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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549-1004
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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 DECEMBER 31, 1999
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 (February 11, 2000).
Common Stock, $.01 par value: 15,154,056 shares
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ARTISOFT INC. AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
December 31, 1999 and June 30, 1999 3
Condensed Consolidated Statements of Operations-
Three Months and Six Months Ended
December 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows-
Six Months Ended December 31, 1999 and 1998 5
Notes to Condensed 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 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
EXHIBITS
11 Computation of Net Income (Loss) Per Share
27 Financial Data Schedule
2
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ARTISOFT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
December 31, June 30,
ASSETS 1999 1999
------------ --------
(unaudited)
Current assets:
Cash and cash equivalents $ 17,064 $ 16,148
Receivables:
Trade accounts, net 2,875 2,267
Other receivables 136 66
Inventories 1,620 1,214
Prepaid expenses 295 335
-------- --------
Total current assets 21,990 20,030
-------- --------
Property and equipment 6,546 6,349
Less accumulated depreciation and amortization (5,399) (4,984)
-------- --------
Net property and equipment 1,147 1,365
-------- --------
Other assets 837 1,163
-------- --------
$ 23,974 $ 22,558
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,487 $ 1,229
Accrued liabilities 1,705 2,383
Deferred revenue 1,939 83
Current portion of capital lease obligations -- 289
-------- --------
Total current liabilities 5,131 3,984
-------- --------
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 28,352,702 shares at
December 31, 1999 and 28,144,477 shares at
June 30, 1999 283 281
Additional paid-in capital 97,507 96,869
Accumulated deficit (9,163) (8,792)
Less treasury stock, at cost, 13,320,500 shares at
December 31, 1999 and June 30, 1999 (69,784) (69,784)
-------- --------
Total shareholders' equity 18,843 18,574
-------- --------
$ 23,974 $ 22,558
======== ========
See accompanying notes to condensed consolidated financial statements.
3
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ARTISOFT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended
December 31, December 31,
--------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
(unaudited) (unaudited)
Net sales $ 6,727 $ 5,402 $ 13,128 $ 10,496
Cost of sales 1,849 1,608 4,071 2,964
-------- -------- -------- --------
Gross profit 4,878 3,794 9,057 7,532
-------- -------- -------- --------
Operating Expenses:
Sales and marketing 2,567 2,014 4,922 4,144
Product development 1,439 1,199 2,907 2,441
General and administrative 1,023 1,049 2,048 1,928
-------- -------- -------- --------
Total operating expenses 5,029 4,262 9,877 8,513
-------- -------- -------- --------
Loss from operations (151) (468) (820) (981)
Other income, net 262 238 449 419
-------- -------- -------- --------
Net income (loss) $ 111 $ (230) $ (371) $ (562)
-------- -------- -------- --------
Net income (loss) per common
share -- basic and diluted $ .01 $ (.02) $ (.02) $ (.04)
-------- -------- -------- --------
Weighted average common shares
outstanding:
Basic 14,933 14,686 14,956 14,711
-------- -------- -------- --------
Diluted 16,228 14,686 14,956 14,711
-------- -------- -------- --------
See accompanying notes to condensed consolidated financial statements.
4
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ARTISOFT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Six Months Ended
December 31,
-----------------------
1999 1998
-------- --------
(unaudited)
Cash flows from operating activities:
Net loss $ (371) $ (562)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 745 713
Loss from disposition of property, net 30 1
Change in accounts receivable and
inventory allowances (134) (327)
Changes in assets and liabilities:
Receivables
Trade accounts (449) 1,097
Notes and other (70) 100
Inventories (431) 276
Prepaid expenses 40 (111)
Accounts payable and accrued liabilities (421) (423)
Deferred revenue 1,856 (3)
Accrued restructuring costs -- (1,102)
Other assets -- (43)
-------- --------
Net cash provided by (used in)
operating activities 795 (384)
-------- --------
Cash flows from investing activities:
Proceeds from sale of property and equipment -- 9
Purchases of property and equipment (230) (635)
-------- --------
Net cash used in investing activities (230) (626)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 640 230
Principal payments on long term debt (289) (243)
-------- --------
Net cash provided by (used in)
financing activities 351 (13)
-------- --------
Net (decrease) increase in cash and cash equivalents 916 (1,023)
Cash and cash equivalents at beginning of period 16,148 18,514
-------- --------
Cash and cash equivalents at end of period $ 17,064 $ 17,491
======== ========
See accompanying notes to condensed consolidated financial statements.
5
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ARTISOFT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The condensed 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 condensed 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 condensed
consolidated 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 accurate, it is
suggested that these condensed consolidated financial statements be read in
conjunction with the condensed consolidated financial statements and the notes
thereto included in the Company's 1999 Annual Report to Shareholders and report
on Form 10-K. The results of operations for the three or six month periods ended
December 31, 1999 are not necessarily indicative of the results to be expected
for the full year.
(2) COMPUTATION OF NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing income
attributable to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted net income (loss) 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 (loss) of the Company. In calculating net loss per common
share for the six months ended December 31, 1999 and the three and six month
periods ended December 31, 1998, 1,115,067, 85,769 and 46,096 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 month and six month periods ended
December 31, 1999 and 1998 are summarized below by product group:
Three Months Three Months
Ended Ended
December 31, 1999 December 31, 1998
----------------- -----------------
COMPUTER TELEPHONY GROUP:
Net sales $3,653 $ 1,595
Gross profit $2,413 $ 849
Gross profit margin 66% 53%
Operating loss $ (932) $(1,604)
Net loss $ (670) $(1,604)
Capital expenditures $ 83 $ 283
Depreciation and amortization expense $ 144 $ 112
COMMUNICATIONS SOFTWARE GROUP:
Net sales $3,074 $ 3,807
Gross profit $2,465 $ 2,945
Gross profit margin 80% 76%
Operating income $ 781 $ 1,136
Net income $ 781 $ 1,374
Capital expenditures $ 29 $ 130
Depreciation and amortization expense $ 209 $ 259
6
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Six Months Six Months
Ended Ended
December 31, 1999 December 31, 1998
----------------- -----------------
COMPUTER TELEPHONY GROUP:
Net sales $ 6,374 $ 2,952
Gross profit $ 3,866 $ 1,686
Gross profit margin 61% 57%
Operating loss $(2,588) $(3,165)
Net loss $(2,139) $(3,165)
Capital expenditures $ 166 $ 500
Depreciation and amortization expense $ 301 $ 195
COMMUNICATIONS SOFTWARE GROUP:
Net sales $ 6,754 $ 7,544
Gross profit $ 5,191 $ 5,846
Gross profit margin 77% 78%
Operating income $ 1,768 $ 2,184
Net income $ 1,768 $ 2,602
Capital expenditures $ 64 $ 135
Depreciation and amortization expense $ 444 $ 518
The Company's Computer Telephony Product Group principally includes
revenues from the TeleVantage and Visual Voice product lines. The Company's
Communications Software Group includes revenues from the BizFax, CoSession
Remote, i.Share, LANtastic NOS, ModemShare and WinBeep product lines.
(4) INVENTORIES
Inventories at December 31, 1999 and June 30, 1999 consist of the
following:
December 31, June 30,
1999 1999
------- -------
(unaudited)
Raw materials $ 871 $ 1,177
Work-in-process 3 7
Finished goods 914 173
------- -------
1,788 1,357
Inventory allowances (168) (143)
------- -------
$ 1,620 $ 1,214
======= =======
7
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(6) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and June 30, 1999 consist of
the following:
December 31, June 30,
1999 1999
------- -------
(unaudited)
Furniture and fixtures $ 39 $ 36
Computers and other equipment 6,240 6,046
Leasehold improvements 267 267
------- -------
6,546 6,349
Accumulated depreciation and amortization (5,399) (4,984)
------- -------
$ 1,147 $ 1,365
======= =======
(7) OTHER ASSETS
Other assets at December 31, 1999 and June 30, 1999 consist of the
following:
December 31, June 30,
1999 1999
------- -------
(unaudited)
Trademarks and patents, net of
accumulated amortization of $106 and $95 $ 18 $ 29
Purchased technology, net of accumulated
amortization of $2,195 and $1,451 694 1,009
Recoverable deposits and other 125 125
------ ------
$ 837 $1,163
====== ======
(8) ACCRUED LIABILITIES
Accrued liabilities at December 31, 1999 and June 30, 1999 consist of the
following:
December 31, June 30,
1999 1999
------- -------
(unaudited)
Compensation and benefits $ 923 $1,183
Payroll, sales and property taxes 122 258
Marketing 386 427
Royalties 117 216
Other 157 299
------ ------
$1,705 $2,383
====== ======
8
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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. Net sales for the Company's Computer Telephony Product Group
increased 129% to $3.7 million for the quarter ended December 31, 1999 from $1.6
million for the quarter ended December 31, 1998. Net sales increased 116% to
$6.4 million from $3.0 million for the six month period ended December 31, 1999.
The increase in net sales for both the three and six month periods ended
December 31, 1999 was principally due to two factors: First, an increase in the
sales of the Company's TeleVantage product line and second, the sale of the
Company's Visual Voice source code to Intel Corporation during the quarter ended
December 31, 1999. During the quarter ended December 31, 1999, Intel Corporation
purchased the Company's Visual Voice product line for $2.7 million. Intel
Corporation also agreed to pay the Company $1.5 million in professional service
fees associated with support and services provided to Intel and the existing
Visual Voice customers between October 1, 1999 and June 30, 2000. The Company
recognized $.9 million of revenue on the sale of the Visual Voice source code
and $.5 million in professional services revenue during the quarter ended
December 31, 1999.
Net sales for the Company's Communications Software Product Group decreased
19% to $3.1 million for the quarter ended December 31, 1999 from $3.8 million
for the quarter ended December 31, 1998. Net sales decreased 10% to $6.8 million
from $7.5 million for the six month period ended December 31, 1999. The decrease
in net sales for both the three and six month periods ended December 31, 1999
was principally due to a decline in the sales of the Company's ConfigSafe
product line (licensed from a third party) and lower sales of the Company's
Lantastic network operating system (NOS) products.
The Company's overall net sales increased 25% to $6.7 million for the
quarter ended December 31, 1999 from $5.4 million for the quarter ended December
31, 1998. The Company's overall net sales also increased 25% to $13.1 million
for the six month period ended December 31, 1999 from $10.5 million for the six
month period ended December 31, 1998. The increase for both the quarter and six
month period ended December 31, 1999 compared to the corresponding periods in
the prior year is principally due to substantially higher sales of the Company's
Computer Telephony Product, TeleVantage and the sale of the Visual Voice source
code to Intel Corporation. These increases were offset to a significant degree
by lower sales of certain of the Company's Communications Software Group
products.
The Company distributes its products internationally and tracks sales by
major geographic area. Non-U.S. sales decreased 9% to $1.0 million (15% of net
sales) for the quarter ended December 31, 1999 from $1.1 million (20% of net
sales) for the same quarter a year ago. International sales remained unchanged
at $2.0 million (15% of net sales) for the six month period ended December 31,
1999 from $2.0 million (19% of net sales) for the same period in fiscal 1999.
The percentage decrease in international sales and the decrease in aggregate
dollars for the quarter ended December 31, 1999, as compared to the
corresponding period in fiscal 1999, primarily resulted from a continued decline
in worldwide sales of the Company's LANtastic NOS products offset partially by
increased international sales of the Company's TeleVantage product. The Company
has recently entered into new international distribution relationships with Data
Link Telecommunications, Olivetti Ricerca, Midia, Ltd., iKON, ALR AG and
Affinity LAC.
GROSS PROFIT. The Company's gross profit was $4.9 million for the quarter
ended December 31, 1999 and $3.8 million for the quarter ended December 31, 1998
or 73% and 70% of net sales, respectively. The Company's gross profit was $9.1
million for the six month period ended December 31, 1999 and $7.5 million for
the six month period ended December 31, 1998 or 69% and 72% of net sales,
respectively. The increase in gross profit percentage for the quarter ended
December 31, 1999 was due to a number of factors including: a shift to higher
margin TeleVantage software sales instead of lower margin TeleVantage Not For
Resale kits (NFR's); second, lower royalty expenses incurred on certain of the
Company's Communication Software Group products and; third, the receipt of funds
for the sale of Visual Voice source code. The net increase in aggregate dollars
of gross profit margin for the quarter and six month periods ended December 31,
9
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1999 as compared to the corresponding periods in fiscal 1999 is due to higher
net sales from the Company's Computer Telephony Product Group. The decrease in
gross profit percentage for the six month period ended December 31, 1999
compared to the corresponding six month period in fiscal 1999, is due to
Computer Telephony net sales being a higher percentage of overall net sales
during the first quarter of fiscal 2000 as compared to the first quarter of
fiscal 1999.
SALES AND MARKETING. Sales and marketing expenses were $2.6 million for the
quarter ended December 31, 1999 and $2.0 million for the quarter ended December
31, 1998, representing 38% and 37% of net sales, respectively. Sales and
marketing expenses were $4.9 million and $4.1 million for the six-month periods
ended December 31, 1999 and 1998, respectively (37% and 39% of net sales,
respectively). The increase in sales and marketing expenses in aggregate dollars
for the quarter and six month periods ended December 31, 1999 compared to the
same periods in fiscal 1999 was due principally to increased expenditures on the
sales and marketing personnel in the Company's Computer Telephony Products
Group, offset by decreased expenditures on such personnel in the Company's
Communications Software Group. The increase in sales and marketing expenses as a
percentage of sales for the quarter ended December 31, 1999 compared to the same
period in fiscal 1999 is due to the same increase in expenditures on sales and
marketing personnel. The decrease in sales and marketing expenses as a
percentage of sales for the six month period ended December 31, 1999 compared to
the same period in fiscal 1999 was principally attributable to the increase in
the Company's net sales.
PRODUCT DEVELOPMENT. Product development expenses were $1.4 million for the
quarter ended December 31, 1999 and $1.2 million for the quarter ended December
31, 1998, representing 21% and 22% of net sales, respectively. Product
development expenses were $2.9 million for the six month period ended December
31, 1999 and $2.4 million for the six month period ended December 31, 1998,
representing 22% and 23% of net sales, respectively. The increase in aggregate
product development expenses for the quarter and six month periods ended
December 31, 1999 compared to the same period in fiscal 1999 is principally
attributable to the addition of product development resources in the Company's
Computer Telephony Group. The addition of new development personnel to the
Computer Telephony Group during the quarter ended December 31, 1999 was required
to meet planned future product introduction timetables. Specifically, the
Company has added development and distribution personnel in anticipation of the
Company's entry into two development and distribution agreements, one with Intel
Corporation, pursuant to which the company will port TeleVantage to Intel's CT
Media Server, and the second with Toshiba America Information Systems
("Toshiba"), pursuant to which the Company will be required to meet certain
development milestones. The decrease in development expenses as a percentage of
net sales for both the quarter and six month periods ended December 31, 1999, is
principally due to higher overall net sales. The Company believes the
introduction of new products to the market in a timely manner is critical to its
future success.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $1.0
million for the quarter ended December 31, 1999 and 1998, representing 15% and
19% of net sales, respectively. General and administrative expenses were $2.0
million and $1.9 million for the six month period ended December 31, 1999 and
1998, representing 16% and 18% of net sales, respectively. The decrease in
general and administrative expenses as a percentage of net sales for both the
quarter and six month periods ended December 31, 1999 compared to the same
period in fiscal 1999 is principally the result of the increase in overall net
sales. The increase in general and administrative expenses in aggregate dollars
for the six month period ended December 31, 1999 is principally due to higher
occupancy costs and depreciation and amortization expenses associated with the
Company's Cambridge, Massachusetts-based headquarters facilities and equipment.
OTHER INCOME, NET. For the quarter ended December 31, 1999, other income,
net, increased to $262,000, from $238,000 in the corresponding quarter of fiscal
1999. For the six month period ended December 31, 1999, other income, net,
increased to $449,000 from $419,000. The increase for the quarter and six months
ended December 31, 1999 resulted principally from the receipt of increased
interest income on the Company's cash and investment balances and to a lesser
extent by reduced interest expense on certain of the Company's capital lease
arrangements.
10
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FUTURE RESULTS
The Company intends to continue to increase its investments and
expenditures in sales, marketing and development of its flagship product,
TeleVantage. The Company likewise intends to limit or even reduce its
investments in its Communications Software Group. The Company will likely see
increased operating expenditures over the next several quarters as it completes
planned development, marketing and sales personnel expansion efforts in its
Computer Telephony Product Group. With these planned headcount increases, the
Company may also see increased occupancy expenses associated with its Cambridge,
Massachusetts corporate headquarters.
In September 1999, the Company announced that it would investigate
alternatives for a possible division of its business units, which could involve
the sale or other disposition of all or a portion of one of the Company's
business units. The Company has retained the services of an investment banking
firm to assist it in evaluating its options. There can be no assurances that the
Company will be successful in the separation of its business units. The Company
may also choose to pursue alternatives that do not include a separation of the
two product groups. If the Company's investigation of its alternatives leads to
some form of a divestiture of one of the Company's business units, there can be
no assurances that the Company will remain profitable in the future or that
revenues will remain at current levels. In the three and six month periods ended
December 31, 1999, the Communications Software Group has had net income of $.8
million and $1.8 million, respectively, compared to the Computer Telephony
Group's net losses of $.7 and $2.1 million during the same respective periods.
In addition, the Communications Software Group has accounted for 46% and 51% of
the Company's net sales for the three and six month period ended December 31,
1999, respectively. On the other hand, if the Company does not divest itself of
the Communications Software Group, it is unlikely that, with the reduced sales,
marketing and development expenditures on its communications software products,
profit and revenue levels for communications software products will continue at
their current levels in the future.
In December 1999, the Company executed an Intellectual Property (IP)
Purchase Agreement with Intel Corporation. The Company agreed to sell its Visual
Voice software code to Intel Corporation for consideration of $2.7 million. The
$2.7 million was paid to Artisoft upon execution of the agreement on December
30, 1999. Intel also agreed to allow the Company to continue to sell its Visual
Voice software until June 30, 2000 royalty free up to a maximum of $1.4 million
in sales per quarter. Subsequent to June 30, 2000 the Company will be required
to pay a royalty to Intel on all sales of Visual Voice software. Intel also
agreed to pay the Company $1.5 million in professional services revenue. The
Company recognized $1.4 million of this revenue during the quarter ended
December 31, 1999 and anticipates it will recognize $1.4 million of this revenue
during the quarter ended March 31, 2000 and another $1.4 million during the
quarter ended June 30, 2000.
In December 1999, the Company executed a strategic partnership with Intel
to deliver a jointly developed software-based phone system. Under the terms of
the agreement, the Company will be required to port TeleVantage to Intel's CT
Media software platform.
In January 2000, the Company executed a strategic partnership with Toshiba
America Information Systems ("Toshiba") intended to allow the Company and
Toshiba to deliver an integrated communications server and software-PBX solution
for small and midsized businesses. Under the terms of the agreement, Toshiba
will invest in licenses of TeleVantage for customized versions of the software
product to be integrated with its computer telephony systems and communications
server product offerings. The Company will be required to meet certain
development milestones in providing the customized software to Toshiba. The
Company also announced that Toshiba will acquire 100,000 shares of Artisoft
common stock at a price of $6.994 per share and have the right to acquire an
additional 50,000 shares pursuant to a warrant agreement. Additionally, the
Company has authorized Toshiba to purchase up to an additional 1,350,000 shares
of Artisoft common stock on the open market. The Company will incur a charge of
approximately $2.2 million dollars on the issuance of these securities, which
will be recognized as expense over the three year life of the agreement. The
recognition of this expense will begin in the third quarter of fiscal year 2000.
The Company does not anticipate that this expense recognition will materially
affect its operating results.
11
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The failure of the Company to successfully meet its development milestones
on either one of these key strategic agreements may have a adverse effect on the
Company's anticipated future revenues from TeleVantage. The Company's ability to
significantly expand its selling and marketing of TeleVantage to a broad
customer base may depend on its ability to successfully execute these two key
strategic agreements. The failure of one or both of these partnerships or the
Company's inability to continue to develop future strategic partnerships could
adversely effect the Company's operating results.
During the quarter ended December 31, 1999, the Company experienced
shortages of several of its key Dialogic hardware components utilized in the
TeleVantage software-based PBX phone systems. While the Company believes that
these quality problems and supply constraints have been remedied should such
failures or shortages recur they could have a material adverse impact on the
Company's future operating results.
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
the general economy; business and technological developments in the emerging and
rapidly changing software-based PBX market; competitive pressures, acceptance of
new products and price pressures; availability of third party compatible
products at reasonable prices; risk of nonpayment of accounts receivable; risk
of product line or inventory obsolescence due to shifts in technologies or
market demand; timing of software introductions; and litigation. These and other
risk factors are outlined below.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $17.1 million at December 31,
1999 compared to $16.1 million at June 30, 1999 and working capital of $16.9
million at December 31, 1999 compared to $16.0 million at June 30, 1999. The
increase in cash and cash equivalents of $1.0 million was the result of the
following factors: the receipt of a $2.7 million payment from Intel Corporation
for the sale of the Visual Voice source code. The increase in the Company's
working capital of $.9 million was primarily the result of the Company's receipt
of the $2.7 million payment from Intel Corporation (of which only $.9 million
was recognized as revenue during the quarter ended December 31, 1999.
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 or loss of revenues from disposed business segments could necessitate
that the Company seek additional debt or equity capital. In addition, the
Company may also from time to time seek debt financing or solicit equity
investments for various business reasons. There can be no assurance that any
such additional debt financing or equity capital will be available when needed
or, if available, will be on satisfactory terms. The issuance of additional
equity securities may result in substantial dilution.
12
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"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. Among the important factors that could cause actual results
to differ materially from forward looking statements contained herein are 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, and other risks detailed from
time to time in the Company's Securities and Exchange Commission filings. The
Company filed its first quarter fiscal 2000 form 10-Q on November 15, 1999.
13
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RISK FACTORS
GENERAL
COMPETITION. The computer telephony and communications software 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.
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.
NEW INDUSTRY DEVELOPMENT. The Company's principal product, TeleVantage,
competes in the newly emerging software-based PBX market. Software-based PBX
products operate in conjunction with and are affected by developments in other
related industries. These industries include highly developed product markets,
such as PCs, PC operating systems and servers, proprietary PBX and related
telephone hardware and software products, and telephone, data and cable
transmission systems, as well as new emerging products and industries, such as
internet communications and Internet Protocol ("IP") telephony. All of these
industries and product markets are currently undergoing rapid changes, market
evolution and consolidation. The manner in which these industries and products
evolve, including the engineering- and market-based decisions that are made
regarding the interconnection of the products and industries, will affect the
opportunities and prospects for the Company's computer telephony products,
including TeleVantage. The Company's software-based PBX solution, TeleVantage,
competes directly with other software-based PBX solutions as well as existing
traditional, proprietary hardware solutions offered by companies such as Lucent
and Nortel. While the Company anticipates a gradual migration toward
software-based PBX solutions, there can be no assurances that this will actually
occur or will occur at the rate that the Company anticipates.
RETURNS AND PRICE PROTECTION. The Company is exposed to the risk of product
returns and rotations from its distributors and value added resellers, which are
estimated and recorded by the Company as a reduction in sales. Although the
Company attempts to monitor its reseller and distributor 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.
14
<PAGE>
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 value added
resellers 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 or end-users. Major 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, could 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.
TECHNOLOGICAL CHANGE. The markets for computer telephony solutions are
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 computer telephony 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 computer telephony 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 computer telephony 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 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.
15
<PAGE>
INTEL HARDWARE AVAILABILITY AND QUALITY. Most of the Company's computer
telephony software requires the availability of Intel hardware. Specifically,
the TeleVantage software-based PBX operates on Intel boards. To the extent that
these boards become unavailable or in short supply the Company could experience
delays in shipping software-based phone systems to its customers which may have
a material adverse affect on the Company's future operating results. In
addition, the Company is dependent on the reliability of the Intel hardware that
its software-based phone system operates on. To the extent that the Intel
hardware has defects, becomes unreliable or does not perform in a manner that is
acceptable to the Company's customers, the Company could experience a material
adverse impact on its future operating results. Such delays or quality problems
if encountered could also cause damage to the Company's reputation for
delivering high quality, reliable computer telephony solutions.
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 and foreign
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 and relevant foreign authorities. 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 provide substantially less protection to the Company's
proprietary rights than do the laws of the United States. Trademark or patent
challenges in such foreign countries could, if successful, materially disrupt or
even terminate the Company's ability to sell its products in such markets. 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. Although the Company believes that its services and
products do not infringe on the intellectual property rights of others, such
claims have been and in the future may be 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.
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 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 or that the Company will be able to hire
additional employees on a timely basis. Loss of services of existing key
employees or failure to timely hire new key employees could have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company expects to grant additional stock options and provide
other forms of incentive compensation to attract and retain key technical and
executive personnel. These additional incentives will lead to higher
compensation costs in the future and may adversely effect the Company's future
results of operations. The Company has experienced and expects to continue to
experience difficulty in hiring key technical personnel in certain of its key
development offices. These difficulties could lead to higher compensation costs
and may adversely effect the Company's future results of operations.
16
<PAGE>
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. 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 could be 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
its competitors, legislative or regulatory changes, general trends in the
industry and other events or factors. The stock market has experienced extreme
price and volume fluctuations which have particularly affected the market price
for many high technology companies similar to the Company 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 strategic
partnerships 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 and operating groups, should conditions warrant, particularly in light
of the Company's strategy of focusing its resources on its Computer Telephony
Group. Although the Company may periodically discuss such potential transactions
with a number of companies, there can be no assurance that suitable acquisition,
alliance or purchase candidates can be identified, or that, if identified,
acceptable terms can be agreed upon or adequate and acceptable financing sources
will be available to the Company or purchasers that would enable them to
consummate such transactions. Even if an acquisition or alliance 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, certain acquisitions by the Company could 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.
Divestitures of product lines or operating groups could adversely affect the
Company's profitability by reducing the Company's revenues without a
17
<PAGE>
corresponding reduction in expenses. Acquisitions, alliances and divestitures
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, unforeseen
consequences of exiting from product markets 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.
TeleVantage is a telephone system designed for small and medium sized
businesses and branch offices. The Company believes TeleVantage 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
sold in high volume. Additionally, there can be no assurances that competitors
with substantially greater financial resources than that of the Company will not
develop their own software-based PBX solutions and subsequently adversely affect
the Company's ability to market or sell its software-based PBX solution,
TeleVantage.
TeleVantage could also face direct competition from companies with
significantly greater financial, marketing, service, support and technical
resources. In addition to the possibility that these companies may release a
software-based PBX solution, they have signaled their intentions to develop "IP"
(Internet Protocol) based applications. Several of the Company's potential
competitors with substantially greater financial resources have recently
announced partnerships designed to develop, market and sell IP based and
software based telephony solutions. These developments could put the Company at
a competitive disadvantage and adversely affect the Company's ability to sell
and market its own software-based PBX solution, TeleVantage. Although the
Company has recently partnered with Toshiba America Information Systems and
Intel to deliver its software-based PBX to small and medium sized businesses
there can be no assurances these partnerships will substantially expand the
market presence of the Company's software-based PBX, TeleVantage. The Company
anticipates certain competitors with greater financial resources will continue
to make substantial new investments in developing IP based and software based
telephony solutions and may form further partnerships that will put the Company
at a competitive disadvantage. Thus there can be no assurance that the Company
will be able to successfully market or sell its own competing IP based or
software-based telephony solutions.
COMPUTER TELEPHONY HARDWARE SUPPLIER DEPENDENCIES. The Company's
software-based PBX product, TeleVantage, is designed to operate in conjunction
with voice processing boards manufactured by Intel Corporation. Additionally,
Intel is currently the Company's only supplier of the voice processing boards
that are necessary for the operation of TeleVantage. If Intel becomes unable to
18
<PAGE>
continue to manufacture and supply these boards in the volume, price and
technical specifications the Company requires, then the Company would have to
adapt its products to a substitute supplier. Introducing a new supplier of voice
processing boards could result in unforeseen additional product development or
customization costs and could introduce hardware and software operating or
compatibility problems. These problems could affect product shipments, be costly
to correct or damage the Company's reputation in the markets in which it
operates, and could have a material adverse affect on its business, financial
condition or results of operations.
Additionally, Dialogic hardware failures could adversely affect the
Company's ability to ship and sell its own software products, damage its
reputation in the markets in which it operates, and could have a material
adverse affect on its business, financial condition or results of operations.
COMPUTER TELEPHONY CUSTOMERS AND MARKET ACCEPTANCE. The Company is
currently and will continue to invest significant resources in the development,
marketing and sales of TeleVantage, a software-based PBX. There can be no
assurance that the Company will achieve market acceptance of these products
whose PBX and related telephone needs have traditionally been served through
proprietary PBX and key system distributors and interconnects. The Company's
potential customer base for its TeleVantage product, small, medium sized
businesses and branch offices, have well established histories of buying
existing telecommunications products, including proprietary PBXs and related
products, and have found such products to be generally reliable. Moreover, large
companies such as Lucent and Nortel, have invested substantial resources in the
development and marketing of existing proprietary PBXs and related products and
maintain well developed distribution channels. Accordingly, the Company will
face substantial market barriers and competitive pressures in achieving market
acceptance of its new software based PBX products. There can be no assurance
that the Company will be successful in establishing a critical mass of qualified
computer telephony resellers or that such resellers will be able to successfully
market TeleVantage. The Company's success in selling these products will likely
be influenced by its ability to attract and inform qualified VARs and
distributors 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. The Company believes that there will
be a gradual evolution toward open server-based telephony enabled applications
from the traditional proprietary PBX environment and that, in such a new
environment, software-based PBX systems will be widely accepted. The Company
also believes that there may be an eventual gravitation toward Internet Protocol
architectures and/or voice over wire applications. However, there can be no
assurance that the current technological innovations in the computer telephony
industry will be widely adopted by small to medium sized businesses or that
telephony standards will evolve in a manner that is advantageous to or
anticipated by the Company.
TeleVantage currently runs only on Microsoft Windows NT servers. In
addition, the Company's products use other Microsoft Corporation technologies,
including Microsoft Exchange Server and Microsoft SQL Server. A decline in
market acceptance for Microsoft technologies or the increased acceptance of
other server technologies could cause the Company to incur significant
development costs and could have a material adverse effect on our ability to
market our current products. Although, the Company believes Microsoft
technologies will continue to be widely used by businesses, there nonetheless
can be no assurance that businesses will adopt these technologies as anticipated
or will not migrate to other competing technologies that the Company's telephony
products do not currently support.
Additionally, since the operation of the Company's software-based PBX
solution is dependent upon certain Microsoft technologies, there can be no
assurances that in the event of a price increase by Microsoft on its SQL Server
licenses or other technologies that the Company will be able to continue to
successfully sell and market its software- based PBX. Furthermore, Microsoft has
not yet signaled whether they intend to offer a competing software-based PBX.
Should Microsoft or any other operating system provider with substantially
greater financial resources than that of the Company introduce competing product
offerings, the Company could be put at a competitive disadvantage.
19
<PAGE>
ITEM 2(a). QUANITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
MARKET RISK. During the normal course of business Artisoft is routinely
subjected to a variety of market risks, examples of which include, but are not
limited to, interest rate movements and collectibility of accounts receivable.
Artisoft currently assesses these risks and has established policies and
practices to protect against the adverse effects of these and other potential
exposures. Although Artisoft does not anticipate any material losses in these
risk areas, no assurances can be made that material losses will not be incurred
in these areas in the future.
INTEREST RATE RISK. Artisoft may be exposed to interest rate risk on
certain of its cash equivalents. The value of certain of the Company's cash
equivalents may be impacted in a rising interest rate investment environment.
Although Artisoft does not anticipate any material losses from such a movement
in interest rates, no assurances can be made that material losses will not be
incurred in the future.
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
(a) The Company's Annual Shareholders' Meeting was held on November 2,
1999.
(b) At the Annual Shareholders' Meeting, proposals were considered for (1)
the election of Kathryn B. Lewis as a Class I director to serve until
the annual meeting of shareholders in 2002, (2) the election of James
L. Zucco, Jr., as a Class I director to serve until the annual meeting
of shareholders in 2002, (3) the approval of certain amendments to the
Artisoft, Inc. Employee Stock Purchase Plan, and (4) the ratification
of the selection of KPMG LLP as the independent public accountants of
the Company for the 2000 fiscal year.
The director-nominees were elected, the proposal of certain amendments
to the Artisoft, Inc. Employee Stock Purchase Plan was approved and
the ratification of KPMG LLP was approved with the voting results as
follows:
Votes Votes Votes Not
Proposal For Against Withheld Abstained Voted
- -------- --- ------- -------- --------- -----
Election of
Kathryn B. Lewis
as a Class I Director 11,190,300 -- 2,640,166 -- 1,011,339
Election of
James L. Zucco, Jr.
as a Class I Director 13,691,839 -- 138,627 -- 1,011,339
Amendment to the
Artisoft, Inc. Employee
Stock Purchase Plan 12,975,039 130,582 76,348 -- 1,659,836
Ratification of selection
KPMG LLP as independent
public accountants of
the Company for fiscal
year 2000 13,755,111 38,105 37,250 -- 1,011,339
21
<PAGE>
ITEM 5. OTHER INFORMATION
On February 11, 2000, the Company announced that T. Paul Thomas would
resign as President and Chief Executive Officer of the Company, effective as of
March 1, 2000. Michael P. Downey, Chairman of the Artisoft board will serve as
interim President and Chief Executive Officer of the Company commencing March 1,
2000 and until Mr. Thomas' replacement has been selected and appointed. Mr.
Thomas intends to continue as a Director of the Company to assist in the search
for and the transition to his replacement.
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 February 14, 2000
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the three months ended
December 31, 1999
22
<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: February 14, 2000 By: /s/ T. Paul Thomas
-------------------------------------
T. Paul Thomas
President and Chief Executive Officer
By: /s/ Kirk D. Mayes
-------------------------------------
Kirk D. Mayes
Controller and Acting 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 Six Months Ended
December 31, December 31,
----------------- ------------------
1999 1998 1999 1998
------ ------ ------ ------
Net income (loss) $ 111 $ (230) $ (371) $ (562)
Basic EPS-Weighted average
common shares outstanding 14,933 14,686 14,956 14,711
Basic net income (loss) per
share $ .01 $ (.02) $ (.02) $ (.04)
Effect of diluted securities:
Stock options 1,295 --(1) --(1) --(1)
Diluted EPS-Weighted average
shares outstanding 16,228 14,686 14,956 14,711
Stock options not included in
diluted EPS since anti-dilutive -- 86 1,115 46
Diluted net income (loss)
per share $ .01 $ (.02) $ (.02) $ (.04)
Notes:
(1) Common share equivalents are anti-dilutive for the three and six-month
periods ended December 31, 1998 and the six month period ended December 31,
1999, therefore, basic and diluted net loss per share are the same.
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