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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 March 31, 2000
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 of (IRS employer
incorporation) identification number)
5 CAMBRIDGE CENTER
CAMBRIDGE, MA 02142
(617) 354-0600
(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 (MAY 15, 2000).
COMMON STOCK, $.01 PAR VALUE: 15,269,503 SHARES
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<PAGE>
ARTISOFT INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
March 31, 2000 and June 30, 1999 3
Condensed Consolidated Statements of Operations-
Three Months and Nine Months Ended
March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows-
Nine Months Ended March 31, 2000
and 1999 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote by Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
EXHIBITS
11 Computation of Net Loss Per Share 21
27 Financial Data Schedule 22
2
<PAGE>
ARTISOFT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
March 31, June 30,
ASSETS 2000 1999
--------- --------
(unaudited)
Current assets:
Cash and cash equivalents $ 7,082 $ 16,148
Short term investments 8,791 --
Receivables:
Trade accounts, net 979 1,055
Other receivables 140 47
Inventories 996 496
Prepaid expenses 475 301
Note receivable 490 --
--------- --------
Total current assets 18,953 18,047
--------- --------
Property and equipment 1,835 1,537
Less accumulated depreciation and amortization (993) (615)
--------- --------
Net property and equipment 842 922
--------- --------
Other assets 200 266
Net assets from discontinued operations 1,967 1,516
--------- --------
$ 21,962 $ 20,751
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,020 $ 931
Accrued liabilities 1,340 1,237
Deferred revenue 1,009 9
--------- --------
Total current liabilities 3,369 2,177
--------- --------
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 28,523,997 shares at March 31,
2000 and 28,144,477 shares at June 30, 1999 285 281
Additional paid-in capital 100,723 96,869
Accumulated deficit (12,631) (8,792)
Less treasury stock, at cost, 13,320,500
shares at March 31, 2000 and June 30, 1999 (69,784) (69,784)
--------- --------
Total shareholders' equity 18,593 18,574
--------- --------
$ 21,962 $ 20,751
========= ========
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
ARTISOFT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 4,309 $ 1,852 $ 10,683 $ 4,805
Cost of sales 1,464 857 3,973 2,124
-------- -------- -------- --------
Gross profit 2,845 995 6,710 2,681
-------- -------- -------- --------
Operating Expenses:
Sales and marketing 4,412 1,162 7,792 3,308
Product development 1,009 735 2,664 1,781
General and administrative 755 905 2,174 2,564
-------- -------- -------- --------
Total operating expenses 6,176 2,802 12,630 7,653
-------- -------- -------- --------
Loss from operations (3,331) (1,807) (5,920) (4,972)
Other income, net 184 186 633 606
-------- -------- -------- --------
Net loss from continuing
operations (3,147) (1,621) (5,287) (4,366)
Income (loss) from discontinued
operations, net of tax (320) 1,041 1,448 3,224
-------- -------- -------- --------
Net loss $ (3,467) $ (580) $ (3,839) $ (1,142)
======== ======== ======== ========
Net loss per common share from
continuing operations-
Basic and Diluted $ (.21) $ (.11) $ (.35) $ (.30)
======== ======== ======== ========
Net loss per common share-
Basic and Diluted $ (.23) $ (.04) $ (.26) $ (.08)
======== ======== ======== ========
Weighted average common shares
outstanding:
Basic and Diluted 15,158 14,764 15,001 14,705
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
ARTISOFT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
March 31,
---------------------
2000 1999
-------- --------
(unaudited)
Cash flows from operating activities:
Net loss $ (3,839) $ (1,142)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 448 323
Loss from disposition of property, net 32 --
Change in accounts receivable and
inventory allowances (221) (362)
Tax benefit of disqualifying dispositions -- 34
Changes in assets and liabilities:
Receivables:
Trade accounts 252 29
Notes and other (583) (107)
Inventories (455) (187)
Prepaid expenses (174) (114)
Accounts payable, accrued liabilities
and deferred revenue 1,192 (245)
Net (increase) decrease in assets from
discontinued operations (451) 765
Other assets -- (13)
-------- --------
Net cash used in operating activities (3,799) (1,019)
-------- --------
Cash flows from investing activities:
Purchases of investment securities (8,791) --
Purchases of property and equipment (334) (626)
-------- --------
Net cash used in investing activities (9,125) (626)
Cash flows from financing activities:
Proceeds from issuance of common stock 3,858 254
-------- --------
Net cash provided by financing activities 3,858 254
-------- --------
Net decrease in cash and cash equivalents (9,066) (1,391)
Cash and cash equivalents at beginning of period 16,148 18,514
-------- --------
Cash and cash equivalents at end of period $ 7,082 $ 17,123
-------- --------
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 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 nine month periods ended March
31, 2000 are not necessarily indicative of the results to be expected for the
full year.
(2) DISCONTINUED OPERATIONS
In September 1999, the Company announced its intention to investigate the
potential separation of its two business units: the Communications Software
Group (CSG) and the Computer Telephony Group (CTG). On April 26, 2000, the
Company signed a non-binding letter of intent to sell the CSG assets to Prologue
Software Group. As a result of this letter of intent, the Board of Directors
resolved to discontinue the operations of CSG, thus the Company has reclassified
the accompanying condensed consolidated balance sheets, statements of operations
and statements of cash flows of CSG to Discontinued Operations.
The components of Net Assets of Discontinued Operations as of March 31,
2000 and June 30, 1999 follow (in thousands):
March 31, 2000 June 30, 1999
-------------- -------------
(unaudited) (unaudited)
Accounts receivable, net $ 1,350 $ 1,231
Inventories 562 718
Prepaid expenses 65 34
Property and equipment, net 314 443
Other assets 473 897
Accounts payable (109) (298)
Accrued liabilities (688) (1,220)
Current portion of capital lease obligation -- (289)
------- -------
Net Assets of Discontinued Operations $ 1,967 $ 1,516
======= =======
The following is a summary of the operating results of the Discontinued
Operations for the three- and nine-month periods ended March 31, 2000 and March
31, 1999 (in thousands):
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Three Months Ended Nine Months Ended
March 31, March 31,
-------------------- ------------------
2000 1999 2000 1999
------- ------ ------ -------
(unaudited) (unaudited)
Net sales $ 1,857 $3,898 $8,611 $11,442
Cost of sales 400 1,050 1,964 2,747
------- ------ ------ -------
Gross profit 1,457 2,848 6,647 8,695
------- ------ ------ -------
Operating expenses 1,777 1,807 5,199 5,471
------- ------ ------ -------
Net income (loss) $ (320) $1,041 $1,448 $ 3,224
======= ====== ====== =======
(3) COMPUTATION OF NET LOSS PER SHARE
Basic net 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 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 loss of the
Company. In calculating net loss per common share for the three and nine month
periods ended March 31, 2000, 1,297,477 and 1,242,772 common stock equivalent
shares consisting of stock options have been excluded because their inclusion
would have been anti-dilutive. In calculating net loss per common share for the
three and nine month periods ended March 31, 1999, 318,209 and 84,919 common
stock equivalent shares consisting of stock options have been excluded because
their inclusion would have been anti-dilutive.
(4) INVENTORIES
Inventories at March 31, 2000 and June 30, 1999 consist of the following:
March 31, June 30,
2000 1999
---- ----
(unaudited)
Raw materials $ 354 $ 625
Finished goods 740 14
------- -----
1,094 639
Inventory allowances (98) (143)
------- -----
$ 996 $ 496
======= =====
7
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(5) PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2000 and June 30, 1999 consist of the
following:
March 31, June 30,
2000 1999
---- ----
(unaudited)
Furniture and fixtures $ 39 $ 36
Computers and other equipment 1,558 1,266
Leasehold improvements 238 235
------- -------
1,835 1,537
Accumulated depreciation
and amortization (993) (615)
------- -------
$ 842 $ 922
======= =======
(6) ACCRUED LIABILITIES
Accrued liabilities at March 31, 2000 and June 30, 1999 consist of the
following:
March 31, June 30,
2000 1999
---- ----
(unaudited)
Compensation and benefits $ 657 $ 776
Payroll, sales and property taxes 98 68
Marketing 265 162
Royalties 187 16
Other 133 215
------ ------
$1,340 $1,237
====== ======
8
<PAGE>
ARTISOFT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES. Net sales increased 133% to $4.3 million for the quarter ended
March 31, 2000 from $1.9 million for the quarter ended March 31, 1999. Net sales
increased 122% to $10.7 million from $4.8 million for the nine month period
ended March 31, 2000. The increase in net sales for both the three and nine
month periods ended March 31, 2000 was principally due to two factors: First, an
increase in sales of the Company's TeleVantage product line and secondly, 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
Corporation 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 March 31, 2000.
The Company distributes its products internationally and tracks sales by major
geographic area. Non-U.S. sales increased 16% to $.3 million (7% of net sales)
for the quarter ended March 31, 2000 from $.2 million (13% of net sales) for the
same quarter a year ago. International sales increased to $.7 million (6% of net
sales) for the nine month period ended March 31, 2000 from $.6 million (13% of
net sales) for the same period in fiscal 1999. The increase in aggregate dollars
for the three and nine month periods ended March 31, 2000, as compared to the
corresponding periods in fiscal 1999, primarily resulted from an acceleration in
the sales of the Company's TeleVantage software product in Europe and Latin
America. The decrease in international net sales as a percentage of total net
sales for the three and nine month periods ended March 31, 2000 compared to the
corresponding periods in fiscal 1999, resulted from the overall increase in net
sales.
GROSS PROFIT. The Company's gross profit was $2.8 million for the quarter
ended March 31, 2000 and $1.0 million for the quarter ended March 31, 1999 or
66% and 54% of net sales, respectively. The Company's gross profit was $6.7
million for the nine month period ended March 31, 2000 and $2.7 million for the
nine-month period ended March 31, 1999 or 63% and 56% of net sales,
respectively. The increase in gross profit percentage for the quarter and nine
month period ended March 31, 2000 was due to the following factors: first, a
shift to higher margin TeleVantage software sales instead of lower margin
TeleVantage Not For Resale kits (NFR's); and second, 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 nine month periods ended March 31, 2000
as compared to the corresponding periods in fiscal 1999 is due to higher net
sales from the Company's TeleVantage product line and the recognition of
revenues associated with the sale of the Company's Visual Voice software code.
SALES AND MARKETING. Sales and marketing expenses were $4.4 million for the
quarter ended March 31, 2000 and $1.2 million for the quarter ended March 31,
1999, representing 102% and 63% of net sales, respectively. Sales and marketing
expenses were $7.8 million and $3.3 million for the nine month periods ended
March 31, 2000 and 1999, respectively, (73% and 69% of net sales, respectively).
The increase in sales and marketing expenses in aggregate dollars and as a
percentage of total net sales for the quarter and nine month periods ended March
31, 2000 compared to the same periods in fiscal 1999 was due principally to the
recognition of a one-time charge of $2.3 million during the quarter ended March
31, 2000 associated with Artisoft common stock and warrants granted to Toshiba
America Information Systems "TAIS". In January 2000, the Company granted 100,000
shares of Artisoft common stock and 50,000 warrants to TAIS at a strike price of
$6.994 (the fair market value of the Artisoft common stock on the date of the
execution of the letter of intent). The fair market value of the Artisoft common
stock on the date of execution of the definitive agreement was $21.50. The
difference between the strike price and fair market value of the Artisoft common
stock was charged to selling expense in the quarter ended March 31, 2000.
9
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Higher sales and marketing staffing levels also contributed to the increases in
sales and marketing expenses in both aggregate dollars and as a percentage of
total net sales for the three and nine month periods ended March 31, 2000
compared to the same periods in fiscal 1999.
PRODUCT DEVELOPMENT. Product development expenses were $1.0 million for the
quarter ended March 31, 2000 and $.7 million for the quarter ended March 31,
1999, representing 23% and 40% of net sales, respectively. Product development
expenses were $2.7 million for the nine month period ended March 31, 2000 and
$1.8 million for the nine month period ended March 31, 1999, representing 25%
and 37% of net sales, respectively. The increase in aggregate product
development expenses for the quarter and nine month periods ended March 31, 2000
compared to the same period in fiscal 1999 is principally attributable to the
addition of product development resources to work on future versions of
TeleVantage. The addition of new development personnel during the quarter ended
December 31, 2000 was required to meet planned future product introduction
timetables. Specifically, the Company has added development and quality
assurance personnel as a result of its entry into two development and
distribution agreements, one with Intel Corporation, pursuant to which the
Company is to make modifications to the TeleVantage code to ensure compatibility
with Intel's CT Media Server, and the second with TAIS, 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
nine-month periods ended March 31, 2000 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 $.8
million for the quarter ended March 31, 2000 and $.9 million for the quarter
ended March 31, 1999, representing 18% and 49% of net sales, respectively.
General and administrative expenses were $2.2 million and $2.6 million for the
nine-month period ended March 31, 2000 and March 31, 1999, respectively,
representing 20% and 53% of net sales, respectively. The decrease in general and
administrative expenses as a percentage of net sales for both the quarter and
nine month periods ended March 31, 1999 compared to the same period in fiscal
1999 is principally the result of the increase in overall net sales. The
decrease in general and administrative expenses in aggregate dollars for the
nine month period ended March 31, 2000 is principally due to reduced senior
administrative personnel costs during the quarter ended March 31, 2000.
OTHER INCOME, NET. For the quarter ended March 31, 2000, other income, net,
remained unchanged at $.2 million, from the corresponding quarter of fiscal
1999. For the nine month period ended March 31, 2000, other income, net,
remained unchanged at $.6 million from the nine month period ended March 31,
1999.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS. For the quarter ended March 31,
2000, Loss from discontinued operations was $(.3) million compared to income
from operations of $1.0 million for the three month period ended March 31, 1999.
Income from discontinued operations for the nine month period ended March 31,
2000 was $1.4 million compared to income from discontinued operations of $3.2
million for the nine month period ended March 31, 1999. The decrease in income
from discontinued operations for both the three month and nine month periods
ended March 31, 2000, is due principally to lower sales of the Company's CSG
products.
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 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. On April 26, 2000, the Company announced that it had signed a
non-binding letter of intent with Prologue Software Group to sell its
Communications Software Group assets. While the Company believes it is probable
that it will enter into a definitive agreement with Prologue Software Group
there can be no assurances that a definitive agreement will be signed or that
the Communications Software Group assets will be sold.
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 Corporation also agreed to allow the Company to continue to sell
10
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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 Corporation 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 Visual Voice source
code sale and professional services revenue during the quarter ended March 31,
2000 and anticipates it will recognize another $1.4 million during the quarter
ended June 30, 2000.
In December 1999, the Company executed a strategic partnership with Intel
Corporation. Under the terms of the agreement, the Company is required to
provide Intel Corporation with a version of TeleVantage that is compatible with
Intel Corporation's CT Media Server.
In January 2000, the Company executed a strategic partnership with TAIS
intended to allow the Company and TAIS to deliver an integrated communications
server and software-PBX solution for small and midsized businesses. Under the
terms of the agreement, TAIS 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 TAIS. TAIS acquired 100,000 shares of Artisoft common stock at a
price of $6.994 per share and has the right to acquire an additional 50,000
shares pursuant to a warrant agreement. Additionally, the Company authorized
TAIS to purchase an additional 1,350,000 shares of the Company's common stock on
the open market. The Company incurred a charge of approximately $2.3 million
dollars on the issuance of these securities, which was recognized as selling
expense during the quarter ended March 31, 2000.
The failure of the Company to successfully meet its development milestones
on either one of these key strategic agreements may have an 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.
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 short-term investments of $15.9 million at March
31, 2000 compared to $16.1 million at June 30, 1999 and working capital of $15.6
million at March 31, 2000 compared to $15.9 million at June 30, 1999. The
decrease in cash and short term investments of $.2 million was the result of the
following factors: the operating losses incurred by the Company during the nine
month period ended March 31, 2000 partially offset by the receipt of a $2.7
million payment from Intel Corporation for the sale of the Visual Voice source
code (of which only $1.8 million was recognized as revenue during the December
and March quarters). The decrease in the Company's working capital of $.3
million was primarily the result of the decrease in cash and short term
investment balances and 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
11
<PAGE>
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.
"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 second quarter fiscal 2000 form 10-Q on February 14, 2000.
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.
12
<PAGE>
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.
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.
13
<PAGE>
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.
HARDWARE AVAILABILITY AND QUALITY. Most of the Company's computer telephony
software requires the availability of certain hardware. Specifically, the
TeleVantage software-based PBX operates on certain voice processing 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
this hardware and to the extent the hardware has defects it will impact the
performance of its own software-based phone system. To the extent, that the
hardware 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. A high level of employee
mobility and aggressive recruiting of skilled personnel characterize the
industry. 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
14
<PAGE>
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.
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. These or other factors may influence
quarterly results in the future 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. 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.
15
<PAGE>
Divestitures of product lines or operating groups could adversely affect the
Company's profitability by reducing the Company's revenues without a
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 TAIS and Intel Corporation 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 Corporation is currently the Company's only supplier of the voice
processing boards that are necessary for the operation of TeleVantage. If Intel
Corporation becomes unable to continue to manufacture and supply these boards in
16
<PAGE>
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, Intel Corporation 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.
17
<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.
18
<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 Loss Per Share
No. 27 - Financial Data Schedule for Form 10-Q dated May 15, 2000
(c) Reports on Form 8-K
There were no reports filed on Form 8-K during the three months ended
March 31, 2000
19
<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: May 15, 2000 By /s/ Michael P. Downey
--------------------------------------
Michael P. Downey
Interim Chief Executive Officer and
Chairman of the Board of Directors
By /s/ Kirk D. Mayes
--------------------------------------
Kirk D. Mayes
Controller and Acting Chief Financial
Officer
20
ARTISOFT, INC. AND SUBSIDIARIES
EXHIBIT 11. COMPUTATION OF NET LOSS PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss from continuing operations $ (3,147) $ (1,621) $ (5,287) $ (4,366)
======== ======== ======== ========
Net loss $ (3,467) $ (580) $ (3,839) $ (1,142)
======== ======== ======== ========
Basic EPS-Weighted average
common shares outstanding 15,158 14,764 15,001 14,705
======== ======== ======== ========
Basic loss per share from
continuing operations $ (.21) $ (.11) $ (.35) $ (.30)
======== ======== ======== ========
Basic loss per share $ (.23) $ (.04) $ (.26) $ (.08)
======== ======== ======== ========
Effect of diluted securities:
Stock options --(1) --(1) --(1) --(1)
-------- -------- -------- --------
Diluted EPS-Weighted average
shares outstanding 15,158 14,764 15,001 14,705
======== ======== ======== ========
Stock options not included in
diluted EPS since anti-dilutive 1,297 318 1,243 85
======== ======== ======== ========
Diluted net loss per share from
continuing operations $ (.21) $ (.11) $ (.35) $ (.30)
======== ======== ======== ========
Diluted net loss per share $ (.23) $ (.04) $ (.26) $ (.08)
======== ======== ======== ========
</TABLE>
Notes:
(1) Common share equivalents are anti-dilutive for the three and nine-month
periods ended March 31, 2000 and the three and nine-month periods ended
March 31, 1999, therefore, basic and diluted net loss per share are the
same.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 7,082
<SECURITIES> 8,791
<RECEIVABLES> 1,119
<ALLOWANCES> 0
<INVENTORY> 996
<CURRENT-ASSETS> 18,953
<PP&E> 1,835
<DEPRECIATION> (993)
<TOTAL-ASSETS> 21,962
<CURRENT-LIABILITIES> 3,369
<BONDS> 0
0
0
<COMMON> 283
<OTHER-SE> 31,041
<TOTAL-LIABILITY-AND-EQUITY> 21,962
<SALES> 10,683
<TOTAL-REVENUES> 23,447
<CGS> 3,973
<TOTAL-COSTS> 3,973
<OTHER-EXPENSES> 12,630
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,839)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,839)
<EPS-BASIC> (.35)
<EPS-DILUTED> (.35)
</TABLE>
