
rate plus 2.5%. The total borrowings are limited to the lesser of $5,000,000 or
60% of eligible receivables, as defined, and are collateralized by all of the
Company's assets. The agreement contains various financial covenants and
restrictions, including restrictions on the Company's ability to pay dividends
or to effect mergers or acquisitions. As of December 31, 1997, there were no
borrowings under this line of credit and the Company was in compliance with all
covenants and restrictions.
5. SALE OF INVESTMENTS
In September 1997, the Company agreed to sell its equity stake in
GlobalCenter, Inc. ("GlobalCenter") to an existing shareholder of GlobalCenter
for approximately $3.7 million in cash. As a result, the Company recorded a gain
of $3.7 million.
In July 1997, the Company sold substantially all of its investment in
AirMedia, Inc. ("AirMedia") to an existing shareholder of AirMedia for
approximately $2.0 million in cash. As a result, the Company recorded a loss of
$2.1 million on the sale of the investment in AirMedia in the second quarter of
fiscal 1998.
6. DISCONTINUED OPERATIONS
In the second quarter of fiscal 1997, the Company adopted a formal plan to
discontinue its enterprise network server operation based in the United Kingdom
(formerly, the Company's ISDN Division). The disposition of the division has
been accounted for as a discontinued operation in accordance with Accounting
Principles Board (APB) No. 30 and prior period financial statements have been
restated to reflect the discontinuation of the enterprise network server
operation.
During fiscal 1997 the Company reserved approximately $2.0 million for
contingent liabilities associated with the disposition of the operation. During
the quarter ended December 31, 1997, the Company determined that some of these
contingencies had been resolved and as a result released $1.3 million of the
reserve.
7. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". This Statement establishes standards for reporting and displaying
comprehensive income and its components in the financial statements. It does
not, however, require a specific format for the statement, but requires the
Company to display an amount representing total comprehensive income for the
period in that financial statement. The Company is in the process of determining
its preferred format. This Statement is effective for the Company's fiscal year
ending March 31, 1999.
Also, in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Statement establishes
standards for the manner in which public business
8
<PAGE> 85
GLOBAL VILLAGE COMMUNICATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
enterprises report information about operating segments in annual financial
statements and requires those enterprises to report selected information about
operating segments in interim financial reports issued to stockholders. This
Statement is effective for financial statements for years beginning after
December 15, 1997, and the Company has not yet determined the impact of adopting
the additional reporting requirements.
9
<PAGE> 86
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto, and with the
Company's audited consolidated financial statements and notes thereto for the
fiscal year ended March 31, 1997. 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 risk factors and other cautionary
disclosures set forth below and elsewhere in this report.
OVERVIEW
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 users of 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
access the Internet and other information services, connect to a remote
organization's internal network, send and receive faxes and e-mail from their
computers and communicate efficiently with colleagues, customers and suppliers.
Global Village produces modems, telecommunications servers, and proprietary
communications software for both individual users and network users.
The Company's individual-use system products include TelePort modems for
Macintosh and Windows desktop computer users, PC Card modems (including
PowerPort) for Macintosh PowerBook and Windows portable computer users and
internal modems provided to Apple Computer Inc. ("Apple") on an Original
Equipment Manufacturer ("OEM") basis. The Company's products for Macintosh and
Windows based personal computers are characterized by a highly integrated,
proprietary software and hardware design which makes computer communications
easy for the average user.
The Company's line of network products includes FaxWorks Server NT and
FaxWorks Pro LAN, software for providing fax services to office workgroups
utilizing Windows NT, Windows 3.1, and OS/2 operating systems. The OneWorld
series of telecommunication server systems for Macintosh provides shared fax,
dial-out modem, and remote network access capabilities to small workgroups.
The Company's core software technologies, FaxWorks communications software
for Windows, OS/2 and DOS operating systems, GlobalFax communications software
for Macintosh systems, and embedded software underlying Global Village's server
systems, provide a consistent, user-friendly interface across individual and
network product lines. For Windows, the Company also provides integrated
communication software to OEMs.
The Company 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, IBM-compatible personal computer (PC) manufacturers, the
Company or its competitors; customer acceptance of, and transition to, 56Kbps
products, including the Company's 56Kbps product line; uncertainty surrounding
the introduction and customer acceptance of the proposed ITU 56K standard; the
sales rates of Apple Macintosh personal computers and PCs; the size and timing
of individual orders; market price reductions; product returns; market
acceptance of new products and technology; risks related to delays in product
development; introductions of new technologies or standards; seasonality of
revenues; customer order deferrals, accelerations, and payments of accounts
receivable in anticipation of new products; changes in the Company's operating
expenses; the Company's ability to establish distribution channels for new
products; 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 an 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
10
<PAGE> 87
products as the time from product introduction elapses. The Company routinely
institutes significant price reductions and/or rebates with respect to its
products and expects that competitive pressures will continue to necessitate
price reductions. In particular, the Company expects the trend of reduced
average selling prices for its individual use products to continue during fiscal
1998. There can be no assurance that the trend of reduced average selling prices
will not accelerate in the future.
In May 1996, Apple announced a repair program for its Powerbook 5300 and
190 laptop computers which was effectively a recall of defective Apple Macintosh
computers. As a result of the repair program, the Company experienced
significantly reduced sales of its products. Sales of such products have not
returned to the levels achieved prior to Apple's announcement and the Company
does not believe that it will achieve such sales levels in the foreseeable
future. The Company therefore expects that revenues and/or gross margins from
its products for the Apple Macintosh family could 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 other products to compensate for any shortfall in revenues from its
Apple platform products. In the near-term, the Company expects to see continued
weakness in the Macintosh market. The Company believes its ability to return to
growth depends in part on the success of new product developments. There can be
no assurance that these efforts will be successful. Furthermore, the success of
these efforts may not be known for a number of quarters. Any price reduction or
decrease in sales volume could have a material adverse effect on the Company's
results of operations.
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.
To date, a substantial majority of the Company's revenue has been
attributable to sales of its TelePort and PowerPort product lines for 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 products, the Company's ability to successfully reduce or control various
operating expenses as well as the Company's ability to build distribution
channels and generate increased sales of products for Windows based computers,
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 has written down inventory that it considers to be excess or
obsolete, there can be no assurance that the Company's write downs will be
adequate, and a material increase in such write downs and returns over
historical rates would have a material adverse effect on the Company's results
of operations and working capital.
The Company's manufacturing operations consist primarily of turnkey
managers, program managers, quality assurance, packaging and shipping personnel.
For substantially all of its hardware assemblies, the Company purchases fully
manufactured and tested units from CMC, a "turnkey" manufacturing subcontractor.
Components and manufacturing services from the Company's suppliers are obtained
on an as-needed basis. To date, the Company's turnkey manufacturer has provided
credit to the Company as part of its relationship to manufacture the Company's
products. While the Company believes its relationship with its turnkey
manufacturer is good, if such party were to change its policies regarding
providing credit to the
11
<PAGE> 88
Company, the Company could be required to expend additional funds for the
production of its products, which could materially adversely affect the
Company's financial condition. While the Company believes that there are a
number of alternative contract manufacturers that could produce the Company's
products, it could take a significant period of time and result in significant
additional expense to qualify alternative subcontractors and commence
manufacturing in the event of a reduction or interruption of production.
Therefore, the Company is highly dependent on its continued relationship with
its primary "turnkey" manufacturing subcontractor and any change or reduction or
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 and services used in its products particularly the modem chip
sets designed and manufactured by Rockwell International and Texas Instruments.
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 and working capital.
The following table sets forth, for the periods indicated, the percentage
relationship to net revenue of certain items in the Company's consolidated
statements of operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue................................. 100% 100% 100% 100%
Cost of revenue............................. 70 243 69 97
---- ---- ---- ----
Gross profit................................ 30 (143) 31 3
---- ---- ---- ----
Operating expenses:
Research and development.................. 13 30 15 13
Marketing and sales....................... 22 111 21 36
General and administrative................ 5 25 7 8
Loss from investment in GlobalCenter,
Inc. .................................. -- -- -- 3
Restructuring costs....................... -- 12 -- 2
---- ---- ---- ----
Total operating expenses.................. 40 178 43 62
---- ---- ---- ----
Loss from operations........................ (10) (321) (12) (59)
Loss on sale of investment in AirMedia,
Inc....................................... -- -- (4) --
Gain on sale of investment in GlobalCenter,
Inc....................................... -- -- 8 --
Other income, net........................... -- 1 1 1
---- ---- ---- ----
Loss before income taxes.................... (10) (320) (7) (58)
Income tax benefit.......................... -- 25 -- (8)
---- ---- ---- ----
Loss from continuing operations............. (10) (295) (7) (50)
Discontinued operations:
Loss from discontinued operations......... -- -- -- (3)
Gain (loss) on disposal of discontinued
operations, net of taxes............... 8 (94) 3 (11)
---- ---- ---- ----
Net income (loss)........................... (2)% (389)% (4)% (64)%
==== ==== ==== ====
</TABLE>
NET REVENUE
Net revenue includes revenue from gross shipments, licenses and royalties,
less reserves for returns and allowances. Net revenue increased 55% to $16.2
million for the third quarter of fiscal 1998 from $10.5 million for the third
quarter of fiscal 1997. For the nine months ended December 31, 1997, net revenue
decreased 31%
12
<PAGE> 89
to $49.2 million compared to $71.2 million during the same period ended December
31, 1996. The increase in net revenues for the third quarter of fiscal 1998 as
compared to the third quarter of fiscal 1997 is primarily attributable to a
decrease in actual and anticipated product returns for certain products from
resellers and distributors. The decrease in net revenue for the nine months
ended December 31, 1997 as compared to the same period of the prior year was
primarily attributable to decreased shipments of Teleport and Powerport
products. Shipments of these products were adversely affected by continued
weakness in the market for Apple Computer products and the technology transition
to 56Kbps modems. Lower unit shipments of Apple's computers reduced demand for
the Company's products. In addition, during the nine month period ended December
31, 1997, the Company's OEM revenue from Apple was lower than in the comparable
period of fiscal 1997.
International revenue increased slightly to $2.2 million or 14% of net
revenues for the third quarter of fiscal 1998 compared to $1.9 million or 18%
for the third quarter of fiscal 1997. For the nine months ended December 31,
1997, international revenue totaled $6.3 million or 13% of total net revenue
compared to $10.2 million or 14% of total net revenue for the same period in the
prior year. The decrease in international revenue for the nine month period
ended December 31, 1997 is due to the continued weakness in the market for Apple
Computer products and the slow transition to 56Kbps modems.
Revenue reserves and allowances are established for estimated future
returns due to stock balancing and discontinued and nonsaleable products based
on the Company's past experience and internal forecasts. There can be no
assurance that the Company's historical experience regarding returns and
allowances will continue or that its projections will prove accurate. If the
Company experiences returns in excess of its reserves, the Company's results of
operations could be materially, adversely effected.
COST AND EXPENSES
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
increased to 30% for the third quarter of fiscal 1998, from (143%) for the third
quarter of fiscal 1997. Gross profit as a percentage of net revenue increased to
31% for the nine month period ended December 31, 1997, from 3% for the nine
month period ended December 31, 1996. The increase in gross profit margins in
the third quarter of fiscal 1998 and in the nine months ended December 31, 1997,
as compared to the same periods in fiscal 1997, were primarily due to
significant inventory reserves for returns of slow moving products and inventory
write-downs recorded in the third quarter of fiscal 1997. Gross profit margins
are likely to fluctuate as a result of the sales mix between lower and higher
margin products, the nature and amount of licensing and royalty income, and
changes in distribution channels, as well as changes in component and production
costs, price reductions and reserve requirements. In particular, the Company
expects that over the next several quarters, pricing pressures will continue,
the mix of products will change, and new products will be introduced by the
Company's competitors, all of which may have an adverse effect on the gross
margins from the Company's products
Research and development expenses decreased 32% to $2.1 million or 13% of
net revenues for the third quarter of fiscal 1998 from $3.1 million or 30% of
net revenues in the comparable quarter of fiscal 1997. For the nine months ended
December 31, 1997, research and development expenses declined 25% to $7.2
million or 15% of net revenues from $9.6 million or 13% in the comparable fiscal
1997 period. The decline in research and development expenses in the three and
nine month periods of fiscal 1998 are primarily related to a reduction in
personnel costs and increased control of discretionary expenditures.
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 SFAS
No. 86, "Accounting for the 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 such costs have been capitalized to date.
Marketing and sales expenses decreased 69% to $3.6 million or 22% of net
revenues in the third quarter of fiscal 1998 compared to $11.7 million or 111%
of net revenues during the same period of fiscal 1997. For the
13
<PAGE> 90
nine months ended December 31, 1997, marketing and sales expenses decreased 58%
to $10.6 million or 21% of net revenues from $25.2 million or 36% of net
revenues for the same period in the prior year. The decline in marketing and
sales expenses in the three and nine month periods of fiscal 1998 is primarily
due to reduced advertising and promotion expenses and to a reduction in
personnel costs.
General and administrative expenses decreased 69% to $.8 million or 5% of
net revenues in the third quarter of fiscal 1998 from $2.6 million or 7% of net
revenues in fiscal 1997. For the nine months ended December 31, 1997, general
and administrative expenses decreased 44% to $3.3 million or 7% of net revenues
from $5.9 million or 8% of net revenues for the same period in the prior year.
The decline in general and administrative expenses in the three and nine month
periods ended December 31, 1997 is primarily due to a reduction in legal, bad
debt reserve, telecommunications and other discretionary expenditures.
In July 1997, the Company sold substantially all of its investment in
AirMedia, Inc. for approximately $2.0 million in cash and recorded a loss of
$2.1 million on the sale of the investment in AirMedia in the second quarter of
fiscal 1998.
In December 1996, the Company announced a restructuring plan to streamline
its operations, reduce its workforce and enable the Company to improve its
operating results. The Company recorded a restructuring charge of $1.3 million
related primarily to severance costs, fixed assets write-offs and lease
abandonments.
In April 1996, Global Village announced that it had incorporated its
Internet Services Division as a standalone business called GlobalCenter, Inc. At
the same time, the Company announced that UUNET Technologies, Inc. had acquired
an equity interest in GlobalCenter, Inc. At that time, the Company no longer had
the ability to exercise significant control over GlobalCenter. Accordingly, the
Company no longer consolidated the results of GlobalCenter and began to account
for its investment using the equity method of accounting. As a result of the
refinancing and operating performance of GlobalCenter during the first quarter
of fiscal 1997, the Company recorded an investment loss of $2.2 million and
reduced the book value of its investment to zero. In December 1996, GlobalCenter
entered into a definitive merger agreement whereby GlobalCenter and
Phoenix-based Primenet Services for the Internet, Inc. merged, reducing the
Company's percentage ownership below 10%. Accordingly, in the third quarter of
fiscal 1997, the Company began accounting for its investment in GlobalCenter
using the cost method of accounting. In September 1997, the Company agreed to
sell its equity stake in GlobalCenter for approximately $3.7 million in cash and
recorded a gain of $3.7 million in the second quarter of fiscal 1998.
Net other income was $.1 million for the third quarter of fiscal 1998
unchanged from $.1 million for the third quarter of fiscal 1997. For the nine
months ended December 31, 1997, net other income was $.4 million compared to $.6
million for the same period in the prior year.
During fiscal 1997, the Company adopted a formal plan to discontinue its
enterprise network server operation and accounted for its disposition as a
discontinued operation in accordance with Accounting Principles Board (APB)
Opinion No. 30. During fiscal 1997 the Company reserved approximately $2.0
million for contingent liabilities associated with the disposition of the
operation. During the quarter ended December 31, 1997, the Company determined
that some of these contingencies had been resolved and as a result released $1.3
million of the reserve.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents totaled $5.6 million at December
31, 1997, representing 24% of total assets. The Company's working capital was
approximately $.5 million at December 31, 1997 as compared to a deficit of $3.8
million at March 31, 1997, an improvement of $4.3 million. The increase in
working capital was primarily due to the sale of the Company's investments in
AirMedia, Inc. and GlobalCenter, Inc. (See Note 5).
At December 31, 1997, the Company's principal source of liquidity was $5.6
million in cash and an unused line of credit which allows the Company to borrow
up to the lower of $5.0 million or 60% of eligible accounts receivable (see Note
4).
14
<PAGE> 91
The Company does not expect fiscal 1998 capital expenditures to exceed
historical levels and may be reduced. During the past several quarters, the
Company has experienced significant negative cash flows and could do so in
future quarters. In addition, the Company anticipates that sales to Apple in the
fourth quarter of fiscal 1998 will be substantially reduced, which will have a
material adverse affect on the Company's financial condition and results of
operations. However, the Company currently believes that its existing cash and
funds available under its credit facility will enable the Company to meet its
short-term needs. The preceding are forward-looking statements. The Company's
funding requirements may change at any time due to various factors, including
the results and timing of the Company's launch of new products and services, the
Company's relationship with its turnkey manufacturer, the Company's operating
results, the Company's ability to reduce or control various operating expenses
through cost containment measures or operating reductions, the success of the
Company's marketing efforts, technological advances and competition. In the
longer term, the Company may be required to raise additional capital, which
could require the Company to issue additional debt or equity securities which
could be substantially dilutive to the ownership of existing stockholders. There
can be no assurance that any such funding will be available on acceptable terms
or at all. Any shortfall in funding could result in the Company having to
curtail the introduction or development of new products, its entry into new
markets and its other marketing efforts, any of which could have a material
adverse affect on the Company's business, financial condition and results of
operations.
CERTAIN ADDITIONAL FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
In addition to the other information in this Quarterly Report, one should
carefully consider the following factors in evaluating the Company.
PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE
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's 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
computer platforms and new technical standards resulting from increases in data
transmission speed and wireless communication, as well as new form factors. For
example, recently an ITU standard for 56K modems has been proposed. 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-down inventory that it considers to be
excessive or obsolete, the Company has in the past recorded inventory
write-downs in excess of available reserves. There can be no assurance that the
Company's recorded allowances for such write-downs will be adequate in the
future, and material write-downs 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.
MARKET ANTICIPATION OF NEW PRODUCTS, NEW TECHNOLOGIES OR STANDARDS, OR LOWER
PRICES
Since the environment in which the Company operates is characterized by
rapid new product and technology introductions and generally falling prices for
existing products, the Company's customers may from time to time postpone
purchases in anticipation of such new product introductions or lower prices. If
such anticipated changes are viewed as significant by the market, such as the
introduction of faster modem technologies, then this may have the effect of
temporarily slowing overall market demand and negatively impacting the Company's
operating results. For example, the 56Kbps modem market has been plagued with
15
<PAGE> 92
customer confusion and general slow acceptance due to the existence of two
competitive technologies, X2 and K56 Flex. Although the Company has made product
offerings using both protocols, consumers appear to be delaying purchases until
a single standard emerges. Recently, an ITU standard for 56K modems has been
proposed. Confusion surrounding this standard or its adoption could result in
continued delay in consumer's purchases of modems. Consequently, delays in the
market acceptance of 56Kbps technology based modems could have a material effect
on the Company's business, financial condition and results of operation.
DEPENDENCE ON APPLE MACINTOSH FAMILY OF COMPUTERS; ADVERSE EFFECT OF REDUCED
APPLE SALES
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 continued weakness in demand for Apple products,
expected continuing pricing pressures and new product introductions by the
Company's competitors, the Company expects that revenues 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 other
products to compensate for any shortfall in revenues from its Apple products.
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.
Apple in the past has experienced difficulty in making the transition
associated with the development, manufacturing, marketing, and sale of certain
new computers. In this regard, the Company anticipates that there will be
ongoing transitions within the Apple product line. These transitions will
subject the Company to the risks that (i) potential customers will defer
purchases of current products as a result of, among other things, speculation or
premature announcements about new products, discontinuance of product lines or
corporate restructuring; (ii) the 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, including, among others,
new PowerBook products and new desktop computers, would 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.
DEPENDENCE ON RELATIONSHIP WITH APPLE
The Company relies on its working relationship with Apple, which has
included and includes collaborative product development, sharing of information,
product sales to Apple and licensing of Apple technology. Apple is not
contractually obligated to continue such collaborative development or
information sharing activities and could discontinue such activities at any
time. In addition, Apple is not contractually obligated to renew its licenses
with the Company or purchase the Company's products. Apple is collaborating with
other vendors of communications products that compete with the Company's
products, and Apple may elect not to renew its licenses with the Company in the
future. The Company has, in the past, experienced interruptions in the sale of
its products to Apple, and there is no guarantee these sales will continue. In
particular, the Company expects that sales to Apple in the fourth quarter of
fiscal 1998 will be substantially reduced which will have a short-term material
adverse effect on the Company's results. The Company believes that this
situation may be a temporary reduction in sales to Apple. The preceding are
forward-looking statements. 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. There can be no
assurance that Apple will continue to cooperate with the Company, and the
inability of the Company to maintain and further develop its relationship with
Apple would have a material adverse effect on the Company's results of
operations. There
16
<PAGE> 93
can be no assurance that Apple will not initiate product repair/recall programs
in the future for its Macintosh computers, which if it did, would have an
adverse impact on the revenues of the Company.
COMPETITION
The market for the Company's products is intensely competitive and
characterized by rapidly changing technology, evolving industry communication
standards and frequent new product introductions. A number of competitors 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, communications software vendors, microprocessor and chip
set suppliers, networking equipment suppliers, fax machine manufacturers,
personal computer manufacturers, paging companies and telecommunications
companies could seek to expand their product offerings by designing and selling
products using competitive technology that could render the Company's products
obsolete or have a material adverse effect on sales of the Company's products.
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 could have a material
adverse effect on the Company's results of operations.
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 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 prices of the Company's
products would negatively affect gross profit as a percentage of net revenue and
would require the Company to increase unit sales in order to maintain net
revenue.
RELIANCE ON DISTRIBUTORS
A majority of the Company's net revenue is derived from sales to
distributors that are not under the direct control of the Company. 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. Under certain conditions,
the Company offers stock balancing and price protection programs to its
distributors. Therefore, the Company is exposed to the risk of product returns
and price protection allowances 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.
DEPENDENCE ON KEY PERSONNEL
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 operations. The
Company believes that its future success will depend in large part on its
abilities 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.
If the Company were to fail to replace or retain its key employees or attract
additional key employees, the Company's results of operations could be
materially adversely effected. The Company has no employment agreements with any
of its key employees.
17
<PAGE> 94
INTELLECTUAL PROPERTY AND 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
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 assurances 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 is aware of products in addition to its own that are marketed
under the trademarks "PowerPort," "TelePort," "GlobalFax," "Focal Point" and
"OneWorld." The Company also is aware of a company that operates under the name
Global Villages and provides computer-related services. There can be no
assurance that litigation with respect to these trademarks will not be
instituted by any such parties or by others. 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.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been volatile and
trading volumes have been relatively low. Factors such as variations in the
Company's revenue, operating results and cash flow and announcements of
technological innovations or price reductions by the Company, its competitors,
Apple, PC manufacturers, or providers of alternative products could cause the
market price of the Company's Common Stock to fluctuate substantially. In
addition, the stock markets have experienced significant price and volume
fluctuations that particularly have affected technology-based companies and
resulted in changes in the market prices of the stocks of many companies that
have not been directly related to the operating performance of those companies.
Such broad market fluctuations may adversely affect the market price of the
Company's Common Stock.
ANTI-TAKEOVER PROVISIONS
The Company's Board of Director's has the authority to issue up to
5,000,000 shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action by
the stockholders. The rights of the holders of the Company's Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any Preferred Stock that may be issued in the future. While the Company has no
present intention to issue shares of Preferred Stock, any such issuance could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. In addition, the
Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which could have the effect of delaying or
preventing a change of control of the Company. Furthermore, certain provision of
the Company's Certificate of Incorporation may have the effect of delaying or
preventing changes in control or management of the Company, which could
adversely affect the market price of the Company's Common Stock.
18
<PAGE> 95
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. OTHER INFORMATION
Not applicable.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibits
11.1 Computation of Net Income (Loss) Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1997.
19
<PAGE> 96
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
Global Village Communication, Inc.
Date: February 17, 1998 /s/ NEIL SELVIN
--------------------------------------------------------
President and Chief Executive Officer
Date: February 17, 1998 /s/ MARC E. LINDEN
--------------------------------------------------------
Senior Vice President Finance
and Business Development;
Chief Financial Officer
</TABLE>
20
<PAGE> 97
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
11.1 Computation of Net Income (Loss) Per Share
27.1 Financial Data Schedule
</TABLE>
<PAGE> 98
EXHIBIT 11.1
GLOBAL VILLAGE COMMUNICATION, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss from continuing operations............. $ (1,607) $(30,946) $ (3,634) $(35,925)
-------- -------- -------- --------
Discontinued Operations:
Loss from discontinuing operations............ $ -- $ -- $ -- $ (1,822)
Gain (loss) on disposal of discontinued
operations,
net of taxes............................... 1,331 (9,800) 1,331 (7,667)
-------- -------- -------- --------
Net income (loss)............................... $ (276) $(40,746) $ (2,303) $(45,414)
======== ======== ======== ========
Shares used in the computation of net income
(loss)
per share:
Basic......................................... 16,981 16,725 16,965 16,771
Dilutive effect of stock options.............. -- -- -- --
-------- -------- -------- --------
Diluted....................................... 16,981 16,725 16,965 16,771
======== ======== ======== ========
Basic earnings per share:
Loss from continuing operations............... $ (0.09) $ (1.85) $ (0.21) $ (2.14)
Income (loss) from discontinued operations.... 0.07 (0.59) 0.07 (0.57)
-------- -------- -------- --------
Net income (loss)............................... $ (0.02) $ (2.44) $ (0.14) $ (2.71)
======== ======== ======== ========
Diluted earnings per share:
Loss from continuing operations............... $ (0.09) $ (1.85) $ (0.21) $ (2.14)
Income (loss) from discontinued operations.... 0.07 (0.59) 0.07 (0.57)
-------- -------- -------- --------
Net income (loss)............................... $ (0.02) $ (2.44) $ (0.14) $ (2.71)
======== ======== ======== ========
</TABLE>
<PAGE> 99
ANNEX C
[HAMBRECHT & QUIST LLC LETTERHEAD]
March 31, 1998
Confidential
The Board of Directors
Global Village, Inc.
1144 East Arques Avenue
Sunnyvale, CA 94086
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Global Village, Inc. ("Global Village" or the "Company") of the
consideration to be received by the Company in connection with the proposed
acquisition by Boca Research, Inc. (together with its affiliates, "Boca" or the
"Acquirer") of certain assets (the "Modem Business") of Global Village (the
"Proposed Transaction") under the terms of the Asset Purchase Agreement, dated
as of March 31, 1998, among Global Village and Boca and the related Exhibits and
Schedules thereto (the "Agreement"). The Agreement provides, among other things,
that Boca will pay to Global Village, upon consummation of the Proposed
Transaction, $10 million in cash, consisting of payments of $4 million at
closing and subsequent payments of $3 million each on September 30, 1998 and
December 30, 1998. Boca will also assume certain liabilities related to the
Modem Business upon consummation of the Proposed Transaction as further set
forth in the Agreement.
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment
banking services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We have acted as a financial advisor to the Board of
Directors of Global Village in connection with the Proposed Transaction, and we
will receive a fee for our services, which include the rendering of this
opinion.
In the past, we have provided investment banking and other financial
advisory services to Global Village and have received fees for rendering these
services. In 1994, Hambrecht & Quist acted as a managing underwriter in the
Company's initial public offering. In the ordinary course of business, Hambrecht
& Quist acts as a market maker and broker in the publicly traded securities of
Global Village and receives customary compensation in connection therewith, and
also provides research coverage for Global Village. In the ordinary course of
business, Hambrecht & Quist actively trades in the equity and derivative
securities of Global Village for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities. Hambrecht & Quist may in the future provide additional
investment banking or other financial advisory services to Global Village.
[HAMBRECHT & QUIST LLC LETTERHEAD]
<PAGE> 100
In connection with our review of the Proposed Transaction, and in arriving
at our opinion, we have, among other things:
(i) reviewed the publicly available consolidated financial statements of
Global Village for recent years and interim periods to date and
certain other relevant financial and operating data of Global
Village made available to us from published sources and from the
internal records of Global Village;
(ii) reviewed certain internal financial and operating information,
including certain projections of the Modem Business and the Company
as a whole, relating to Global Village prepared by the management of
Global Village;
(iii) discussed the business, financial condition and prospects of Global
Village with certain of its officers;
(iv) reviewed the publicly available consolidated financial statements of
Boca for recent years and interim periods to date and certain other
relevant financial and operating data of Boca made available to us
from published sources and from the internal records of Boca;
(v) reviewed certain internal financial and operating information,
including certain cash flow projections, relating to Boca prepared
by the management of Boca;
(vi) discussed with parties other than Boca the possibility of a
transaction or series of transactions involving a business
combination with the Company or the Modem Business;
(vii) actively participated in the negotiations involving the Proposed
Transaction;
(viii) reviewed the recent reported prices and trading activity for the
common stocks of Global Village and compared such information and
certain financial information for Global Village with similar
information for certain other companies engaged in businesses we
consider comparable;
(ix) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(x) reviewed the Agreement; and
(xi) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations
and financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning Global Village and Boca
considered in connection with our review of the Proposed Transaction, and we
have not assumed any responsibility for independent verification of such
information. We have not undertaken any independent valuation or appraisal of
any of the assets or liabilities of Global Village or Boca; nor have we
conducted a physical inspection of the properties and facilities of either
company. With respect to the financial forecasts and projections made available
to us and used in our analysis, we have assumed that they reflect the best
currently available estimates and judgments of the expected future financial
performance of Global Village and Boca, respectively. For purposes of this
Opinion, we have assumed that neither Global Village nor Boca is a party to any
pending transactions, including external financings, recapitalizations or
material merger discussions, other than the Proposed Transaction and those
activities undertaken in the ordinary course of conducting their respective
businesses. Our opinion is necessarily based upon market, economic, financial
and other conditions as they exist and can be evaluated as of the date of this
letter and any change in such conditions would require a reevaluation of this
opinion.
It is understood that this letter is for the information of the Board of
Directors only and may not be used for any other purpose without prior written
consent; provided, however, that this letter may be reproduced in full in any
proxy statement relating to the Proposed Transaction. This letter does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on the Proposed Transaction.
<PAGE> 101
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the consideration to be received by Global Village in the Proposed Transaction
is fair to the Company from a financial point of view.
Very truly yours,
HAMBRECHT & QUIST LLC
By /s/ DAVID G. GOLDEN
----------------------------------------------------
David G. Golden
Managing Director
<PAGE> 102
ANNEX D
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
GLOBAL VILLAGE COMMUNICATION, INC.
Global Village Communication, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware and originally
incorporated in Delaware on December 31, 1993 (the "Corporation") does hereby
certify that:
FIRST: The Amended and Restated Certificate of Incorporation of the
Corporation, in the form attached hereto as Exhibit 1, has been duly adopted in
accordance with the provisions of Section 242 and 245 of the General Corporation
Law of the State of Delaware, by the Board of Directors of the Corporation at a
meeting duly called and held on March 30, 1998.
SECOND: The Amended and Restated Certificate of Incorporation of the
Corporation, in the form attached hereto as Exhibit 1, has been duly approved by
the affirmative vote of the holders of a majority of the outstanding shares of
the Corporation's Common Stock entitled to vote thereon, at a Special Meeting of
the Stockholders held on June 8, 1998 at the Sunnyvale Hilton Hotel, located at
1250 Lakeside Drive, Sunnyvale, California, in accordance with the provisions of
Sections 211, 242 and 245 of the General Corporation Law of the State of
Delaware.
THIRD: The Amended and Restated Certificate of Incorporation so adopted
reads in full as set forth in Exhibit 1 attached hereto and incorporated herein
by reference.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed and attested by its duly authorized officers this day of
, 1998.
GLOBAL VILLAGE COMMUNICATION, INC.
By:
--------------------------------------
Neil Selvin
President and Chief Executive
Officer
By:
--------------------------------------
Marc E. Linden
Senior Vice President, Finance and
Business
Development, CFO and Secretary
<PAGE> 103
EXHIBIT 1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ONEWORLD SYSTEMS, INC.
I.
The name of this corporation is OneWorld Systems, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 32 Loockerman Square, Suite L-100, City of Dover, County of Kent,
and the name of the registered agent of the corporation in the State of Delaware
at such address is The Prentice-Hall Corporation System, Inc.
III>
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is Thirty Five Million
(35,000,000) shares. Thirty Million (30,000,000) shares shall be Common Stock,
each having a par value of one-tenth of one cent ($.001). Five Million
(5,000,000) shares shall be Preferred Stock, each having a par value of
one-tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
(1) The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed exclusively by one or more resolutions adopted by the Board of
Directors.
(2) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances,
directors shall be elected at each annual meeting of stockholders for a
2
<PAGE> 104
term of one year. Each director shall serve until his successor is duly
elected and qualified or until his death, resignation or removal. No
decrease in the number of directors constituting the Board of Directors
shall shorten the term of any incumbent director.
(3) Subject to the rights of the holders of any series of Preferred
Stock, the Board of Directors or any individual director may be removed
from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then outstanding
shares of voting stock of the corporation entitled to vote at an election
of directors (the "Voting Stock") or (ii) without cause by the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66 2/3%)
of the voting power of all the then-outstanding shares of the Voting Stock.
(4) Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly
created directorships resulting from any increase in the number of
directors, shall, unless the Board of Directors determines by resolution
that any such vacancies or newly created directorships shall be filled by
the stockholders, except as otherwise provided by law, be filled only by
the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors, and not by the
stockholders. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the
director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
B.
(1) Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of
at least sixty-six and two-thirds percent (66- 2/3%) of the voting power of
all of the then-outstanding shares of the Voting Stock. The Board of
Directors shall also have the power to adopt, amend, or repeal Bylaws.
(2) The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
(3) No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance
with the Bylaws and following the closing of the Initial Public Offering no
action shall be taken by the stockholders by written consent.
(4) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is
presented to the Board of Directors for adoption) or (iv) by the holders of
the shares entitled to cast not less than ten percent (10%) of the votes at
the meeting, and shall be held at such place, on such date, and at such
time as the Board of Directors shall fix.
(5) Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting
of the stockholders of the corporation shall be given in the manner
provided in the Bylaws of the corporation.
VI.
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
3
<PAGE> 105
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in paragraph B of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provision of this Certificate of Incorporation
or any provision of law which might otherwise permit a lesser vote or no vote,
but in addition to any affirmative vote of the holders of any particular class
or series of the Voting Stock required by law, this Certificate of Incorporation
or any Preferred Stock Designation, the affirmative vote of the holders of at
least sixty-six and two-thirds percent (66 2/3%) of the voting power of all of
the then-outstanding shares of the Voting Stock, voting together as a single
class, shall be required to alter, amend or repeal Articles V, VI and VII.
4
<PAGE> 106
[GLOBAL VILLAGE LOGO]
FOR IMMEDIATE RELEASE
BOCA RESEARCH TO ACQUIRE GLOBAL VILLAGE MODEM BUSINESS
Retained Global Village business to be restructured under new name
and focus on growing small office networking market
BOCA RATON, FL and SUNNYVALE, CA, March 31, 1998 -- Boca Research, Inc.
(NASDAQ:BOCI) and Global Village Communication, Inc. (NASDAQ:GVIL) today
announced the signing of a definitive agreement whereby Boca Research will
purchase all of the assets relating to the Global Village modem business for
$10 million in cash and notes, plus the assumption of certain liabilities. Boca
Research will also receive a warrant to purchase up to 425,000 shares of Global
Village common stock. For the calendar year 1997, Global Village had revenues
of $68 million, most of which came from its modem products.
The sale will include a transfer to Boca Research of Global Village
intellectual property, including exclusive rights to the Global Village name,
logo and trademarks, as well as the inventory, receivables and other assets of
the modem business. In addition, the sale will include Global Village
distribution and OEM agreements associated with the TelePort, PC Cards,
GlobalFax, GlobalTransfer, and FaxWorks personal edition communications
products.
It is currently anticipated that Boca Research will finance the purchase
price with cash balances and bank financing. David Manovich, former senior vice
president, international sales and support for Apple Computer, Inc., has been
retained to facilitate the transition of the Global Village business to Boca
Research.
It is anticipated that approximately 60 people from Global Village will
join the Boca Research team. The transaction, which is subject to approval by
stockholders of Global Village and other standard closing conditions, is
expected to close in June 1998.
<PAGE> 107
BOCA RESEARCH TO ACQUIRE GLOBAL VILLAGE MODEM BUSINESS PAGE 2
"The Global Village modem business is an excellent fit with ours and
completely incremental to our revenue," said Tony Zalenski, president and chief
executive officer of Boca Research. "We're taking advantage of the consolidation
occurring in the modem industry while striving to improve our operation and
manufacturing efficiencies, engineering and product depth, distribution clout
and financial performance. This acquisition is part of our short term tactical
plan to acquire a new customer base and a manufacturing opportunity, adding
volume to our factory. Global Village is the market leader for the Apple
Macintosh modem market, whose customers have come to count on Global Village for
reliability and ease-of-use.
"We also look forward to enhancing our product line with expanded offerings
in the Internet access device and ADSL markets through the use of key
technologies and software engineering expertise we're acquiring," Zalenski
continued. "We plan to leverage the Global Village name throughout our markets,
and we are strongly committed to the continued support of their customers
worldwide. For Global Village customers, it will be business as usual. We are
pleased to welcome them and the Global Village employees to the Boca Research
family," he concluded. Global Village products will continue to be marketed
under the Global Village name and Boca Research will honor all Global Village
product warranties, upgrades and rebates.
"The reputation of Global Village's award-winning communication products
and development teams, coupled with the high manufacturing volume of Boca
Research and breadth of Windows products, creates a stronger, more powerful
entity," said Neil Selvin, president and chief executive officer of Global
Village Communication. "This transition will ensure that Global Village
customers will continue to see an ongoing stream of new products, engineered
with the same attention to ease of use and reliability that has always been a
Global Village hallmark," said Selvin. "Our modem technology and products, our
distribution channels, and our millions of end users will be in excellent hands.
Both companies anticipate that customers and channel partners will experience a
relatively seamless transition and integration."
Global Village's remaining business will be restructured to focus on a new
communication server family of products designed for use in small and medium
size offices. (See separate press release "Global Village Unveils New Corporate
Strategy for Small and Medium Office Networking Market..." issued today, March
31, 1998 at approximately 8:30 a.m. Pacific time/11:30 a.m. Eastern time.) Upon
completion of the transaction, the company will be renamed, and its stock will
trade
<PAGE> 108
BOCA RESEARCH TO ACQUIRE GLOBAL VILLAGE MODEM BUSINESS PAGE 3
on NASDAQ under a new ticker symbol. Global Village expects to incur
restructuring charges of approximately $400,000 for severance compensation
associated with a reduction in force of approximately 25 employees. Global
Village anticipates that it may incur additional restructuring-related
charges, and the amount of any such charges will be established as the details
of the restructuring are finalized.
ABOUT GLOBAL VILLAGE COMMUNICATION
With over 8 million customers, Global Village Communication, Inc.
(NASDAQ: GVIL) is a leading supplier of integrated communication solutions for
Windows and Macintosh personal computer users. Global Village sells its
products directly and through leading VARs, retailers and distributors
worldwide. For more information, please visit the Global Village web site at
http://www.globalvillage.com.
ABOUT BOCA RESEARCH
Founded in 1985, Boca Research (NASDAQ:BOCI) designs, manufactures,
markets and supports quality, cost-effective data communications,
videoconferencing, multimedia and networking products to facilitate the
transmission of information on personal computers, computer networks, and the
Internet. The company sells its products worldwide through distributors,
original equipment manufacturers (OEMs) and retailers. Boca Research is a U.S.
corporation headquartered in Boca Raton, Florida with international operations
and ventures worldwide.
<PAGE> 109
BOCA RESEARCH TO ACQUIRE GLOBAL VILLAGE MODEM BUSINESS PAGE 4
Portions of this news release contain forward-looking statements. Investors are
cautioned that all forward-looking statements involve risks and uncertainties.
Specifically, the agreement among the parties is subject to certain closing
conditions, including the receipt of consents for both companies' lenders, no
material adverse change in the companies' businesses, and the approval of Global
Village stockholders.
<PAGE> 110
[GLOBAL VILLAGE COMMUNICATION LETTERHEAD]
FOR IMMEDIATE RELEASE
GLOBAL VILLAGE UNVEILS NEW CORPORATE STRATEGY FOR SMALL AND MEDIUM SIZE OFFICE
NETWORKING MARKET; SELLS MODEM BUSINESS TO BOCA RESEARCH
SUNNYVALE, CALIF., -- March 31, 1998 -- Global Village Communication, Inc.,
(NASDAQ: GVIL) today unveiled a new corporate strategy targeting the small and
medium size office networking market and as part of that strategy, has signed a
definitive agreement to sell the assets of its modem business to Boca Research
(NASDAQ: BOCI) for $10 million in cash and notes, plus the assumption of
certain liabilities. Boca Research will also receive a warrant to purchase up
to 425,000 shares of Global Village common stock. The company will also
restructure to support a new family of communication server products that will
be announced later this year.
"This company uniquely understands how people and their communications
products should work together," said Neil Selvin, president and chief executive
officer of Global Village. "Founded on the premise of providing easy-to-use
products with a clear understanding of how individuals work in the office or on
the road, Global Village has an eight year track record of delivering
award-winning software and systems products that have helped individuals and
small and medium size offices become more productive. For example, over 13,000
OneWorld communication server products are in use by businesses around the
world, benefiting from this combination of sophisticated technology and
ease-of-use. We will expand on that heritage by announcing a new communications
server product family later this year that will provide
<PAGE> 111
GLOBAL VILLAGE UNVEILS NEW CORPORATE STRATEGY . . .
small and medium size offices with versatile, expandable and easy to use
Internet, fax and remote access solutions."
"Our next generation of communication server products will take small
offices to a new level of business communications that will make them more
productive, competitive and will grow with their business. Our strategy is to
provide a product family that addresses the exploding communications needs of
the growing small and medium size office by providing multiple communications
capabilities in a single, scaleable communications server. While this is a new
market for us, we believe that our experience in providing powerful, yet
easy-to-use solutions to the business market has set the stage for an exciting
new phase of the company," said Selvin.
MARKET OPPORTUNITY
"The needs of small and medium size offices to communicate both internally
and with the outside world are growing dramatically," said Selvin. "With their
increasing use of the Internet, email or fax for communications, small offices
are demanding more from their technology providers. Yet, they do not
necessarily have the technical staff, expertise, or money to implement and
manage complicated networking systems. In addition, small offices will expect
networking products to be reasonably priced and yet able to grow with their
business. Today, most communications solutions aimed at small and medium size
offices are single function products that require users to grapple with complex
user interfaces, use multiple databases, have inconsistent approaches to
security and be managed separately. Global Village believes that a simpler,
more integrated approach is better suited to small offices and that, based on
our experience of selling integrated communications products, Global Village is
especially suited to provide leading communications technologies to these
business with a family of products that are easy to install and use, and are
hassle-free," said Selvin.
According to the U.S. Small Business Association, small businesses (those
with fewer than 100 employees) account for 99 percent of all U.S. businesses,
and are growing rapidly. It is estimated that there are currently 7.1 million
small businesses in the U.S. and 1.6 million have access to the Internet
(Source: IDC/LINK). Use of online services
<PAGE> 112
GLOBAL VILLAGE UNVEILS NEW CORPORATE STRATEGY PAGE 3
or Internet access has also increased from 31 percent to 44.2 percent in the
last year (Source: IDC/LINK) and the total number of small businesses with
networks is expected to double from 1.1 million in 1996 to 2.2 million by the
year 2001. Increasingly, these businesses will need a variety of capabilities
to satisfy their Internet access, remote access, faxing and other data
communications requirements.
GLOBAL VILLAGE RESTRUCTURES TO ADDRESS SMALL AND MEDIUM OFFICE MARKET
"Global Village does not have sufficient resources to optimize our modem
business and launch a completely new product line concurrently," said Selvin.
"We have elected to focus on the growing small and medium size office market
and will use the proceeds from the sale of the modem business to launch the new
communication server business." (See separate press release, "Boca Research
Acquires Global Village Modem Business" issued today, March 31, 1998 at 8:30
a.m. Pacific time/11:30 a.m. Eastern time.)
Upon completion of the sale of the modem business which is anticipated in
June 1998, the company will be renamed, and its stock will trade on NASDAQ
under a new ticker symbol. The current management team will continue to run the
new communications server business, led by Neil Selvin, president and chief
executive officer. The new business will include approximately 50 regular
employees from Global Village.
ABOUT GLOBAL VILLAGE COMMUNICATION
Currently with over 8 million customers, Global Village Communication,
Inc. (NASDAQ: GVIL) has been a leading supplier of integrated communication
solutions for
<PAGE> 113
GLOBAL VILLAGE UNVEILS NEW CORPORATE STRATEGY . . . PAGE 4
Windows and Macintosh personal computer users. Global Village sells its
products directly through leading VARs, retailers and distributors worldwide.
For more information, please visit the Global Village web site, The Village, at
http://www.globalvillage.com.
Portions of this news release contain forward-looking statements. Investors are
cautioned that all forward-looking statements involve risks and uncertainties.
Specifically, the agreement among the parties is subject to certain closing
conditions, including the receipt of consents for both companies' lenders, no
material adverse change in the companies' businesses, and the approval of
Global Village stockholders. In addition, the company faces numerous risks and
uncertainties regarding its new product lines, including potential delays in
product launch, risks of market acceptance, risks that the market will not
develop or will develop more slowly than anticipated, risks that the company
will not be able to establish appropriate distribution channels and risks
associated with competing against larger, more established companies in the
server market.
# # #
<PAGE> 114
FOR IMMEDIATE RELEASE
GLOBAL VILLAGE UNVEILS NEW CORPORATE NAME;
LAYS OUT BUSINESS STRATEGY
SUNNYVALE, CALIF., -- April 7, 1998 - Global Village Communication, Inc.,
(NASDAQ: GVIL) today announced that, after the completion of the sale of its
modem business to Boca Research announced last week, it will change its name to
OneWorld Systems, Inc. and will trade on NASDAQ under the ticker symbol OWLD.
Reflecting a new corporate direction, OneWorld Systems will focus on a new
family of communications servers aimed at the small and medium size office
market. The company's new product family will combine Internet access, routing,
remote access, fax server and shared modem capabilities all in a single,
easy-to-use product.
Small Office Market Poised for Growth
With the number of small businesses with networks expected to double
from 1.1 million in 1996 to 2.2 million by the year 2001 (Source: IDC/LINK), the
communications needs of small offices are expected to dramatically increase.
Businesses will need to implement and manage multiple communications functions,
such as fax, Internet access, on-line service access, remote access and routing.
But small and medium size offices rarely have the technical expertise and large
IS budget to manage complex technology. The time is ripe for a company to
simplify communications for the small office.
- more -
<PAGE> 115
PAGE 2
GLOBAL VILLAGE UNVEILS NEW CORPORATE NAME...
Existing Communications Products Don't Meet Small Office Needs
The first problem with most communications solutions today is that most
products are designed to handle only a single function. Remote access is handled
by one server; Internet access is provided by a different piece of equipment;
and fax servers are yet a different product, for example. Each product must be
installed and managed separately using different administration software, no
common user interfaces, maintenance of multiple user/password lists, and
different security methods. This poses a problem for the small office manager
who must update each and every product whenever an employee joins or leaves the
company, for example. Not only is this time-consuming, but it is a complex
process for the average small office network administrator.
In addition, existing, single-function products are an inefficient way
to manage both capital and telecommunications costs. Purchased separately, each
single-function product typically costs between $2,000 and $4,000 each, or even
more. Small offices that need to purchase an Internet router, fax server, remote
access server and banks of modems could easily spend $10,000 to $15,000 for
their basic data communications needs - a significant cost for a small office.
Additionally, single-function products generally require their own dedicated
phone lines for their particular communications function: phone lines for
Internet access; phone lines for modems; phone lines for faxing, phone lines for
remote access, etc. And since these phone lines cannot be easily moved between
functions, phone line usage becomes inefficient, causing wasted money on monthly
telephone fees.
As small offices grow in size, their technology needs frequently expand
as well. Today, a small office may need Internet access for 20 employees, and a
year later might need Internet access, routing and fax capabilities for 100
employees. Today's products frequently can't expand to accommodate more users or
have the ability to add new communications functions simply. Current product
offerings often have fixed ports and only allow a single communications function
to be handled.
- more -
<PAGE> 116
PAGE 3
GLOBAL VILLAGE UNVEILS NEW CORPORATE NAME...
Communications products available today are often developed by
enterprise networking companies that traditionally view their end customer as a
highly trained network administrator or IS manager. The small and medium office
market needs communications products that have been developed specifically for
the small office from the start. OneWorld Systems will provide such products.
OneWorld Systems Understands Small Offices
With a history of understanding how people use communications every day,
OneWorld Systems will provide a family of communications servers specifically
architected for the small and medium size office. Leveraging off the Global
Village heritage and experience, OneWorld Systems is designing hardware, server
software and client software, and integrating these elements into a complete
hardware/software solution. These communications servers will provide versatile,
easy-to-use, cost-effective and expandable solutions that will meet a small
office's growing communications needs and modest budget.
The OneWorld Systems family of communication servers will provide the
major data communications functions required by small businesses, including
sending and receiving faxes; Internet access and routing so that the entire
office has access to the Internet (not just one PC in the office); modem pooling
so that the entire office can share modems and access on-line services from any
desk at anytime; and remote access so that employees can dial into the office
network from home or on the road. In addition, the OneWorld Systems family of
communication servers will be among the first to offer all these capabilities
simultaneously to both Windows and Macintosh users.
These products are designed to be simple for the small office to
administer and manage. A Wizard has been developed to walk the small office
manager through the process of setting up all the communications functions. A
single graphical administration program will allow the network administrator to
easily manage the various communications functions and user profiles from any PC
on the network. And client software is based on Global Village's award-winning
software, including GlobalFax and FaxWorks, known to many users for their ease
of use.
- more -
<PAGE> 117
PAGE 4
GLOBAL VILLAGE UNVEILS NEW CORPORATE NAME...
To address the budgetary concerns of the small office, the OneWorld
Systems products will enable offices to purchase a suite of data communications
functions in one multi-function product for a fraction of the price of a
collection of single function products.
Phone line allocation will be handled by a proprietary "Dynamic Port
Allocation" technology developed by OneWorld Systems so that every telephone
port is available for every function and can be assigned by the server on
demand, and on the fly, with no user or network administrator intervention
required. For example, employees can fax by day, and use remote access by night,
taking full advantage of the phone lines installed. In contrast to a collection
of single function servers, each with their own dedicated phone lines, the
result is the need for fewer phone lines and reduced monthly telecommunications
costs - some of the biggest costs for small and medium businesses.
Future growth and expansion has been designed into the OneWorld Systems
communications servers. Additional ports can be added as a small office grows.
Functionality can be added as offices need it without the extra expense of a
new, separate product. As a small office grows, new communications capabilities
can be added in the future, which could include ISDN, T1, frame relay, or DSL,
for example. New functions such as firewalls and support for Virtual Private
Networks (VPN), and other new capabilities will be available in the future.
Multiple OneWorld Systems communications servers can be added to different
departments or banded together for higher capacity. OneWorld Systems products
will expand as needed, thereby protecting the investment of the small business.
In summary, OneWorld Systems communications servers are designed to
address the real needs of small offices and businesses, by combining
versatility, ease-of-administration and use, cost-effectiveness and
expandability into a family of products.
- more -
<PAGE> 118
PAGE 5
GLOBAL VILLAGE UNVEILS NEW CORPORATE NAME...
OneWorld Systems Market and Sales Strategy
The Company's initial target market is small and medium businesses. This
market is defined as businesses with 10-300 employees, who have an existing
Novell or Windows NT based local area network. In addition, there are over
13,000 Global Village OneWorld servers for Macintosh installed today. The
Company intends to market its new communications servers to this installed base.
OneWorld Systems has developed a sales strategy to incorporate national
and regional VARs, and corporate resellers, particularly those with a focus on
serving the needs of the small and medium size office. The Company will leverage
its previous experience in the VAR channel from its FaxWorks ProLAN product line
by expanding the product line available to its VAR channel to include its new
communication server products. In addition, The Company intends to increase the
number of VARs by launching VAR recruiting, training and support programs.
Financial projections and timing
Launch of the initial family of OneWorld communications servers is
expected to occur within the next 90-120 days. While it is difficult to predict
revenues for a new product category, the Company anticipates that revenues in
calendar 1999 will fall within a range of $10-15 million, with profitability
achieved late in the year. For the following year, the Company projects revenues
of $20-30 million. The target operating model calls for gross margin percent to
be in the mid-to-high fifties, and typical operating expenses to be around $2.5
million per quarter throughout calendar 1999. The Company's statements regarding
the timing of product launch, revenues expectations for calendar 1999 and
calendar 2000, and expectations of profitability, gross margins and operating
expenses are forward looking and involve risks and uncertainties, and actual
results could differ materially as a result of the risks identified below.
Portions of this news release contain forward-looking statements.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties. The Company's planned launch of its server products is dependent
upon the completion of the development of the product which the Company believes
can be resolved expeditiously,
- more -
<PAGE> 119
PAGE 6
GLOBAL VILLAGE UNVEILS NEW CORPORATE NAME...
however, the Company may have difficulty resolving these issues, or any other
issues that may arise, in a timely manner, which could delay the planned launch
of the new OneWorld Systems communications server product line.
The Company's statements regarding its revenue expectations are
preliminary and are dependent on certain assumptions relating to the
introduction and market acceptance of the new products. Commercial acceptance of
these products is dependent on certain factors including the Company's sales and
marketing efforts, technical reviews by third parties, introductions of new
technologies or standards, performance of the Company's distributors and
suppliers and announcements by the Company's competitors. Many of the Company's
future 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.
The Company's statements regarding profitability, gross margin and
operating expenses are based on certain assumptions regarding the Company's
revenue expectations, sales and marketing costs, costs of production and
overhead costs. In addition, the Company may face pricing pressure, which could
lead to reductions in the average sales prices for the Company's products and
could have a material adverse effect on gross margins. There is no assurance
that the Company will ever achieve profitability.
OneWorld Systems products will have a significantly higher selling price
than many of the Company's current products and will require the Company to
expand its VAR channel. There can be no assurance that the Company will be
successful in establishing an effective distribution channel for its new
products.
The agreement with Boca Research, Inc. relating to the sale of the
Company's modem business is subject to certain closing conditions, including the
receipt of consents from both companies' lenders, no material adverse change in
the companies' businesses, and the approval of Global Village stockholders.
It is not the Company's practice to provide forward-looking information
with respect to anticipated product launches, revenue, gross margins,
profitability or operating expenses and the Company does not intend to provide
such information in the
- more -
<PAGE> 120
PAGE 7
GLOBAL VILLAGE UNVEILS NEW CORPORATE NAME...
future. Moreover, the forward-looking statements are based on the information
presently available to the Company, and the Company does not believe that it has
a duty to update the information in the above forward-looking statements and
does not intend to update such information.
About Global Village Communication
Currently with over 8 million customers, Global Village Communication,
Inc. (NASDAQ: GVIL) is a leading supplier of integrated communication solutions
for Windows 95 and Macintosh personal computer users. Global Village sells its
products directly and through leading VARs, retailers and distributors
worldwide. For more information, please visit the Global Village web site, The
Village, at http://www.globalvillage.com.
# # #
- more -
<PAGE> 121
GLOBAL VILLAGE COMMUNICATION, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Proxy for the June 8, 1998 Special Meeting of Stockholders
The undersigned stockholder of GLOBAL VILLAGE COMMUNICATION, INC., a
Delaware corporation, hereby acknowledges receipt of the Notice of Special
Meeting of Stockholders and the Proxy Statement, each dated April 30, 1998, and
hereby appoints Neil Selvin and Marc Linden and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the Special Meeting of
Stockholders of GLOBAL VILLAGE COMMUNICATION, INC., to be held on June 8, 1998,
at 8:30 a.m., local time, at the Sunnyvale Hilton Hotel located at 1250 Lakeside
Drive, Sunnyvale, California, and at any adjournment or adjournments thereof,
and to vote all shares of Common Stock which the undersigned would be entitled
to vote, if then and there personally present, on the matters set forth below.
[X] Please mark votes as in this example.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
IT WILL BE VOTED FOR PROPOSALS 1 AND 2, AND IN THE DISCRETION OF THE PROXIES
AS TO OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
1. To approve and adopt that certain Asset Purchase Agreement dated March
31, 1998 pursuant to which Boca Research, Inc., a Florida corporation
("BRI"), and Boca Global, Inc., a Florida corporation and a wholly owned
subsidiary of BRI ("Boca Global", and together with BRI, "Buyer"), will
purchase the Modem Business from the Company, and the transactions
contemplated thereby.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. To approve and adopt a proposal to amend the Company's Certificate of
Incorporation, as amended, to change the name of the Company to
"OneWorld Systems, Inc."
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
GRANT [ ] WITHHOLD [ ]
[ ] MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW
(Please sign exactly as your name appears on
the stockholder list. If shares are held
jointly, each holder should sign. When
signing as attorney, executor, administrator,
trustee or guardian, please give full title
as such. If a corporation, please sign in
full corporate name by the president or other
authorized officer. If a partnership, sign in
partnership name by authorized person.)
Dated: , 1998
-------------------------------
---------------------------------------------
Printed name of Stockholder(s)
---------------------------------------------
Signature
---------------------------------------------
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
