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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 000-19462
ARTISOFT, INC.
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(Exact name of registrant as specified in its charter)
Delaware 86-0446453
- ---------------------------- ----------------------
(State or other jurisdiction (IRS employer
of incorporation) identification number)
5 Cambridge Center
Cambridge, MA 02142
(617) 354-0600
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(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
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 the
filing requirements for at least the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (November 6, 1998).
Common stock, $.01 par value: 14,708,877 shares
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ARTISOFT INC. AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets-
September 30, 1998 and June 30, 1998 3
Consolidated Statements of Operations-
Three Months Ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows-
Three Months Ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote by Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
EXHIBITS
11 Computation of Net Income Per Share 23
27 Financial Data Schedule 24
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ARTISOFT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
September 30, June 30,
ASSETS 1998 1998
---- ----
(unaudited)
Current assets:
Cash and cash equivalents $ 17,558 $ 18,514
Receivables:
Trade accounts, net 2,083 2,813
Other receivables 140 279
Inventories 897 917
Prepaid expenses 270 283
-------- --------
Total current assets 20,948 22,806
-------- --------
Property and equipment 5,473 5,333
Less accumulated depreciation and amortization (4,319) (4,198)
-------- --------
Net property and equipment 1,154 1,135
-------- --------
Other assets 1,468 1,567
-------- --------
$ 23,570 $ 25,508
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 984 $ 1,598
Accrued liabilities 1,765 1,670
Accrued restructuring costs 610 1,536
Current portion of capital lease obligations 456 464
-------- --------
Total current liabilities 3,815 5,268
-------- --------
Capital lease obligations,
net of current portion 136 289
Commitments and contingencies -- --
Shareholders' equity:
Preferred stock, $1.00 par value. Authorized
11,433,600 shares; none issued -- --
Common stock, $.01 par value. Authorized
50,000,000 shares; issued 27,980,602 shares
at September 30, 1998 and June 30, 1998 279 279
Additional paid-in capital 96,486 96,486
Accumulated deficit (7,362) (7,030)
Less treasury stock, at cost, 13,320,500 shares
at September 30, 1998 and June 30, 1998 (69,784) (69,784)
-------- --------
Total shareholders' equity 19,619 19,951
-------- --------
$ 23,570 $ 25,508
======== ========
See accompanying notes to consolidated financial statements.
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ARTISOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended
September 30,
1998 1997
---- ----
(unaudited)
Net sales $ 5,094 $ 6,725
Cost of sales 1,356 1,454
-------- --------
Gross profit 3,738 5,271
-------- --------
Operating expenses:
Sales and marketing 2,130 2,698
Product development 1,242 1,791
General and administrative 879 794
Restructuring costs -- (137)
-------- --------
Total operating expenses 4,251 5,146
-------- --------
Income (loss) from operations (513) 125
Other income, net 181 113
-------- --------
Net income (loss) $ (332) $ 238
======== ========
Net income (loss) per common share-basic and diluted $ (.02) $ .02
======== ========
Weighted average common shares outstanding 14,660 14,555
-------- --------
See accompanying notes to consolidated financial statements.
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ARTISOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Three Months Ended
September 30,
1998 1997
---- ----
(unaudited)
Cash flows from operating activities:
Net income (loss) $ (332) $ 238
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 342 499
Gain from disposition of property, net -- 12
Change in accounts receivable and inventory allowances (203) (1,982)
Changes in assets and liabilities:
Receivables:
Trade accounts 872 2,776
Other receivables 139 62
Inventories 81 447
Prepaid expenses 13 144
Accounts payable and accrued liabilities (519) (964)
Accrued restructuring costs (926) (2,411)
Other assets (43) --
-------- --------
Net cash used in operating activities (576) (1,179)
-------- --------
Cash flows from investing activities:
Proceeds from sale of property and equipment 3 26
Purchases of property and equipment (222) (61)
-------- --------
Net cash used in investing activities (219) (35)
-------- --------
Cash flows from financing activities:
Principal payments on capital lease obligations (161) (122)
-------- --------
Net cash used in financing activities (161) (122)
-------- --------
Net decrease in cash and cash equivalents (956) (1,336)
Cash and cash equivalents at beginning of period 18,514 14,673
-------- --------
Cash and cash equivalents at end of period $ 17,558 $ 13,337
======== ========
See accompanying notes to consolidated financial statements.
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ARTISOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Artisoft,
Inc. and its three wholly-owned subsidiaries: Triton Technologies, Inc.,
Artisoft "FSC", Ltd. (which has elected to be treated as a foreign sales
corporation), and NodeRunner, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the accompanying financial statements
include all adjustments (of a normal recurring nature) which are necessary for a
fair presentation of the financial results for the interim periods presented.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to such rules and
regulations. Although the Company believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's 1998 Annual Report on
Form 10-K. The results of operations for the three months ended September 30,
1998 are not necessarily indicative of the results to be expected for the full
year.
(2) COMPUTATION OF NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT
SHARE-BASIC AND DILUTED
Net income (loss) per common share-basic and diluted is computed using the
weighted average number of common shares and dilutive common equivalent shares
outstanding during the period.
Basic earnings per share is computed by dividing income attributable to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock that then shared in the earnings of the
Company. In calculating net loss per common share for the three month period
ended September 30, 1998, 4,132 common stock equivalent shares consisting of
stock options have been excluded because their inclusion would have been
anti-dilutive.
(3) SEGMENTATION OF FINANCIAL RESULTS
The financial results for the three months ended September 30, 1998 are
summarized below by product group (in thousands):
Communications Software Computer Telephony
Product Group Product Group
------------- -------------
Net sales $3,737 $ 1,357
Gross profit $2,901 $ 837
Gross profit margin 78% 62%
Operating income (loss) $1,048 $(1,561)
Net income (loss) $1,229 $(1,561)
Capital expenditures $ 5 $ 217
Depreciation and
amortization expense $ 259 $ 83
The Company's Communication Software Product Group principally includes
revenues from the LANtastic NOS, i.Share, ModemShare and CoSession Remote
product lines. The Company's Computer Telephony Products Group principally
includes revenues from the Visual Voice, InfoFast and TeleVantage product lines.
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(4) RESTRUCTURING COST
The accrued restructuring costs in the accompanying consolidated balance
sheets at September 30, 1998 include the costs of: involuntary employee
termination benefits for certain Communications Software Group employees, costs
to close the Company's United Kingdom and Iselin, New Jersey sales and support
offices and related costs associated with the restructuring actions effected
during the fiscal year ended June 30, 1998. Other costs associated with the
restructuring include costs of office and other lease terminations and legal and
other professional fees.
The accrued restructuring costs at September 30, 1998 principally consist
of the following (in thousands):
Employee Office Total Accrued
Termination Closure Restructuring
Benefits Costs Costs
-------- ----- -----
Balances at June 30, 1998 $ 650 $ 886 $ 1,536
Cash paid for employee
termination benefits (595) -- (595)
Cash paid for office -- (331) (331)
closure costs ------- ------- -------
Balances at September 30, 1998 $ 55 $ 555 $ 610
======= ======= =======
(5) INVENTORIES
Inventories at September 30, 1998 and June 30, 1998 consist of the
following (in thousands):
September 30, June 30,
1998 1998
---- ----
Raw materials $ 839 $ 938
Work-in-process 102 109
Finished goods 230 205
-------
1,171 1,252
Inventory allowances (274) (335)
------- -------
$ 897 $ 917
======= =======
(6) PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1998 and June 30, 1998 consist of
the following (in thousands):
September 30, June 30,
1998 1998
---- ----
Furniture and fixtures $ 6 $ 6
Computers and other equipment 5,375 5,259
Leasehold improvements 92 68
------- -------
5,473 5,333
Accumulated depreciation and
amortization (4,319) (4,198)
------- -------
$ 1,154 $ 1,135
======= =======
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(7) OTHER ASSETS
Other assets at September 30, 1998 and June 30, 1998 consist of the
following (in thousands):
September 30, June 30,
1998 1998
---- ----
Trademarks and patents, net of
accumulated amortization of
$76 and $70 $ 48 $ 55
Purchased technology, net of
accumulated amortization of
$1,451 and $1,323 1,260 1,387
Recoverable deposits and other 160 125
------ ------
$1,468 $1,567
====== ======
(8) ACCRUED LIABILITIES
Accrued liabilities at September 30, 1998 and June 30, 1998 consist of the
following (in thousands):
September 30, June 30,
1998 1998
---- ----
Compensation and benefits $ 440 $ 799
Payroll, sales and property taxes 408 88
Marketing 364 349
Royalties 398 227
Other 155 207
------ ------
$1,765 $1,670
====== ======
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ARTISOFT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES. The Company's net sales for the quarter ended September 30, 1998
were $5.1 million, a decrease of 24% from net sales of $6.7 million for the
corresponding quarter of fiscal 1998. The decrease in net sales as compared to
the corresponding quarter in fiscal 1998 was principally due to a decline in
sales of certain of the Company's Communication Software Group products. Lower
sales of the Company's LANtastic network operating system (NOS) products and
CoSession Remote products (especially in international markets) were the major
contributors to the overall decline in net sales. These declines were offset to
a minor extent by increased sales of the Company's Computer Telephony products.
The Company distributes its products in both the U.S. and international
markets. U.S. sales decreased 18% to $4.2 million (82% of net sales) for the
quarter ended September 30, 1998, from $5.1 million (76% of net sales), for the
same quarter a year ago. The decrease in aggregate U.S. net sales is principally
the result of a decline in sell through of the Company's LANtastic NOS products
in U.S. distribution and retail channels partially offset, by increased net
sales of the Company's Computer Telephony products.
International sales decreased 44% to $.9 million (18% of net sales), for
the quarter ended September 30, 1998, from $1.6 million (24% of net sales), for
the same quarter a year ago. The decrease in international net sales for the
quarter ended September 30, 1998, as compared to the corresponding period in
fiscal 1998, primarily resulted from a decline in worldwide sales of the
Company's LANtastic NOS products as well as a decline in net sales of CoSession
Remote in certain international markets (especially Japan). Also contributing to
the decline in international sales was the closure of the Company's United
Kingdom sales and support office and the attendant disruption to certain
customer relationships.
GROSS PROFIT. The Company's gross profit was $3.7 million and $5.3 million
for the quarters ended September 30, 1998 and 1997, respectively (73% and 78% of
net sales, respectively). The net decrease in aggregate dollars of gross profit
for the quarter ended September 30, 1998, as compared to the corresponding
period in fiscal 1998, was primarily the result of the decline in net sales. The
decrease in gross profit margin percentage was due to higher software licensing
costs incurred on certain of the Company's Communication Software Group products
and increased sales as a percentage of total net sales of the Company's lower
margin computer telephony hardware. Gross profit margins may fluctuate from
quarter to quarter due to changes in net sales, product mix, pricing actions and
changes in sales and inventory allowances.
SALES AND MARKETING. Sales and marketing expenses were $2.1 million and
$2.7 million for the quarters ended September 30, 1998 and 1997, respectively
(41% and 40% of net sales, respectively). The decrease in sales and marketing
expenses in aggregate dollars for the quarter ended September 30, 1998 as
compared to the corresponding quarter in fiscal 1998, is principally due to the
cost efficiencies achieved following the termination of certain Communication
Software Group sales, marketing and support personnel and the elimination of
costs associated with the Company's Communications Software Group Japanese and
UK sales and support offices during the quarter ended June 30, 1998.
PRODUCT DEVELOPMENT. Product development expenses were $1.2 million and
$1.8 million for the quarters ended September 30, 1998 and 1997, respectively,
(24% and 27% of net sales, respectively). The decrease in product development
expenses in both aggregate dollars and as a percentage of net sales for the
quarter ended September 30, 1998, as compared to the corresponding quarter in
fiscal 1998, is principally attributable to certain restructuring actions taken
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during the quarter ended June 30, 1998 which reduced product development
staffing levels in the Company's Communications Software Group. The decrease in
product development expenses in the Company's Communications Software Group was
partially offset by increased product development expenses in the Company's
Computer Telephony Products Group.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $.9
million and $.8 million for the quarters ended September 30, 1998 and 1997,
respectively (18% and 12% of net sales, respectively). The increase in aggregate
dollars for general and administrative expenses for the quarter ended September
30, 1998, as compared to the corresponding quarter in fiscal 1998, is
principally attributable to increased occupancy costs associated with the
Company's relocation of its corporate headquarters to Cambridge, Massachusetts
and increased costs associated with the addition of certain administrative
personnel. The increase in general and administrative expenses as a percentage
of net sales for the quarter ended September 30, 1998, as compared to the
corresponding quarter in fiscal 1998, is principally the result of the 24%
reduction in net sales between the two periods.
OTHER INCOME, NET. For the quarter ended September 30, 1998, other income,
net, increased to $181,000, from $113,000 in the corresponding quarter of fiscal
1998. The increase for the quarter ended September 30, 1998 resulted principally
from the receipt of increased interest income on the Company's cash and
investment balances. The Company's cash balances increased from $13.3 million at
September 30, 1997 to $17.6 million at September 30, 1998.
FUTURE RESULTS
The Company is currently focusing the majority of its resources on its
computer telephony products. The Company will continue to make additional
investments in sales, marketing and development in order to build awareness,
market and channels for its computer telephony products.
The Company intends to continue to increase its investments and
expenditures in sales, marketing and development of computer telephony products
including TeleVantage. There can be no assurance that the Company will be able
to market or sell such products successfully or at particular levels within
particular time-frames. Accordingly, the Company could experience a slow
increase in computer telephony revenues as it attempts to build a distribution
channel and reseller programs that may build market awareness for computer
telephony products. A slow increase in the Company's computer telephony
revenues, particularly if combined with future revenue declines from the
Company's networking and communications software products, could cause the
Company to experience losses.
The Company's future results of operations involve a number of risks and
uncertainties. Among the factors that could cause future results to differ
materially from historical results are the following: business conditions and
general economy; competitive pressures, acceptance of new products and price
pressures; availability of third-party compatible products at reasonable prices;
risk of nonpayment of accounts or notes receivable; risks associated with
foreign operations (especially those in Japan and other Asian countries); risk
of product line or inventory obsolescence due to shifts in technologies or
market demand; timing of software introductions and litigation.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $17.6 million at September 30,
1998, compared to $18.5 million at June 30, 1998, and working capital of $17.1
million at September 30, 1998 compared to $17.5 million at June 30, 1998. The
decrease in cash and cash equivalents was principally the result of employee
termination benefit payments to certain Communications Software Group employees
and payments associated with the closure of the Company's United Kingdom sales
and support office. The payments are a result of the Company's restructuring
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actions effected during the quarter ended June 30, 1998. The decrease in working
capital is principally result of the aforementioned cash decrease along with a
decrease in accounts receivable balances.
The Company funds its working capital requirements primarily through cash
flows from operations and existing cash balances. While the Company anticipates
that existing cash balances and cash flows from operations will be adequate to
meet the Company's current and expected cash requirements for at least the next
year, additional investments by the Company to acquire new technologies and
products may necessitate that the Company seek additional debt or equity
capital.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS No. 130). SFAS No. 130 establishes requirements for disclosure of
comprehensive income and becomes effective for the Company for the year ending
June 30, 1999. Comprehensive income includes such items as foreign currency
translation adjustments and unrealized holding gains and losses on available for
sale securities that are currently being presented by the Company as a component
of shareholders' equity. The adoption of this pronouncement will not have a
material impact on the Company's financial results.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 131, "Disclosure about Segments
of an Enterprise and Related Information"(SFAS No. 131). SFAS No. 131
establishes standards for disclosure about operating segments in annual
financial statements and selected information in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." The new standard
becomes effective for the Company for the year ending June 30, 1999, and
requires that comparative information from earlier years be restated to conform
to the requirements of this standard.
In February 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits (an amendment of
FASB Statements No. 87, 88, and 106). This statement standardizes employers'
disclosure requirements about pensions and other postretirement benefit plans
and requires additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial analysis. This
statement supersedes the disclosure requirements in SFAS No. 87, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits", and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". The new standard becomes effective
for the Company for the fiscal year ending June 30, 1999. Management does not
believe that the adoption of SFAS No. 132 will have a material impact on the
Company's financial results.
RISK FACTORS
GENERAL
COMPETITION. The software and computer telephony industries are highly
competitive and are characterized by rapidly changing technology and evolving
industry standards. The Company competes with other software companies many of
which have substantially greater financial, technological, production, sales and
marketing and other resources, as well as greater name recognition and larger
customer bases, than the Company. As a result, these competitors may be able to
respond more quickly and effectively to new or emerging technologies and changes
in customer requirements or to devote greater resources to the development,
promotion, sales and support of their products than the Company. Competition in
the software industry is likely to intensify as current competitors expand their
product lines, more features are included in operating systems (e.g., Windows NT
5.0), new applications are developed, and as new companies enter the markets or
segments in which the Company currently competes. The software industry is also
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characterized by a high degree of consolidation which favors companies with
greater resources than those of the Company. Consequently, the Company expects
its products to experience increased competition which could result in
significant price reductions, loss of market share and lack of acceptance of new
products, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's new
product introductions can be subject to severe price and other competitive
pressures. While the Company endeavors to introduce its products to the
marketplace in a timely manner there can be no assurances that due to the
greater financial resources of the Company's competitors that these products
will be successful or even accepted. There can be no assurance that the
Company's products will be able to compete successfully with other products
offered presently or in the future by other vendors.
CONNECTIVITY AND DEPENDENCE. The Company's ability to successfully sell
certain of its products is to a significant degree dependent on operating system
connectivity, principally with Microsoft's operating systems. Should the
Company's products become non-compatible with the dominant operating systems
currently in use in the PC industry, the Company's revenues from such products
could be materially adversely impacted. In addition, the Company's revenues will
be adversely affected if software solutions similar to the Company's products
are bundled with or incorporated into dominant operating systems, as has
occurred and can be expected to occur in the future with respect to the
Company's products.
RETURNS AND PRICE PROTECTION. The Company is exposed to the risk of product
returns and rotations from its distributors and other volume purchasers, which
are estimated and recorded by the Company as a reduction in sales. Although the
Company attempts to monitor and if necessary adjust its channel inventories to
be consistent with current levels of sell through, localized overstocking may
occur with certain products due to rapidly evolving market conditions. In
addition, the risk of product returns and rotations may increase if the demand
for its existing products should rapidly decline due to regional economic
troubles or increased competition. Although the Company believes that it
provides adequate allowances for product returns and rotations, there can be no
assurance that actual product returns and rotations will not exceed the
Company's allowances. Any product returns and rotations in excess of recorded
allowances could result in a material adverse effect on net sales and operating
results. As the Company introduces more new products, the predictability and
timing of sales to end users and the management of returns to the Company of
unsold products by distributors and volume purchasers becomes more complex and
could result in material fluctuations in quarterly sales and operating results.
The Company is also occasionally exposed to its distributors and other
volume purchasers for price protection for list price reductions by the Company
on its products held in such customers' inventories. The Company provides its
distributors with price protection in the event that the Company reduces the
list price of its products due to uncontrollable competitive pressures.
Distributors and other volume purchasers are usually offered credit for the
impact of a list price reduction on the expected revenue from the Company's
products in the distributors' inventories at the time of the price reduction.
Although the Company maintains allowances against the effects of such price
protections, and believes that it has provided adequate allowances for price
protection, there can be no assurance that the impact of actual list price
reductions by the Company will not exceed the Company's allowance. Any price
protection in excess of the recorded allowance could result in a material
adverse effect on sales and operating results.
FACTORS AFFECTING PRICING. Substantially all of the Company's revenue in
each fiscal quarter results from orders booked in that quarter. A significant
percentage of the Company's bookings and sales to distributors and other volume
purchasers historically have occurred during the last month of the quarter and
are concentrated in the latter half of that month. Orders placed by major
customers are typically based upon customers' recent historical and forecasted
sales levels for Company products and inventory levels of Company products
desired to be maintained by those major customers at the time of the orders.
Moreover, orders may also be based upon financial practices by major customers
designed to increase the return on investment or yield on the sales of the
Company's products to value added resellers ("VAR's") or end-users. Major
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distribution customers occasionally receive market development funds from the
Company for purchasing Company products and from time to time extended terms, in
accordance with industry practice, depending upon competitive conditions. The
Company currently does not offer any cash rebates to its U.S. distribution
partners. Changes in purchasing patterns by one or more of the Company's major
customers, changes in customer policies pertaining to desired inventory levels
of Company products, negotiations of market development funds and changes in the
Company's ability to anticipate in advance the product mix of customer orders
could result in material fluctuations in quarterly operating results.
PRODUCT CONCENTRATION. The Company has in the past derived, and may in the
future derive, a significant portion of its revenues from a relatively small
number of products. Declines in the revenues from these software products,
whether as a result of competition, technological change, price pressures or
other factors, would have a material adverse effect on the Company's business,
results of operations and financial condition. Further, life cycles of the
Company's products are difficult to estimate due in part to the recent emergence
of certain of the Company's products, the effect of new products or product
enhancements, technological changes in the software industry in which the
Company operates and future competition. There can be no assurance that the
Company will be successful in maintaining market acceptance of its current
products or any new products or product enhancements.
DEPENDENCE ON NEW PRODUCT OFFERINGS. The Company's future success will
depend, in significant part, on its ability to successfully develop and
introduce new software products and improved versions of existing software
products on a timely basis and in a manner that will allow such products to
achieve broad customer acceptance. There can be no assurance that new products
will be introduced on a timely basis, if at all. If new products are delayed or
do not achieve market acceptance, the Company's business, results of operations
and financial condition will be materially adversely affected. In the past, the
Company has also experienced delays in purchases of its products by customers
anticipating the launch of new products by the Company or the Company's
customers. There can be no assurance that material order deferrals in
anticipation of new product introductions will not occur. There can also be no
assurance that the Company will be successful in developing, introducing on a
timely basis and marketing such software or that any such software will be
accepted in the market.
TECHNOLOGICAL CHANGE. The markets for computer software applications is
characterized by rapid technological change, changing customer needs, frequent
product introductions and evolving industry standards. The introduction of
products incorporating new technologies and the emergence of new industry
standards could render the Company's existing products obsolete and
unmarketable. The Company's future success will depend upon its ability to
develop and introduce new software products (including new releases and
enhancements) on a timely basis that keep pace with technological developments
and emerging industry standards and address the increasingly sophisticated needs
of its customers. There can be no assurance that the Company will be successful
in developing and marketing new products that respond to technological changes
or evolving industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these new products, or that its new products will
adequately meet the requirements of the marketplace and achieve market
acceptance. If the Company is unable, for technological or other reasons, to
develop and introduce new products in a timely manner in response to changing
market conditions or customer requirements, the Company's business, results of
operations and financial condition could be materially adversely affected.
POTENTIAL FOR UNDETECTED ERRORS. Software products as complex as those
offered by the Company may contain undetected errors. There can be no assurance
that, despite testing by the Company and by current and potential customers,
errors will not be found in new or existing products after commencement of
commercial shipments, resulting in loss of or delay in market acceptance or the
recall of such products, which could have a material adverse effect upon the
Company's business, results of operations and financial condition. The Company
provides customer support for most of its products. The Company will in the
future offer new products. If these products are flawed, or are more difficult
to use than traditional Company products, customer support costs could rise and
customer satisfaction levels could fall.
13
<PAGE>
DUPLICATION OF SOFTWARE. The Company duplicates nearly all of its software
at its Tucson, Arizona facility. The Company believes that its internal
duplication capability is economically advantageous because it eliminates the
profit margin required by outside duplication sources and enables a high degree
of scheduling and other control. This concentration of production does, however,
expose the Company to the risk that production could be disrupted by natural
disaster or other events, such as the presence of a virus in the Company's
duplicators. The Company believes that it could retain outside duplication
alternatives quickly, but there is no assurance that it could do so or, if such
arrangements could be made, that duplication could take place in an economical
or timely manner.
PRE-LOAD SOFTWARE MARKET;CD ROM'S. The Company primarily sells its
communications software in a form that includes a disk or disks and a manual.
Currently, the Company has the capability to produce its products in-house only
on 3 1/2 -inch diskettes. As the sizes of software programs grow, CD-ROM is
becoming a more prominent medium. Some of the Company's customers "pre-load" the
Company's software onto a hard disk. These arrangements eliminate the need for a
disk and may eliminate the need for a manual. The pre-load arrangements produce
smaller unit revenues for the Company and eliminate the Company's ability to
generate revenues from its production facilities. The Company does not currently
have the capability to produce CD-ROMs and the cost to develop such production
capability may be prohibitive. The Company currently contracts CD-ROM production
to specialized CD-ROM facilities. In the likely event that growth continues in
the pre-load and CD-ROM usage mediums, more of the Company's relationships would
involve product pre-loads and CD-ROM production and the Company's business,
results of operations and financial condition could be adversely affected.
INTELLECTUAL PROPERTY RIGHTS. The Company's success is dependent upon its
software code base, its programming methodologies and other intellectual
properties. To protect its proprietary technology, the Company relies primarily
on a combination of trade secret laws and nondisclosure, confidentiality, and
other agreements and procedures, as well as copyright and trademark laws. These
laws and actions may afford only limited protection. There can be no assurance
that the steps taken by the Company will be adequate to deter misappropriation
of its proprietary information, or to prevent the successful assertion of an
adverse claim to software utilized by the Company, or that the Company will be
able to detect unauthorized use and take effective steps to enforce its
intellectual property rights. The Company owns United States trademark
registrations for certain of its trademarks. In addition, the Company has
applied for trademark protection on a number of its recently introduced new
technologies. Certain of the Company's trademark applications are still pending
and no assurances can be made that the trademark applications will be accepted
by the U.S. Trademark and Patent Office. A rejection of one or more of these
trademark applications could have a material adverse affect on the Company's
ability to successfully sell and market these new products. In selling its
products, the Company relies primarily on "shrink wrap" licenses that are not
signed by licensees and, therefore, may be unenforceable under the laws of
certain jurisdictions. 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. Further, although
the Company believes that its services and products do not infringe on the
intellectual property rights of others such claims have been, are now and in the
future maybe asserted against the Company. The failure of the Company to protect
its proprietary property, or the infringement of the Company's proprietary
property on the rights of others, could have a material adverse effect on the
Company's business, results of operations and financial condition.
From time to time, the Company has received and may in the future receive
communications from third parties asserting that the Company's trade names or
that features, content, or trademarks of certain of the Company's products
infringe upon intellectual property rights held by such third parties. As the
number of trademarks, patents, copyrights and other intellectual property rights
in the Company's industry increases, and as the coverage of these patents and
rights and the functionality of products in the market further overlap, the
Company believes that products based on its technology may increasingly become
the subject of infringement claims. Such claims could materially adversely
14
<PAGE>
affect the Company, and may also require the Company to obtain one or more
licenses from third parties. There can be no assurance that the Company would be
able to obtain any such required licenses upon reasonable terms, if at all, and
the failure by the Company to obtain such licenses could have a material adverse
effect on its business, results of operations and financial condition. In
addition, the Company licenses technology on a non-exclusive basis from several
companies for inclusion in its products and anticipates that it will continue to
do so in the future. The inability of the Company to continue to license these
technologies or to license other necessary technologies for inclusion in its
products, or substantial increases in royalty payments under these third party
licenses, could have a material adverse effect on its business, results of
operations and financial condition.
Litigation in the software development industry has increasingly been used
as a competitive tactic both by established companies seeking to protect their
existing position in the market and by emerging companies attempting to gain
access to the market. If the Company is required to defend itself against a
claim, whether or not meritorious, the Company could be forced to incur
substantial expense and diversion of management attention, and may encounter
market confusion and reluctance of customers to purchase the Company's software
products. Such litigation, if determined adversely to the Company, could have a
material adverse effect on its business, results of operations and financial
condition.
DEPENDENCE UPON KEY PERSONNEL. The Company's future performance depends in
significant part upon key technical and senior management personnel. The Company
is dependent on its ability to identify, hire, train, retain and motivate high
quality personnel, especially highly skilled engineers involved in the ongoing
research and development required to develop and enhance the Company's
communication software products and introduce enhanced future products. The
industry is characterized by a high level of employee mobility and aggressive
recruiting of skilled personnel. There can be no assurance that the Company's
current employees will continue to work for the Company. Loss of services of key
employees could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, the Company may need
to grant additional options and provide other forms of incentive compensation to
attract and retain key personnel.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's operating
results have in the past fluctuated, and may in the future fluctuate, from
quarter to quarter, as a result of a number of factors including, but not
limited to, changes in pricing policies or price reductions by the Company or
its competitors; variations in the Company's sales channels or the mix of
product sales; the timing of new product announcements and introductions by the
Company or its competitors; the availability and cost of supplies; the financial
stability of major customers; market acceptance of new products and product
enhancements; the Company's ability to develop, introduce and market new
products, applications and product enhancements; the Company's ability to
control costs; possible delays in the shipment of new products; the Company's
success in expanding its sales and marketing programs; deferrals of customer
orders in anticipation of new products, product enhancements or operating
systems; changes in Company strategy; personnel changes; and general economic
factors. The Company's software products are generally shipped as orders are
received and accordingly, the Company has historically operated with little
backlog. As a result, sales in any quarter are dependent primarily on orders
booked and shipped in that quarter and are not predictable with any degree of
certainty. In addition, the Company's expense levels are based, in part, on its
expectations as to future revenues. If revenue levels are below expectations,
operating results are likely to be adversely affected. The Company's net income
may be disproportionately affected by a reduction in revenues because of fixed
costs related to generating its revenues. Quarterly results in the future may be
influenced by these or other factors and, accordingly, there may be significant
variations in the Company's quarterly operating results. Further, the Company's
historical operating results are not necessarily indicative of future
performance for any particular period. Due to all of the foregoing factors, it
is possible that in some future quarter the Company's operating results may be
below the expectations of public market analysts and investors. In such event,
the price of the Company's Common Stock would likely be materially adversely
affected.
POSSIBLE VOLATILITY OF STOCK PRICE. The trading price of the Company's
Common Stock is likely to be subject to significant fluctuations in response to
variations in quarterly operating results, changes in management, announcements
of technological innovations or new products by the Company, its customers or
15
<PAGE>
its competitors, legislative or regulatory changes, general trends in the
industry and other events or factors. In addition, the stock market has
experienced extreme price and volume fluctuations which have particularly
affected the market price for many high technology companies similar to
Artisoft, and which have often been unrelated to the operating performance of
these companies. These broad market fluctuations may adversely affect the market
price of the Company's Common Stock. Further, factors such as announcements of
new contracts or product offerings by the Company or its competitors and market
conditions for stocks similar to that of the Company could have significant
impact on the market price of the Common Stock.
POSSIBLE ACQUISITIONS OR DIVESTITURES. From time to time, the Company may
consider acquisitions of or alliances with other companies that could complement
the Company's existing business, including acquisitions of complementary product
lines. The Company may also consider the divestiture of certain of its product
segments should conditions warrant. Although the Company may periodically
discuss such potential transactions with a number of companies, there can be no
assurance that suitable acquisition or joint venture candidates can be
identified, or that, if identified, adequate and acceptable financing sources
will be available to the Company that would enable it to consummate such
transactions. Even if an acquisition or joint venture is consummated, there can
be no assurance that the Company will be able to integrate successfully such
acquired companies or product lines into its existing operations, which could
increase the Company's operating expenses in the short-term and materially and
adversely affect the Company's results of operations. Moreover, any acquisition
by the Company may result in potentially dilutive issuances of equity
securities, the incurrence of additional debt, and amortization of expenses
related to goodwill and intangible assets, all of which could adversely affect
the Company's profitability. Acquisitions involve numerous risks, such as the
diversion of the attention of the Company's management from other business
concerns, the entrance of the Company into markets in which it has had no or
only limited experience, and the potential loss of key employees of the acquired
company, all of which could have a material adverse effect on the Company's
business, financial condition, and results of operations.
COMPUTER TELEPHONY
COMPUTER TELEPHONY PRODUCT MARKET. The market for open, standards-based
computer telephony tools, applications and system-level products is relatively
new and is characterized by the rapid evolution of computer telephony hardware
and software standards, emerging technologies and changing customer
requirements. These characteristics may render the Company's computer telephony
products unmarketable or may make the expansion, timing and direction of product
development unpredictable. As a result of these factors, there can be no
assurance that computer telephony markets will continue to expand, or that the
Company's products will achieve market acceptance.
The Company believes that the principal competitive factors affecting the
computer telephony markets it serves include vendor and product reputation,
product architecture, functionality and features, scalability, ease of use,
quality of product and support, performance, price, brand name recognition and
effectiveness of sales and marketing efforts. There can be no assurance that the
Company can maintain and grow its market position against current and potential
competitors, especially those with significantly greater financial, marketing,
service, support, technical and other competitive resources. Any failure by the
Company to maintain and grow its competitive position could have a material
adverse effect upon the Company's revenues from its computer telephony product
line
The Company released its newest telephony product, TeleVantage 2.0, in
August 1998. TeleVantage is a phone system designed for small and medium sized
businesses and branch offices. The Company believes this product offers
functionality superior to that of a traditional standalone PBX. However, due to
the complexity of this software and the mission critical systems it is designed
to operate, there can be no assurances that the software will be successfully
marketed or sold. Additionally, there can be no assurances that competitors with
substantially greater financial resources than that of the Company will not
develop their own personal computer ("PC") based PBX solution and subsequently
adversely affect the Company's ability to introduce, launch, market, or sell its
PC based PBX solution, TeleVantage.
16
<PAGE>
The Company believes its principal competitors in the PC-based PBX market
are product offerings from Altigen, Netphone and Picazzo. These privately held
concerns have differing funding sources than those of the Company, which may put
the Company at a competitive disadvantage.
COMPUTER TELEPHONY CUSTOMERS AND MARKET ACCEPTANCE. The Company is
currently and will continue to invest significant resources in the development,
marketing and selling of new computer telephony products. There can be no
assurance that the Company will achieve market acceptance of these products.
Additionally, these new computer telephony products are principally targeted at
small to medium size businesses. The Company's existing network of qualified
VAR's has historically sold the Company's networking and communications
products. Therefore the Company anticipates the need to recruit and train a new
network of qualified VAR's to sell its computer telephony products. There can be
no assurance that the Company will be successful in establishing a critical mass
of qualified computer telephony resellers. The Company's success in selling
these products will likely be influenced by its ability to attract and inform
qualified VAR's and interconnects on the features and functionality of these
emerging technologies.
The Company's computer telephony products compete in a relatively immature
industry with as yet unproven technologies. There can be no assurance that the
current technological innovations in the computer telephony industry will be
widely adopted by small to medium size businesses or that telephony standards
will evolve in a manner that is advantageous to the Company's telephony
products.
COMMUNICATIONS AND NETWORKING SOFTWARE
NETWORKING AND COMMUNICATIONS SOFTWARE CUSTOMERS. The Company relies on a
network of distributors and VAR's for a significant portion of both its domestic
and international networking and communications software product revenues. In
addition, a majority of the sales of CoSession Remote, the Company's remote
communications software product, are to PC original equipment manufacturers
("OEM's"). Generally, there are no minimum purchase requirements for the
Company's distributors, OEMs and many of the Company's distributors and VAR's
sell competitive products. There can be no assurance that these customers will
give priority to the marketing of the Company's products compared to competing
products or alternative solutions or that such customers will continue to offer
the Company's products. In the event of the termination of the Company's
relationship with one or more major distributors, the Company would have to find
suitable alternative channels of distribution. The absence of such alternatives
could have a material adverse affect on the Company's business, financial
condition and results of operation. Certain of the Company's OEM relationships
require the scheduled delivery of product revisions and new products. The
failure to adhere to agreed-upon product delivery schedules could result in the
termination of key relationships with major PC manufacturers, which could have a
significant adverse impact on current and future revenues in the OEM channel.
The Company's OEM revenue streams are dependent upon the maintenance of one or
more key OEM relationships. The termination of any one of these relationships
may have a material adverse affect on the Company's current and future revenues.
NETWORKING AND COMMUNICATIONS SOFTWARE COMPETITORS. The Company's major
competitors in the small business networking market are Microsoft Corporation
and Novell, Inc. Both of these companies have substantially greater financial,
technological, production and sales and marketing resources than those of the
Company.
Management believes that the inclusion of networking capabilities (printer,
file and application sharing) in Microsoft's Windows 95/98 operating system
(released in August 1995 and June 1998, respectively) has had and will continue
to have a significant detrimental impact on sales of the Company's LANtastic NOS
products. Windows 95/98 is pre-loaded on virtually all Pentium processor-based
personal computers currently sold worldwide. The impact of Windows 95/98 on the
Company's business has been compounded by the dominance and visibility of
Microsoft in the PC marketplace and the rapid upgrade by small businesses to
Pentium PC's. In August 1996, Microsoft released Windows NT 4.0, a client-server
17
<PAGE>
network version of the Windows operating system. Management believes that
Windows NT 4.0, which, like Windows 95/98, includes peer-to-peer networking
capabilities in the workstation version, and is pre-loaded on certain Pentium
PC's, has provided additional significant direct competition to the LANtastic
NOS both as a peer-to-peer and client-server networking solution. Management
believes that Microsoft will release Windows NT 5.0 in early 1999. Microsoft,
because of its dominant position in the PC operating systems and business
applications markets, frequently offers value-added functionality to its
products in the form of enhancements to its Windows operating systems, which are
pre-loaded on new PC's or by offering free products for download from its World
Wide Web site. The Company believes that Windows NT 5.0, Microsoft's next
version of its Windows NT Server may include both modem sharing and internet
sharing capabilities. The inclusion of modem sharing and internet sharing
capabilities in Windows NT could result in substantially increased competition
for the Company's ModemShare and i.Share products which could have a significant
impact on the Company's sales and operating results.
Finally, the movement of the networking industry towards the uniform use of
Internet technologies in the construction of local area networks (so called
intranets) constitutes a risk that demand for more proprietary networks, such as
LANtastic, will decline further, and that competition will emerge from a new
class of players, such as Netscape Communications, Sun Microsystems, and others.
REMOTE COMMUNICATIONS SOFTWARE. The principal distribution channel for the
Company's remote computing product, CoSession Remote 32 version 8, is through
OEM arrangements with PC manufacturers. In December 1997, the Company released a
32-bit version of the product to support the Windows 95 and Windows NT operating
systems. As the Company's major competitors also offer 32-bit remote computing
products, it is critical, for the continuance of the OEM relationships, that the
Company successfully market the 32-bit product and meet major OEM customer
e-commerce and other promotional requirements. The Company's ability to grow its
remote computing software revenues will likely depend on its success in
leveraging existing OEM relationships to develop new sources of revenue such as
e-commerce. The loss of one or more of these OEM relationships could have a
significant impact on the Company's net sales and operating results.
The Company currently is in negotiations with a company which it obtains a
licensed product. The failure to extend the licensing arrangement could have a
material adverse impact on the Company's future operating results.
REMOTE COMMUNICATIONS SOFTWARE COMPETITORS. Microsoft has included a remote
computing component in its Windows 98 OS released in June 1998 and currently
distributes Net Meeting at no charge from its Web site. Additionally, Symantec's
PC Anywhere remote computing software may provide additional competition to the
Company's CoSession Remote 32 software with respect to certain of the Company's
major OEM customers. These actions will likely lead to diminished demand for the
Company's CoSession remote control product, and consequently decreased net sales
and operating results.
YEAR 2000
The Company recognizes the potential business impacts related to the Year
2000 computer system issue and is implementing a plan to assess and improve the
Company's state of readiness with respect to such issues. The Year 2000 issue is
one where computer systems may recognize the designation "00" as 1900 when it
means 2000, resulting in system failure or miscalculations.
Commencing in 1997, the Company initiated a comprehensive review of its
core information technology systems, which the Company is dependent upon for the
conduct of day to day business operations, in order to determine the adequacy of
those systems in light of future business requirements. Year 2000 readiness was
one of a variety of factors to be considered in the review of core systems.
In recognition of the Year 2000 issue, the Company in September 1997, began
a comprehensive review of all information technology and non-information
technology systems used by the Company, computer hardware and software products
sold by the Company, and computer hardware and software products and components
and other equipment supplied to the Company by third parties. Such review
includes testing and analysis of Company products and inquiries of third parties
supplying information technology and non information technology systems,
computer hardware and software products and components, and other equipment to
the Company.
18
<PAGE>
The Company has divided its Year 2000 review into two phases. The first
addresses the Company's core information technology systems and products
currently sold by the Company. The second phase addresses non-core information
technology systems, non-information technology systems, and products, components
and equipment supplied to the Company from third parties. In addition, the
Company will implement required Year 2000 upgrades and replacements during the
second phase. The Company substantially completed the first phase of its review
in September 1998. The Company believes it will complete the second phase by
March 1999.
In the first phase of its Year 2000 review, the Company tested software
products currently manufactured and shipped by the Company, and believes that
such products are Year 2000 compliant. Certain of the Company's products that
were discontinued prior to fiscal 1998 are not Year 2000 compliant. The Company
has notified its distributors, resellers and end users of this non-compliance to
the extent possible and has authorized returns and replacement of these products
where possible. The Company believes the cost of these returns or product
replacements to be immaterial, and that the Company's reserves are adequate to
cover such returns and replacements. The Company also made inquiries of third
parties supplying the Company with computer hardware and software products and
components currently sold by the Company, and received assurances that such
products and components are Year 2000 compliant. With respect to core
information technology, the Company made inquires of third parties supplying
computer hardware and software operating systems to the Company, and received
assurances that, except as discussed below, such hardware and software systems
are Year 2000 compliant.
As a result of its review to date, the Company has determined that certain
of its internal financial software systems are inadequate for the Company's
future business needs and need to be replaced because of various considerations,
including Year 2000 non-compliance. In certain cases the timing of replacement
systems is being accelerated because of Year 2000 issues, although the Company
believes replacement would have been necessary in the near future regardless of
such issues. The Company initiated a comprehensive search to replace these Year
2000 non-compliant systems. The Company has selected a replacement software
package and is currently in the process of migrating to the new package. The
expected implementation date is April 1, 1999. The Company expects to spend
approximately $300,000 to purchase and implement the new software. These costs
will be capitalized over the life of the purchased software package. The Company
does not expect the amounts to be expensed over the life of the software package
to have a material effect on its financial position or results of operations.
The Company does not believe that any specific information technology projects
have been deferred as a result of Year 2000 issues.
The Company has not developed a "worst case" scenario with respect to Year
2000 issues, but instead has focused its resources on identifying material,
remediable problems and reducing uncertainties generally, through the Year 2000
review described above.
At this time, he Company has not developed Year 2000 contingency plans,
other than the review and remedial actions described above, and does not intend
to do so unless the Company believes such plans are merited by the results of
its continuing Year 2000 review. The Company maintains and deploys contingency
plans designed to address various other potential business interruptions. These
plans may be applicable to address the interruption of support provided by third
parties resulting from their failure to be Year 2000 ready.
If the Company or the third parties with which it has relationships were to
cease or not successfully complete its or their Year 2000 remediation efforts,
the Company would encounter disruptions to its business that could have a
material adverse effect on its business, financial position and results of
operations. The Company could be materially and adversely impacted by widespread
economic or financial market disruption or by Year 2000 computer system failures
at third parties with which it has relationships.
19
<PAGE>
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
This Form 10-Q may contain forward-looking statements that involve risks
and uncertainties, including, but not limited to, the impact of competitive
products and pricing, product demand and market acceptance risks, the presence
of competitors with greater financial resources, product development and
commercialization risks, costs associated with the integration and
administration of acquired operations, capacity and supply constraints or
difficulties, the results of financing efforts, Year 2000 issues and other risks
detailed from time to time in the Company's Securities and Exchange Commission
filings. The Company filed its 1998 Form 10-K on September 25, 1998. Please
refer to this document for a more detailed discussion of the risks and
uncertainties associated with the Company's future operations.
20
<PAGE>
ARTISOFT, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to lawsuits and other claims arising in the ordinary
course of its operations. In the opinion of management, based on consultation
with legal counsel, the effects of such matters will not have a materially
adverse effect on the Company's financial position.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE BY SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No. 11 - Computation of Net Income (loss) Per Share
No. 27 - Financial Data Schedule for Form 10-Q dated November 13, 1998
(c) Reports on Form 8-K
The Company filed a report on Form 8-K dated August 27, 1998,
announcing the resignation of Bank One Arizona as the Company's rights
agent effective July 1, 1998 and the appointment of Harris Trust and
Savings Bank as successor rights agent. The Company also amended its
December 1994 Preferred Shares Rights Agreement to increase the
percentage of common stock that an individual or group of affiliated
individuals could own before triggering the provisions of the 1994
Preferred Shares Rights Agreement from 15% to 25%.
The Company filed a report on Form 8-K dated September 18, 1998,
announcing the appointment of Sheldon M. Schenkler as vice president
and chief financial officer and the promotion of Scott Moule to vice
president and general manager of the Communications Software Group in
Tucson, Arizona. The Company also announced its plans to relocate its
corporate headquarters to Cambridge, Massachusetts.
The Company filed a report on Form 8-K dated October 6, 1998,
announcing the resignation of Jerry E. Goldress as chairman of the
board of directors and the appointment of Michael P. Downey as
chairman of the board of directors. The Company also announced the
promotion of T. Paul Thomas to chief executive officer and president.
The Company also announced the appointment of Frank Girard to the
board of directors.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ARTISOFT, INC.
Date: November 6, 1998 By /s/ T. Paul Thomas
------------------------------------------
T. Paul Thomas
President and Chief Executive Officer
By /s/ Sheldon M. Schenkler
------------------------------------------
Sheldon M. Schenkler
Vice President and Chief Financial Officer
22
ARTISOFT, INC. AND SUBSIDIARIES
EXHIBIT 11. COMPUTATION OF NET INCOME (LOSS) PER SHARE
(in thousands, except per share amounts)
Three Months Ended
September 30,
-----------------------
1998 1997
---- ----
Net income (loss) $ (332) $ 238
========= =======
Basic EPS-Weighted average common shares outstanding 14,660 14,555
========= =======
Basic net income (loss) per share $ (.02) $ .02
========= =======
Basic EPS-Weighted average shares outstanding 14,660 14,555
Effect of diluted securities:
Stock options --(1) 26
========= =======
Diluted EPS-Weighted average shares outstanding 14,660 14,581
========= =======
Stock options not included in diluted EPS since
anti-dilutive 4 --
========= =======
Diluted net income (loss) per share $ (.02) $ .02
========= =======
- ----------
Notes:
(1) Common share equivalents are anti-dilutive for the three months ended
September 30, 1998, therefore, basic and diluted net income (loss) per share is
the same.
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