<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ to ________
COMMISSION FILE NUMBER 0-23067
CONCORD COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2710876
(State of incorporation) (IRS Employer Identification Number)
33 Boston Post Road, West
Marlboro, Massachusetts 01752
(508) 460-4646
(Address and telephone of principal executive offices)
-----------
Indicate by check mark whether 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, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
11,940,816 shares of the registrant's Common stock, $0.01 par value, were
outstanding as of October 24, 1997.
THIS DOCUMENT CONTAINS 23 PAGES.
THE EXHIBIT INDEX IS ON PAGE 21.
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CONCORD COMMUNICATIONS, INC.
FORM 10-Q, September 30, 1997
CONTENTS
Item Number Page
- ----------- ----
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Balance sheets:
September 30, 1997 and December 28, 1996 3
Statements of operations:
Three and nine months ended September 30, 1997 and 4
September 28, 1996
Statements of cash flows:
Nine months ended September 30, 1997 and 5
September 28, 1996
Notes to financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-17
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18-19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURE 20
EXHIBIT INDEX 21
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONCORD COMMUNICATIONS, INC.
BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 28,
1997 1996
(UNAUDITED)
-----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,601 $ 1,664
Accounts receivable, net 2,941 2,273
Other Current Assets 123 149
-------- --------
Total Current assets 4,665 4,086
Equipment and improvements, net 2,006 1,498
Deferred financing costs 454 -
-------- --------
Total Assets $ 7,125 $ 5,584
======== ========
Current Liabilities:
Accounts payable and accrued expenses $ 4,115 $ 3,885
Deferred Revenue 2,756 1,331
Current portion of long-term debt 476 257
-------- --------
Total current liabilities 7,347 5,473
Long-term debt, net of current portion 937 668
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Total Liabilities 8,284 6,141
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Redeemable Convertible Preferred Stock 15,140 14,478
-------- --------
Common Stock, deferred compensation and additional paid-in
capital 18,268 18,105
Accumulated deficit (34,567) (33,140)
-------- --------
Total Stockholders' Deficit (16,299) (15,035)
-------- --------
Total Liabilities, Redeemable Convertible Preferred Stock and
Stockholders' Deficit $ 7,125 $ 5,584
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
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CONCORD COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 28,
------------- ------------- ------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
License revenues $ 4,634 $ 2,017 $ 11,524 $ 5,000
Service revenues 629 327 1,440 814
----------- ---------- ---------- ----------
Total revenues 5,263 2,344 12,964 5,814
Cost of Revenues 771 377 2,050 1,309
----------- ---------- ---------- ----------
Gross profit 4,492 1,967 10,914 4,505
----------- ---------- ---------- ----------
Operating Expenses:
Research and development 1,146 961 3,272 2,811
Sales and marketing 2,597 1,647 6,917 4,703
General and administrative 521 234 1,421 726
----------- ---------- ---------- ----------
Total operating expenses 4,264 2,842 11,610 8,240
----------- ---------- ---------- ----------
Income (Loss) from operations 228 (875) (696) (3,735)
Other Income (Expense):
Interest income 4 11 13 75
Interest expense (31) (17) (83) (28)
Other 1 - 2 12
----------- ---------- ---------- ----------
Total other income (expense) (26) (6) (68) 59
----------- ---------- ---------- ----------
Net Income (loss) $ 202 $ (881) $ (764) $ (3,676)
=========== ========== ========== ==========
Pro forma net income (loss) per
common and common equivalent
share $ 0.02 $ (0.09) $ (0.08) $ (0.38)
=========== ========== ========== ==========
Pro forma weighted average number
of common and common equivalent
shares outstanding 10,893,679 9,798,849 9,813,905 9,798,390
=========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
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CONCORD COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 28,
------------- -------------
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (764) $(3,676)
Adjustments to reconcile net loss to net cash
provided by (used in) operations
Depreciation and amortization 406 308
Changes in current assets and liabilities
Accounts receivable (668) (802)
Prepaid expenses and other current assets 26 41
Accounts payable 544 (201)
Accrued expenses (314) 692
Deferred revenue 1,425 661
------ -------
Net cash provided by (used in) operating activities 655 (2,977)
------ -------
Cash Flows from Investing Activities:
Purchases of equipment and improvements (884) (560)
------ -------
Cash Flows from Financing Activities:
Proceeds from bank borrowings 571 791
Repayments of borrowings (83) -
Proceeds from exercise of stock options 132 8
Deferred financing costs (454) -
------ -------
Net cash provided by financing activities 166 799
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Net (Decrease) in Cash and Cash Equivalents (63) (2,738)
Cash and Cash Equivalents, beginning of period 1,664 4,397
------ -------
Cash and Cash Equivalents, end of period $1,601 $ 1,659
====== =======
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 83 $ 28
====== =======
Supplemental Disclosure of Noncash Transactions:
Accretion of dividends on preferred stock $ 662 $ 646
====== =======
Deferred compensation related to grants of stock options $ 192 -
====== =======
Purchase of equipment through issuance of debt $ 66 $ -
====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements
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CONCORD COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
FORM 10-Q, September 30, 1997
(dollars in thousands, except per share amount)
(unaudited)
1. INTERIM FINANCIAL STATEMENTS
The accompanying financial statements have been presented by
Concord Communications, Inc., (the "Company") without audit (except for the
balance sheet information as of December 28, 1996) in accordance with generally
accepted accounting principles for interim financial statements and with the
instructions to Form-10Q and Regulation S-X pertaining to interim financial
statements. Accordingly, these interim financial statements do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. The financial statements reflect all
adjustments and accruals which management considers necessary for a fair
presentation of financial position as of September 30, 1997 and December 28,
1996, and results of operations for the three and nine months ended September
30, 1997 and September 28, 1996. The results for the interim periods presented
are not necessarily indicative of results to be expected for any future period.
The financial statements should be read in conjunction with the audited
financial statements and the notes thereto included in the Company's
Registration Statement on Form S-1(Registration No. 333-33227).
2. PRO FORMA NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Unaudited pro forma net income per common and common
equivalent share for the three-month period ended September 30, 1997 and net
loss per common and common equivalent share for the three-month period ended
September 28, 1996, and the nine-month periods ended September 30, 1997 and
September 28, 1996 was based on the weighted average number of common and common
equivalent shares outstanding during the period, computed in accordance with the
treasury stock method. The unaudited pro forma weighted average number of common
shares assumes that all series of redeemable convertible preferred stock had
been converted to common stock as of the original issuance dates and that common
stock options issued subsequent to June 30, 1996 have been outstanding for all
periods presented, computed in accordance with the treasury stock method.
Historical net income (loss) per share data have not been presented, as such
information is not considered to be relevant or meaningful.
In March 1997, the Financial Accounting Standards Board issued
SFAS No. 128, Earnings Per Share. SFAS No. 128 establishes standards for
computing and presenting earnings per share and applies to entities with
publicly held common stock or potential common stock. This statement is
effective for fiscal years ending after December 15, 1997, and early adoption is
not permitted. When adopted, the statement will require restatement of prior
years' earnings per share. The Company will adopt this statement for its fiscal
year ending December 31, 1997. The Company believes that the adoption of SFAS
No. 128 will not have a material effect on its financial statements.
3. SUBSEQUENT EVENT/PUBLIC OFFERING
On October 24, 1997, the Company completed its initial public
offering of 3,335,000 shares of Common Stock at a price of $14.00 per share. Of
these shares, 2,735,000 were issued by the Company and 600,000 from selling
shareholders. The Company received net proceeds of approximately $34.7 million.
The Company's Preferred Stock automatically converted into 8,108,258 shares of
Common Stock upon the closing of the public offering. Effective upon the closing
of the offering, the Company amended and restated its articles of incorporation
to increase its authorized common to 50,000,000 shares and to authorize
1,000,000 shares of Preferred Stock, $.01 par value.
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CONCORD COMMUNICATIONS, INC.
FORM 10-Q, September 30, 1997
(unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company develops, markets and supports a family of turnkey,
automated, scaleable, software-based performance analysis and reporting
solutions for the management of computer networks. Substantially all of the
Company's revenues are derived from the Network Health product family which
began shipping in the first quarter of 1995.
The Company does not provide forecasts of the future financial
performance of the Company. From time to time, however, the information provided
by the Company or statements made by its employees may contain forward-looking
statements. In particular, statements contained in this Form 10-Q that are not
historical statements (including, but not limited to, statements concerning
operating expense levels and such operating expense levels relative to the
Company's total revenues) may constitute forward-looking statements subject to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data as percentages of the Company's total revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 28,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
License revenues 88.0% 86.0% 88.9% 86.0%
Service revenues 12.0% 14.0% 11.1% 14.0%
-----------------------------------------------------
Total revenues 100.0% 100.0% 100.0% 100.0%
-----------------------------------------------------
Operating expenses:
Cost of revenues 14.7% 16.1% 15.8% 22.5%
Research and development 21.8% 41.0% 25.2% 48.3%
Sales 35.3% 49.6% 37.7% 57.0%
Marketing 14.0% 20.6% 15.7% 23.9%
General and administrative 9.9% 10.0% 11.0% 12.5%
-----------------------------------------------------
Income (loss) from operations 4.3% (37.3%) (5.4%) (64.2%)
-----------------------------------------------------
Other income (expense), net (0.5%) (0.3%) (0.5%) 1.0%
=====================================================
Net income (loss) 3.8% (37.6%) (5.9%) (63.2%)
=====================================================
</TABLE>
TOTAL REVENUES. The Company's total revenues increased 124.5% to $5.2
million in the three months ended September 30, 1997 from $2.3 million in the
three months ended September 28, 1996. The Company's total revenues increased
123.0% to $13.0 million in the nine months ended September 30, 1997 from $5.8
million in the nine months ended September 28, 1996.
LICENSE REVENUES. The Company's license revenues are derived from the
licensing of software products. License revenues increased 129.7% to $4.6
million, or 88.0% of total revenues, in the three months ended September 30,
1997 from $2.0 million, or 86.0% of total revenues, in the three months ended
September 28, 1996. License revenues increased 130.5% to $11.5 million, or 88.9%
of total revenues, in the nine months ended September 30, 1997 from $5.0
million, or 86.0% of total revenues, in the nine months ended September 28,
1996. The increase in license revenues resulted from increased sales to new
customers and additional sales to existing customers for new products and
upgrades of existing licenses. There were no price increases for products during
the nine-month period ended September 30, 1997.
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SERVICE REVENUES. The Company's service revenues consist of fees for
maintenance and training services. Service revenues increased 92.4% to $629,000,
or 12% of total revenues, in the three months ended September 30, 1997 from
$327,000, or 14% of total revenues, in the three months ended September 28,
1996. Service revenues increased 76.9% to $1.4 million, or 11.1% of total
revenues, in the nine months ended September 30, 1997 from $814,000, or 14% of
total revenues, in the nine months ended September 28, 1996. The increase in
service revenues was primarily attributed to an increase in revenue from
maintenance contracts for new and existing customers.
COST OF REVENUES. Cost of revenues include expenses associated with
product documentation, production, fulfillment and royalty costs, along with
personnel costs associated with providing customer support in connection with
maintenance service contracts. Royalty costs are comprised of third party
software costs. Cost of revenues increased 104.5% to $771,000, or 14.7% of total
revenues, in the three months ended September 30, 1997 from $377,000, or 16.1%
of total revenues, in the three months ended September 28, 1996, resulting in
gross margins of 85.4% and 83.9% in each respective period. Cost of revenues
increased 56.6% to $2.0 million, or 15.8% of total revenues, in the nine months
ended September 30, 1997 from $1.3 million, or 22.5% of total revenues, in the
nine months ended September 28, 1996, resulting in gross margins of 84.2% and
77.5% in each respective period. The increase in cost of revenues was primarily
the result of increased spending in customer support to be more responsive to
growing customer needs. The improvement in the gross margin percentages were
attributable to lower royalty unit costs associated with the higher sales
volumes during the 1997 periods and a one-time charge of $400,000 for the
write-off of inventories associated with the discontinuation of the Trakker
product line during 1996.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of personnel costs associated with software development.
Research and development expenses increased 19.3% to 1.1 million, or 21.8% of
total revenues, in the three months ended September 30, 1997 from $961,000, or
41.0% of total revenues, in the three months ended September 28, 1996. Research
and development expenses increased 16.4% to 3.3 million, or 25.2% of total
revenues, in the nine months ended September 30, 1997 from $2.8 million, or
48.3% of total revenues, in the nine months ended September 28, 1996. The
increase in absolute dollars was primarily due to increased headcount in
research and development from 32 to 42. The Company's product architecture and
higher revenue base have allowed the Company to introduce new products at lower
incremental costs thereby reducing research and development expenses as a
percentage of revenues. The Company anticipates that it will continue to commit
substantial resources to research and development in the future and that product
development expenses may increase in absolute dollars in future periods.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of salaries, commissions to sales personnel and agents, travel,
tradeshow participation, public relations and other promotional expenses. Sales
and marketing expenses increased 57.7% to $2.6 million, or 49.3 % of total
revenues, in the three months ended September 30, 1997 from $1.6 million, or
70.2% of total revenues, in the three months ended September 28, 1996. Sales and
marketing expenses increased 47.1% to $6.9 million, or 53.4% of total revenues,
in the nine months ended September 30, 1997 from $4.7 million, or 80.9% of total
revenues, in the nine months ended September 28, 1996. The increase in absolute
dollars was primarily the result of increased headcount to continue to build the
direct sales force along with additional marketing and promotional activities to
penetrate the market. The decline in sales and marketing expenses as a
percentage of total revenues is due to sales productivity improvements resulting
from the expansion of the Network Health product family, increased revenues from
existing customers, improved lead generation and reduced sales cycles. Headcount
in sales and marketing increased from 32 to 50 people from September 28, 1996 to
September 30, 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consist primarily of salaries for financial, administrative and
management personnel and related travel expenses, as well as legal and
accounting expenses. General and administrative expenses increased 122.6% to
$521,000, or 9.9% of total revenues, in the three months ended September 30,
1997 from $234,000, or 10.0% of total revenues, in the three months ended
September 28, 1996. General and administrative expenses increased 95.7% to $1.4
million, or 11.0% of total revenues, in the nine months ended September 30, 1997
from $726,000, or 12.5% of total revenues, in the nine months ended September
28, 1996. The increase in absolute dollars reflects personnel growth and
associated costs in general support areas. Headcount in general and
administrative increased from 7 to 13 people from September 28, 1996 to
September 30, 1997. General and administrative expenses declined as a percentage
of total revenues during the 1997 period due to a significant increase in
revenues during that period.
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OTHER INCOME(EXPENSE), NET. Other income consists of interest earned on
funds available for investment net of interest paid in connection with the
financing of capital equipment. The Company had net other expense of ($26,000)
for the three months ended September 30, 1997 and net other expense of ($6,000)
for the three months ended September 28, 1996. The Company had net other expense
of ($68,000) for the nine months ended September 30, 1997 and realized net other
income of $59,000 for the nine months ended September 28, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations, prior to its initial public
offering, primarily through the private sale of equity securities and a credit
line for equipment purchases. On October 24, 1997, the Company completed its
initial public offering of 3,335,000 shares of Common Stock at a price of $14.00
per share. Of these shares, 2,735,000 were issued by the Company and 600,000
from selling shareholders. The Company received net proceeds of approximately
$34.7 million. The Company had a working capital deficit of $2.7 million at
September 30, 1997.
Net cash provided by (used in) operating activities was $655,000 and
$(3.0) million for the nine months ended September 30, 1997 and September 28,
1996, respectively. Cash and cash equivalents were $1.6 million at September 30,
1997, and $1.7 million at December 28, 1996. Deferred revenues increased for the
nine months ended September 30, 1997 by $1.4 million due to an increase in
overall sales activity; $778,000 of this increase came from deferred maintenance
contracts and $646,000 was the result of service and software license sales with
remaining contingencies such as completion of services, product acceptance and
credit worthiness.
Investing activities have consisted solely of the acquisition of
property, plant and equipment, most notably computer and networking equipment to
support the growing employee base and corporate infrastructure. Financing
activities consisted of the proceeds from bank borrowings in connection with
equipment purchases during the first nine months of 1997.
During 1996, the Company entered into an agreement for an equipment
line of credit in the amount of $1.0 million (the "Equipment Line") with Silicon
Valley Bank. The Equipment Line, as amended, bears interest at the bank's prime
rate (8.50% at June 30, 1997) plus 2% and is collateralized by substantially all
of the Company's assets. As of December 28, 1996, the outstanding borrowings
under the Equipment Line amounted to $925,000. In 1997, the Company received
additional advances of $74,000 through March 25, 1997, at which time the total
amount of $999,000 due under the Equipment Line was converted into a term loan
payable in 36 even monthly payments of principal plus interest at the bank's
prime rate plus 2% through March 25, 2000. As of September 30, 1997, the
principal balance on the term loan payable was $824,463.
The Company has a revolving working capital line of credit with Silicon
Valley Bank. Borrowings outstanding under the line are limited to the lesser of
$2.5 million or 90% of eligible accounts receivable less the principal amount
that remains outstanding under an existing equipment line of credit. Interest on
this line is at the rate of prime plus 2% and will be reduced to the prime rate
the first day of the month following the closing of this offering. The working
capital line of credit contains covenants which restrict the Company's ability
to incur debt, pay dividends, sell assets and engage in mergers, consolidations
and other acquisitions. In addition, the Company must comply with certain
financial covenants, including maintaining (i) an asset to liabilities ratio of
at least 2:1 and (ii) a tangible net worth of not less than $10.0 million. The
Company's line of credit expires on April 2, 1998. As of September 30, 1997, the
Company had $1,675,000 available for future borrowings under this agreement. The
Company entered into a new equipment line of credit with Fleet National Bank
during June of 1997 for up to $1.0 million. As of September 30, 1997, the
Company had available $483,000 for future borrowings under this agreement.
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The Company had available net operating loss carryforwards of
approximately $27.0 million and federal research and development tax credit
carryforwards of approximately $1.5 million as of December 28, 1996 to reduce
future income tax liabilities. These carryforwards expire from 1997 through 2012
and are subject to review and possible adjustment by the appropriate taxing
authorities. Approximately $13.7 million of the Company's net operating loss and
research and development tax credit carryforwards expire between 1997 and 2001.
Pursuant to the Tax Reform Act of 1986, the utilization of net operating loss
carryforwards for tax purposes may be subject to an annual limitation if a
cumulative change of ownership of more than 50% occurs over a three-year period.
As a result of the Company's 1995 preferred stock financings, such a change in
ownership has occurred. Also, following the completion of its initial public
offering, the Company is evaluating whether another ownership change has
occurred. As a result of these ownership changes, the use of the net operating
loss carryforwards will be limited. The Company has deferred tax assets of
approximately $14.0 million comprised primarily of net operating loss
carryforwards and research and development credits. The Company has fully
reserved for these deferred tax assets by recording a valuation allowance of
$14.0 million, as the Company believes that it is more likely than not that it
will not be able to realize this asset.
The Company's current export sales are denominated in United States
dollars. To the extent that international sales continue to be denominated in
United States dollars, an increase in the value of the United States dollar
relative to other currencies could make the Company's products and services more
expensive and, therefore, potentially less competitive in international markets.
As of September 30, 1997, the Company's principal sources of liquidity
included cash and equipment lines of credit. The Company believes that the net
proceeds from its initial public offering, together with its current cash
balances, cash provided by future operations and available borrowings under its
lines of credit, will be sufficient to meet its working capital and anticipated
capital expenditure requirements for at least the next 12 months. Although
operating activities may provide cash in certain periods, to the extent the
Company experiences growth in the future, its operating and investing activities
may require significant cash. Consequently, any such future growth may require
the Company to obtain additional equity or debt financing.
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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Information provided by the Company from time to time including
statements in this Form 10-Q which are not historical facts, are so-called
"forward-looking statements" that involve risks and uncertainties, made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. In particular, statements contained in Management's Discussion and
Analysis of Financial Condition and Results of Operations which are not
historical facts (including, but not limited to, statements concerning the plans
and objectives of management; increases in sales and marketing, research and
development and general and administrative expenses; and the Company's expected
liquidity and capital resources) may constitute forward-looking statements. The
Company's actual future results may differ significantly from those stated in
any forward-looking statements. Factors that may cause such differences include,
but are not limited to, the factors discussed below, and the other risks
discussed in the Company's Prospectus dated October 15, 1997 included in its
Registration Statement on Form-S1 (Reg. No. 333-33227) and from time to time in
the Company's other filings with the Securities and Exchange Commission.
LIMITED OPERATING HISTORY; UNCERTAINTY OF FUTURE OPERATING RESULTS
The Company changed its focus to network management software in 1991
and commercially introduced its first Network Health product in 1995.
Accordingly, the Company has only a limited operating history in the network
performance analysis and reporting market upon which an evaluation of its
business and prospects can be based. The Company has incurred significant net
losses in each of the last five fiscal years and expects that it will not
achieve profitability on an annual basis until at least fiscal 1998, if at all.
As of September 30, 1997, the Company had accumulated net losses of $32.0
million. The limited operating history of the Company and its dependence on a
single product family in an emerging market makes the prediction of future
results of operations difficult or impossible, and the Company and its prospects
must be considered in light of the risks, costs and difficulties frequently
encountered by emerging companies, particularly companies in the competitive
software industry. Although the Company has achieved recent revenue growth, and
profitability for the three-months ended September 30, 1997, there can be no
assurance that the Company can generate substantial additional revenue growth on
a quarterly or annual basis, or that any revenue growth that is achieved can be
sustained. Revenue growth that the Company has achieved or may achieve may not
be indicative of future operating results. In addition, the Company has
increased, and plans to increase further, its operating expenses in order to
fund higher levels of research and development, increase its sales and marketing
efforts, develop new distribution channels, broaden its customer support
capabilities and expand its administrative resources in anticipation of future
growth. To the extent that increases in such expenses precede or are not
subsequently followed by increased revenues, the Company's business, results of
operations and financial condition would be materially adversely affected. There
can be no assurance that the Company will sustain profitability on a quarterly
basis, or achieve profitability at all on an annual basis. The Company must
achieve substantial revenue growth in order to be profitable. In addition, in
view of recent revenue growth, the rapidly evolving nature of its business and
markets and its limited operating history in its current market, the Company
believes that period-to-period comparisons of financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. Management believes that it is more likely than not that the
Company will not generate sufficient income to utilize available net operating
loss carryforwards of approximately $27.0 million and federal research and
development credit carryforwards of approximately $1.5 million as of December
28, 1996. In addition, there are limitations on the Company's use of net
operating loss carryforwards. Accordingly, the Company has recorded a full
valuation allowance for these assets.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company is likely to experience significant fluctuations in
quarterly operating results caused by many factors, including, but not limited
to: (i) changes in the demand for the Company's products; (ii) the timing,
composition and size of orders from the Company's customers, including the
tendency for significant bookings to occur in the last month of each fiscal
quarter; (iii) spending patterns and budgetary resources of its customers on
network management software solutions; (iv) the success of the Company's new
customer generation activities; (v) introductions or enhancements of products,
or delays in the introductions or enhancements of products, by the Company or
its competitors; (vi) changes in the Company's pricing policies or those of its
competitors; (vii) changes in the distribution channels through which products
are sold; (viii) the Company's ability to anticipate and effectively adapt to
developing markets and rapidly changing technologies; (ix) changes in networking
or
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<PAGE> 12
communications technologies; (x) the Company's ability to attract, retain and
motivate qualified personnel; (xi) changes in the mix of products sold; (xii)
the publication of opinions about the Company and its products, or its
competitors and their products, by industry analysts or others; and (xiii)
changes in general economic conditions. Unlike other software companies with a
longer history of operations, the Company does not derive a significant portion
of its revenues from maintenance contracts, and therefore does not have a
significant ongoing revenue stream that may tend to mitigate quarterly
fluctuations in operating results. Furthermore, the Company is attempting to
expand its channels of distribution, and increases in the Company's revenues
will be dependent on its ability to implement successfully its distribution
strategy. Due to the buying patterns of certain of the Company's customers and
also to the Company's own sales incentive programs focused on annual sales
goals, revenues in the Company's fourth quarter could be higher than revenues in
the first quarter of the succeeding year. There also may be other factors that
significantly affect the Company's quarterly results which are difficult to
predict given the Company's limited operating history, such as seasonality and
the timing of receipt and delivery of orders within a fiscal quarter.
Consistent with software industry practice, the Company expects to
operate with a limited amount of backlog. As a result, quarterly sales and
operating results depend generally on the volume and timing of orders within the
quarter, the tendency of sales to occur late in fiscal quarters and the ability
of the Company to fill orders received within the quarter, all of which are
difficult to forecast and manage. The Company's expense levels are based in part
on its expectations of future orders and sales, which, given the Company's
limited operating history, are extremely difficult to predict. A substantial
portion of the Company's operating expenses are related to personnel,
facilities, and sales and marketing programs. This level of spending for such
expenses cannot be adjusted quickly and is, therefore, relatively fixed in the
short term. Accordingly, any significant shortfall in demand for the Company's
products in relation to the Company's expectations would have an immediate and
material adverse effect on the Company's business, results of operations and
financial condition.
Due to all of the foregoing factors, the Company believes that its
quarterly operating results are likely to vary significantly in the future.
Therefore, in some future quarter the Company's results of operations may fall
below the expectations of securities analysts and investors. In such event, the
trading price of the Company's Common Stock would likely be materially adversely
affected.
EMERGING NETWORK MANAGEMENT SOFTWARE MARKET
The market for the Company's products is in an early stage of
development. Although the rapid expansion and increasing complexity of computer
networks in recent years has increased the demand for network management
software products, the awareness of and the need for such products is a recent
development. Because the market for these products is only beginning to develop,
it is difficult to assess the size of this market, the appropriate features and
prices for products to address this market, the optimal distribution strategy
and the competitive environment that will develop. The development of this
market and the Company's growth will be significantly dependent on the
willingness of network service providers, including telecommunications carriers,
ISPs, systems integrators and outsourcers, to integrate network performance
analysis and reporting software into their product and service offerings.
Failure of the network performance analysis and reporting market to grow or
failure of the Company to properly assess and address such market would have a
material adverse effect on the Company's business, results of operations and
financial condition.
DEPENDENCE ON TELECOMMUNICATIONS CARRIERS
A significant portion of the Company's revenues are, and are expected
to continue to be, attributable to sales of products to telecommunications
carriers. The Company's future performance is significantly dependent upon
telecommunications carriers' increased incorporation of the Company's solutions
as part of their package of product and service offerings to end users. The
failure of the Company's products to perform favorably in and become an accepted
component of the telecommunications carriers' product and service offerings, or
a slower than expected increase or a decrease in the volume of sales of the
Company's products and services to telecommunications carriers, could have a
material adverse effect on the Company's business, results of operations and
financial condition.
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<PAGE> 13
CONCENTRATED PRODUCT FAMILY
The Company currently derives substantially all of its revenues from
its Network Health product family, and the Company expects that revenues from
these products will continue to account for substantially all of the Company's
revenues for the foreseeable future. Broad market acceptance of these products
is, therefore, critical to the Company's future success, and any factor
adversely affecting sales or pricing levels of these products could have a
material adverse effect on the Company's business, results of operations and
financial condition. There can be no assurance that market acceptance of Network
Health will increase or even remain at current levels. Factors that may affect
the market acceptance of the Company's products include the availability and
price of competing products and technologies and the success of the sales
efforts of the Company and its marketing partners. Moreover, the Company
anticipates that its competitors will introduce additional competitive products,
particularly if demand for network management software products increases, which
may reduce future market acceptance of the Company's products. In addition, new
competitors could enter the Company's market and offer alternative products
which may impact the market acceptance of the Company's products. The Company's
future performance will also depend in part on the successful development,
introduction and market acceptance of new and enhanced products. There can be no
assurance that any such new or enhanced products will be successfully developed,
introduced and marketed, and failure to do so would have a material adverse
effect on the Company's business, results of operations and financial condition.
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON STANDARD PROTOCOLS
The software industry is characterized by rapid technological change,
frequent introductions of new products, changes in customer demands and evolving
industry standards. The introduction of products embodying new technologies and
the emergence of new industry standards can render existing products obsolete
and unmarketable. Network Health's ability to analyze and generate reports, as
well as the quality of the reports, is dependent on Network Health's utilization
of the industry-standard SNMP protocol and the data resident in conventional
MIBs. Any change in these industry standards, the development of vendor-specific
proprietary MIB technology, or the emergence of new network technologies could
affect the compatibility of Network Health with these devices which, in turn,
could affect Network Health's ability to analyze and generate comprehensive
reports or the quality of the reports. Furthermore, although the Company's
products currently run exclusively on industry-standard UNIX operating systems
and although the Company has a Windows NT product in beta-test at selected
customers, any significant change in industry-standard operating systems could
affect the demand for, or the pricing of, the Company's products. Any of the
foregoing developments could have a material adverse effect on the Company's
business, results of operations and financial condition.
PRODUCT ENHANCEMENTS AND NEW PRODUCTS
Because of rapid technological change in the software industry and
potential changes in the network management software market and industry
standards, the life cycle of versions of Network Health is difficult to
estimate. The Company's future success will depend upon its ability to address
the increasingly sophisticated needs of its customers by developing and
introducing enhancements to Network Health on a timely basis that keep pace with
technological developments, emerging industry standards and customer
requirements. There can be no assurance that the Company will be successful in
developing and marketing enhancements to Network Health or in developing new
products that respond to technological changes, evolving industry standards or
customer requirements, that the Company will not experience difficulties that
could delay or prevent the successful development, introduction and sale of such
enhancements or new products, or that such enhancements or new products will
adequately address the requirements of the marketplace and achieve any
significant degree of market acceptance.
COMPETITION; NEW ENTRANTS
The market for the Company's products is new, intensely competitive,
rapidly evolving and subject to technological change. Competitive and
alternative offerings are available from the major product categories of remote
monitoring (RMON) probe vendors, element management software, and other
performance analysis and reporting offerings. Another area of competition comes
from a number of companies offering network performance reporting services;
including International Network Services (INS). In addition, the Company expects
the large network management platform vendors to begin to offer products
directly competitive with the Company's products.
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<PAGE> 14
These companies may bundle their products with other hardware and software in a
manner that may discourage users from purchasing products offered by the
Company. This strategy may be particularly effective for companies with leading
market shares in the network hardware and software market, including
Hewlett-Packard Company, International Business Machines Corporation and
Cabletron Systems, Inc. Developers of network element management solutions such
as Cisco Systems, Inc., 3Com Corporation and Bay Networks, Inc. may also compete
with the Company in the future. The Company expects competition to persist,
increase and intensify in the future with possible price competition developing
in the Company's markets. Many of the Company's current and potential
competitors have longer operating histories and significantly greater financial,
technical and marketing resources and name recognition than the Company. The
Company does not believe its market will support a large number of competitors
and their products. In the past, a number of software markets have become
dominated by one or a small number of suppliers, and a small number of suppliers
or even a single supplier may dominate the Company's market. If the Company does
not provide products that achieve success in its market in the short term, the
Company could suffer an insurmountable loss in market share and brand name
acceptance, which would result in a material adverse effect on the Company's
business, results of operations and financial condition. There can be no
assurance that the Company will be able to compete effectively with current and
future competitors.
UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
The Company's success depends significantly upon its proprietary
technology. The Company relies on a combination of patent, copyright, trademark
and trade secret laws, non-disclosure agreements and other contractual
provisions to establish, maintain and protect its proprietary rights, all of
which afford only limited protection. The Company has four issued U.S. patents,
three pending U.S. patent applications, and various foreign counterparts. There
can be no assurance that patents will issue from these pending applications or
from any future applications or that, if issued, any claims allowed will be
sufficiently broad to protect the Company's technology. In addition, there can
be no assurance that any patents that have been or may be issued will not be
challenged, invalidated or circumvented, or that any rights granted thereunder
would provide protection of the Company's proprietary rights. Failure of any
patents to protect the Company's technology may make it easier for the Company's
competitors to offer equivalent or superior technology. The Company has
registered or applied for registration for certain trademarks, and will continue
to evaluate the registration of additional trademarks as appropriate. Despite
the Company's efforts to protect its proprietary rights, unauthorized parties
may attempt to copy aspects of the Company's products or services or to obtain
and use information that the Company regards as proprietary. Third parties may
also independently develop similar technology without breach of the Company's
proprietary rights. In addition, the laws of some foreign countries do not
protect proprietary rights to as great an extent as do the laws of the United
States. In addition, the Company's products are licensed under shrink wrap
license agreements that are not signed by licensees and therefore may not be
binding under the laws of certain jurisdictions.
Certain technologies used by the Company's products are licensed from
third parties, generally on a non-exclusive basis. The termination of any such
licenses, or the failure of the third-party licensors to adequately maintain or
update their products, could result in delay in the Company's ability to ship
certain of its products while it seeks to implement technology offered by
alternative sources, and any required replacement licenses could prove costly.
While it may be necessary or desirable in the future to obtain other licenses
relating to one or more of the Company's products or relating to current or
future technologies, there can be no assurance that the Company will be able to
do so on commercially reasonable terms or at all.
Although the Company does not believe that it is infringing the
intellectual property rights of others, claims of infringement are becoming
increasingly common as the software industry develops and legal protections,
including patents, are applied to software products.
Litigation may be necessary to protect the Company's proprietary
technology, and third parties may assert infringement claims against the Company
with respect to their proprietary rights. Any claims or litigation can be
time-consuming and expensive regardless of their merit. Infringement claims
against the Company can cause product release delays, require the Company to
redesign its products or require the Company to enter into royalty or license
agreements, which agreements may not be available on terms acceptable to the
Company or at all.
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RISK OF PRODUCT DEFECTS; PRODUCT LIABILITY
As a result of their complexity, software products may contain
undetected errors or failures when first introduced or as new versions are
released. There can be no assurance that, despite testing by the Company and
testing and use by current and potential customers, errors will not be found in
new products after commencement of commercial shipments or, if discovered, that
the Company will be able to successfully correct such errors in a timely manner
or at all. The occurrence of errors and failures in the Company's products could
result in loss of or delay in market acceptance of the Company's products, and
alleviating such errors and failures could require significant expenditure of
capital and other resources by the Company. The consequences of such errors and
failures could have a material adverse effect on the Company's business, results
of operations and financial condition.
Since the Company's products are used by its customers to predict
future network problems and avoid failures of the network to support critical
business functions, design defects, software errors, misuse of the Company's
products, incorrect data from network elements or other potential problems
within or out of the Company's control that may arise from the use of the
Company's products could result in financial or other damages to the Company's
customers. The Company does not maintain product liability insurance. Although
the Company's license agreements with its customers typically contain provisions
designed to limit the Company's exposure to potential claims as well as any
liabilities arising from such claims, such provisions may not effectively
protect the Company against such claims and the liability and costs associated
therewith. Accordingly, any such claim could have a material adverse effect upon
the Company's business, results of operations and financial condition. The
Company provides warranties for its products for a period of time (currently
three months) after the software is purchased. The Company's license agreements
generally do not permit product returns by the customer, and product returns and
warranty expense for fiscal 1994, 1995 and 1996 represented less than 1.0% of
total revenues during each of such periods. However, no assurance can be given
that product returns will not increase as a percentage of total revenues in
future periods.
RELIANCE ON STRATEGIC PARTNERS AND OTHER EVOLVING DISTRIBUTION CHANNELS
The Company's distribution strategy is to develop multiple distribution
channels, including sales through strategic marketing partners and value added
resellers, such as Newbridge Networks Corporation; telecommunications carriers,
such as MCI Communications Corporation; other network service providers, such as
The Registry, Inc.; OEMs, such as Cabletron Systems, Inc.; and independent
software vendors, as well as international distributors (collectively "channel
partners"). The Company has developed a number of these relationships and
intends to continue to develop new channel partner relationships. Accordingly,
the success of the Company will be dependent in large part on its ability to
develop these additional distribution relationships and on the performance and
success of these third parties, particularly telecommunications carriers and
other network service providers. The Company's channel partner relationships
have been established recently, and the Company cannot predict the extent to
which its channel partners will be successful in marketing the Company's
products. The Company generally expects that its agreements with its channel
partners will be terminable by either party without cause. None of the Company's
channel partners are required to purchase minimum quantities of the Company's
products and none of these agreements contain exclusive distribution
arrangements. The Company's inability to attract important and effective channel
partners, or their inability to penetrate their respective market segments, or
the loss of any of the Company's channel partners, as a result of competitive
products offered by other companies or products developed internally by these
channel partners or otherwise, could materially adversely affect the Company's
business, results of operations and financial condition.
MANAGEMENT OF POTENTIAL GROWTH
The Company recently has experienced significant growth in its sales
and operations and in the complexity of its products and product distribution
channels. The Company has recently increased and is continuing to increase the
size of its sales force and coverage territories. Furthermore, the Company has
recently established and is continuing to establish additional distribution
channels through third party relationships. The Company's growth, coupled with
the rapid evolution of the Company's markets, has placed, and is likely to
continue to place, significant strains on its administrative, operational and
financial resources and increase demands on its internal systems, procedures and
controls. If the Company is unable to manage future growth effectively, the
Company's business, results of
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<PAGE> 16
operations and financial condition could be materially adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company's performance is substantially dependent on the performance
of its key technical and senior management personnel, none of whom is bound by
an employment agreement. The loss of the services of any of such personnel could
have a material adverse effect on the business, results of operations and
financial condition of the Company. The Company does not maintain key person
life insurance policies on any of its employees other than John A. Blaeser. The
Company's success is highly dependent on its continuing ability to identify,
hire, train, motivate and retain highly qualified management, technical, and
sales and marketing personnel, including recently hired officers and other
employees. Competition for such personnel is intense, and there can be no
assurance that the Company will be able to attract, assimilate or retain highly
qualified technical and managerial personnel in the future. The inability to
attract and retain the necessary management, technical, and sales and marketing
personnel could have a material adverse effect on the Company's business,
results of operations and financial condition.
EXPANSION INTO INTERNATIONAL MARKETS
The Company intends to expand its operations outside of the United
States and enter additional international markets, primarily through the
establishment of additional reseller arrangements. The Company expects to commit
additional time and development resources to customizing its products and
services for selected international markets and to developing international
sales and support channels. There can be no assurance that such efforts will be
successful.
In addition to the uncertainty as to the Company's ability to establish
an international presence, there are certain difficulties and risks inherent in
doing business internationally, including, but not limited to: (i) costs of
customizing products and services for international markets; (ii) dependence on
independent resellers; (iii) multiple and conflicting regulations; (iv) exchange
controls; (v) longer payment cycles; (vi) unexpected changes in regulatory
requirements; (vii) import and export restrictions and tariffs; (viii)
difficulties in staffing and managing international operations; (ix) greater
difficulty or delay in accounts receivable collection; (x) potentially adverse
tax consequences; (xi) the burden of complying with a variety of laws outside
the United States; (xii) the impact of possible recessionary environments in
economies outside the United States; and (xiii) political and economic
instability. In addition, the Company's ability to expand its business in
certain countries will require modification of its products, particularly
national language support. The Company's current export sales are denominated in
United States dollars and the Company currently expects to continue this
practice as it expands its international operations. To the extent that
international sales continue to be denominated in U.S. dollars, an increase in
the value of the United States dollar relative to other currencies could make
the Company's products and services more expensive and, therefore, potentially
less competitive in international markets. To the extent that future
international sales are denominated in foreign currency, the Company's operating
results will be subject to risks associated with foreign currency fluctuation
and the Company would consider entering into forward exchange contracts or
otherwise engaging in hedging activities. To date, as all export sales are
denominated in U.S. dollars, the Company has not entered into any such contracts
or engaged in any such activities. As the Company increases its international
sales, its total revenue may also be affected to a greater extent by seasonal
fluctuations resulting from lower sales that typically occur during the summer
months in Europe and other parts of the world.
POSSIBLE VOLATILITY OF STOCK PRICE
The Company completed an initial public offering of its common stock
during October of 1997. The market price of the shares of Common Stock may be
highly volatile and could be subject to wide fluctuations in response to
variations in results of operations, announcements of technological innovations
or new products by the Company or its competitors, changes in financial
estimates by securities analysts or other events or factors. In addition, the
financial markets have experienced significant price and volume fluctuations
that have particularly affected the market prices of equity securities of many
high technology companies and that often have been unrelated to the operating
performance of such companies or have resulted from the failure of the operating
results of such companies to meet market expectations in a particular quarter.
Broad market fluctuations or any failure of the Company's operating results in a
particular quarter to meet market expectations may adversely affect the market
price of the shares of Common Stock. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company. Such
litigation could
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result in substantial costs and a diversion of management's attention and
resources, which would have a material adverse effect on the Company's business,
results of operations and financial condition.
FUTURE CAPITAL FUNDING
The Company plans to continue to expend substantial funds on the
continued development, sales and marketing of the Network Health product family.
There can be no assurance that the Company's existing capital resources, the
proceeds from the Company's initial public offering during October of 1997 and
any funds that may be generated from future operations together will be
sufficient to finance the Company's future operations or that other sources of
funding will be available on terms acceptable to the Company, if at all. In
addition, future sales of substantial amounts of the Company's securities in the
public market could adversely affect prevailing market prices and could impair
the Company's future ability to raise capital through the sale of its
securities. The failure to obtain such funding, if required, could have a
material adverse effect on the Company's business, results of operations and
financial condition.
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CONCORD COMMUNICATIONS, INC.
FORM 10-Q, September 30, 1997
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any litigation that it believes could
have a material adverse effect on the business, results of operations and
financial condition of the Company.
Item 2. Changes in Securities and Use of Proceeds
(c) Changes in Securities
During the quarter ended September 30, 1997, the Company issued
shares of Common Stock, which were not registered under the Securities Act of
1933, to employees of, or consultants to, the Company on the dates and in the
amounts indicated in the table below. All such issuances were made pursuant to
the exercise of options to purchase Common Stock, which had been granted to such
employee or consultant pursuant to the 1995 Stock Plan of the Company. All such
issuances of Common Stock were made in reliance upon Rule 701 promulgated under
the Securities Act of 1933.
Date of Number Price Per Aggregate
Issuance of Shares Share Consideration
11/11/97 156 $.01000 $ 15.60
11/06/97 281 $.01000 $ 28.10
11/03/97 625 $.90000 $562.50
10/27/97 2,258 $.01000 $225.80
10/27/97 1,312 $.01000 $131.20
10/27/97 781 $.01000 $ 78.10
10/01/97 1,406 $.01000 $140.60
10/01/97 1,406 $.01000 $140.60
10/01/97 469 $.01000 $ 46.90
10/01/97 31 $.01000 $ 3.10
10/01/97 2,187 $.01000 $218.70
10/01/97 937 $.01000 $ 93.70
10/01/97 312 $.01000 $ 31.20
09/30/97 2,812 $.01000 $281.20
09/30/97 781 $.01000 $ 78.10
09/30/97 312 $.01000 $ 31.20
09/30/97 156 $.01000 $ 15.60
09/30/97 1,875 $.40000 $750.00
09/29/97 62 $.01000 $ 6.20
09/28/97 243 $.01000 $ 24.30
09/19/97 5,000 $.01000 $500.00
09/17/97 937 $.01000 $ 93.70
(d) Use of Proceeds
On October 16, 1997, the Company commenced an initial public
offering ("IPO") of 2,900,000 shares of common stock, par value $.01 per share
(the "Common Stock"), of the Company pursuant to the Company's final prospectus
dated October 15, 1997 (the "Prospectus"). The Prospectus was contained in the
Company's Registration Statement on Form S-1, which was declared effective by
the Securities and Exchange Commission (SEC File No. 333-33227) on October 15,
1997. Of the 2,900,000 shares of Common Stock offered, 2,300,000 shares were
offered and sold by the Company and 600,000 shares were offered and sold by
certain stockholders of the Company. As part of the IPO, the Company granted the
several underwriters an overallotment option to purchase up to an additional
435,000 shares of Common Stock (the "Underwriters' Option"). The IPO closed on
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<PAGE> 19
October 21, 1997 upon the sale of 2,900,000 shares of Common Stock to the
underwriters. On October 24, 1997, the Representatives, on behalf of the several
underwriters, exercised the Underwriters' Option, purchasing 435,000 additional
shares of Common Stock from the Company. The aggregate offering price of the IPO
to the public was $40,600,000 (exclusive of the Underwriters' Option), with
proceeds to the Company and selling shareholders, after deduction of the
underwriting discount, of $29,946,000 (before deducting offering expenses
payable by the Company) and $7,812,000 respectively. The aggregate offering
price of the Underwriters' Option exercised was $6,090,000, with proceeds to the
Company, after deduction of the underwriting discount, of $5,663,700 (before
deducting offering expenses payable by the Company). Through October 16, 1997,
the aggregate amount of expenses incurred by the Company in connection with the
issuance and distribution of the shares of Common Stock offered and sold in the
IPO were approximately $3.6 million, including $2.7 million in underwriting
discounts and commissions and $890,000 in other offering expenses.
None of the expenses paid by the Company in connection with the IPO or
the exercise of the Underwriters' Option were paid, directly or indirectly, to
directors, officers, persons owning ten percent or more of the Company's equity
securities, or affiliates of the Company.
The net proceeds to the Company from the IPO, after deducting
underwriting discounts and commissions and other offering expenses were
approximately $34.7 million.
To date, the Company has not utilized any of the net proceeds from the
IPO. The Company has invested all such net proceeds primarily in US treasury
obligations and other interest bearing investment grade securities.
None of the net proceeds from the IPO were used to pay, directly or
indirectly, directors, officers, persons owning ten percent or more of the
Company's equity securities, or affiliates of the Company.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
At a special meeting of stockholders held on September 9, 1997, (I) the
Company's stockholders approved amendments to the Company's articles of
organization effective as of the effective date of the Company's initial public
offering, which among other things reduced the number of issued and outstanding
shares of Common Stock of the Company through a 1-for-2 reverse stock split,
(ii) the Company's stockholders approved amendments to the Company's articles of
organization effective as of the closing date of the Company's initial public
offering, which among other things eliminated the terms of the Company's
preferred stock; (iii) the Company's stockholders approved and adopted the
Restated By-Laws of the Company: (iv) the Company's stockholders approved and
adopted the 1997 Employee Stock Purchase Plan of the Company; (v) the Company's
stockholders approved and adopted the 1997 Non-Employee Director Stock Option
Plan of the Company; (vi) the Company's stockholders approved and ratified an
amendment to the 1995 Stock Plan of the Company; and (vii) the preferred
stockholders of the Company approved the registration of shares of the Company's
Common Stock under the Securities Act of 1933.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed in the accompanying Exhibit Index on page 20
are filed or incorporated by reference as part of this Report.
(b) Reports on Form 8-K
None
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CONCORD COMMUNICATIONS, INC.
FORM 10-Q, September 30, 1997
SIGNATURE
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 thereunto duly authorized.
Concord Communications, Inc.
/s/ Gary E. Haroian
---------------------------------------
Date: November 26, 1997 Name: Gary E. Haroian
Title: Vice President of Finance
and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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CONCORD COMMUNICATIONS, INC.
FORM 10-Q, September 30, 1997
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11.0 Computation of Pro Forma Net Income (Loss) Per Common
Share
27.0 Financial Data Schedule
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EXHIBIT 11.0
CONCORD COMMUNICATIONS, INC.
Computation of Pro Forma Net Income (Loss) Per Common Share (unaudited) (1)
FORM 10-Q, September 30, 1997
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 28, September 30, September 28,
------------------------------ ------------------------------
1997 1996 1997 1996
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net Income (Loss) $ 202 $ (881) $ (764) $ (3,676)
----------- ---------- ---------- -----------
Shares used in computing Pro forma Net Income (Loss)
Per Common and Common Equivalent Shares outstanding
(unaudited):
Weighted average common stock outstanding
during the period 824,394 791,886 806,942 791,427
Dilutive effect of common stock issued subsequent to
June 30, 1997 (2) 263,290 263,290 263,290 263,290
Dilutive effect of common equivalent shares issued
subsequent to June 30, 1997 (2) 635,415 635,415 635,415 635,415
Pro forma conversion of redeemable convertible preferred
stock to common stock (unaudited) 8,108,258 8,108,258 8,108,258 8,108,258
Weighted average common equivalent shares outstanding
during the period 1,062,322 - - -
----------- ---------- ---------- ----------
10,893,679 9,798,849 9,813,905 9,798,390
=========== ========== ========== ==========
Pro forma Net Income (Loss) Per Common Share $ 0.02 $ (0.09) $ (0.08) $ (0.38)
=========== ========== ========== ==========
</TABLE>
(1) Historical net income (loss) per common share has not been
separately presented, as the amounts would not be meaningful.
(2) Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock, preferred stock, stock options and
warrants issued at prices below the initial public offering price per
share ("cheap stock") during the twelve month period immediately
preceding the filing date of the Company's Registration Statement for
its initial public offering have been included as outstanding for all
periods presented until the effective date of the Company's initial
public offering. The dilutive effect of the common and common stock
equivalents was computed in accordance with the treasury stock method.
22
--
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15,140
0
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