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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(mark one)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarter ended
SEPTEMBER 30, 1998
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: 0-23132
OBJECTSHARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0143293
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16811 HALE AVENUE, SUITE A, IRVINE, CALIFORNIA 92606-5020
(Address of principal executive offices)
(949) 833-1122
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of October 31, 1998, the registrant had outstanding 12,327,541 shares
of Common Stock.
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OBJECTSHARE, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
Page
------
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
as of September 30, 1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations for the
three and six month periods ended September 30, 1998
and 1997 4
Condensed Consolidated Statements of Comprehensive Income
(Loss) for the three and six month periods ended
September 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows for the six
months ended September 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 15
ITEM 6. Exhibits and Reports on Form 8-K 15
SIGNATURE 15
2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OBJECTSHARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
------------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,983 $ 5,134
Marketable securities -- 600
Accounts receivable, net of allowance
of $291 at September 30 and $622 at March 31 3,899 5,166
Inventories 131 164
Prepaid expenses and other current assets 920 819
-------- --------
Total current assets 7,933 11,883
Property and equipment:
Property and equipment 6,142 6,051
Less accumulated depreciation (5,141) (4,853)
-------- --------
Net property and equipment 1,001 1,198
Other assets 839 174
-------- --------
Total assets $ 9,773 $ 13,255
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 931 $ 1,134
Accrued compensation and related expenses 724 1,088
Other accrued liabilities 976 2,492
Deferred revenue 2,021 3,215
Accrued restructuring costs 101 534
-------- --------
Total current liabilities 4,753 8,463
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value:
Authorized shares - 30,000
Issued and outstanding shares -
12,328 at September 30 and 12,199 at March 31 12 12
Additional paid-in capital 50,113 49,992
Accumulated deficit (44,959) (44,998)
Accumulated other comprehensive loss (146) (214)
-------- --------
Total stockholders' equity 5,020 4,792
-------- --------
Total liabilities and stockholders' equity $ 9,773 $ 13,255
======== ========
</TABLE>
See accompanying notes.
3
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OBJECTSHARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months For the six months
ended September 30, ended September 30,
---------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues:
Service $ 2,940 $ 3,041 $ 5,233 $ 6,381
License 1,281 1,711 3,463 3,493
-------- -------- -------- --------
Total net revenues 4,221 4,752 8,696 9,874
Cost of net revenues:
Service 1,311 1,889 2,395 3,853
License 281 483 457 868
-------- -------- -------- --------
Total cost of net revenues 1,592 2,372 2,852 4,721
-------- -------- -------- --------
Gross profit 2,629 2,380 5,844 5,153
Operating expenses:
Sales and marketing 1,346 2,100 3,163 4,665
Research and development 800 1,302 1,697 2,843
General and administrative 514 1,212 1,301 2,494
Restructuring costs (31) 2,797 (167) 2,797
-------- -------- -------- --------
Total operating expenses 2,629 7,411 5,994 12,799
-------- -------- -------- --------
Income/(loss) from operations -- (5,031) (150) (7,646)
Interest income and other, net 10 62 141 179
-------- -------- -------- --------
Income/(loss) before provision/(benefit)
for income taxes 10 (4,969) (9) (7,467)
Provision/(benefit) for income taxes -- 8 (48) 25
-------- -------- -------- --------
Net income/(loss) $ 10 $ (4,977) $ 39 $ (7,492)
======== ======== ======== ========
Net income/(loss) per share:
Basic $ 0.00 $ (0.42) $ 0.00 $ (0.63)
======== ======== ======== ========
Diluted $ 0.00 $ (0.42) $ 0.00 $ (0.63)
======== ======== ======== ========
Shares used in computing income/(loss) per share:
Basic 12,303 11,925 12,268 11,925
======== ======== ======== ========
Diluted 13,769 11,925 14,181 11,925
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
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OBJECTSHARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months For the six months
ended September 30, ended September 30,
-------------------- -------------------
1998 1997 1998 1997
---- ------- ---- -------
<S> <C> <C> <C> <C>
Net income/(loss) $ 10 $(4,977) $ 39 $(7,492)
---- ------- ---- -------
Other comprehensive income, net of tax:
Foreign currency translation adjustment 60 (5) 68 (9)
---- ------- ---- -------
Comprehensive income/(loss) $ 70 $(4,982) $107 $(7,501)
==== ======= ==== =======
</TABLE>
See accompanying notes.
5
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OBJECTSHARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months
ended September 30,
------------------------
1998 1997
------- -------
<S> <C> <C>
Operating activities
Net income (loss) $ 39 $(7,492)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 288 1,167
Changes in operating assets and liabilities:
Accounts receivable 1,267 2,259
Inventories 33 63
Prepaid expenses and other current assets (101) 303
Accounts payable and accrued liabilities (2,083) (1,181)
Accrued restructuring costs (433) 1,326
Deferred revenue (,194) (1,362)
------- -------
Net cash used in operating activities (2,184) (4,917)
Investment activities
(Decrease)/increase in other assets (665) 18
Purchases of property and equipment (91) (50)
Maturities of marketable securities 600 --
------- -------
Net cash used in investing activities (156) (32)
Financing activities
Proceeds from issuance of common stock 121 19
------- -------
Net cash provided by financing activities 121 19
------- -------
Effect of exchange rate changes on cash
and cash equivalents 68 (9)
------- -------
Net decrease in cash and cash equivalents (2,151) (4,939)
Cash and cash equivalents at beginning of period
5,134 7,418
------- -------
Cash and cash equivalents at end of period $ 2,983 $ 2,479
======= =======
</TABLE>
See accompanying notes.
6
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OBJECTSHARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
United States Securities and Exchange Commission regarding interim financial
reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the audited
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1998.
In the opinion of management the accompanying unaudited condensed
consolidated financial statements have been prepared on the same basis as
the audited consolidated financial statements and include all recurring
adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the financial position and results of the operations
for interim periods presented. The operating results for the six months
ended September 30, 1998 are not necessarily indicative of the results
expected for the full fiscal year ending March 31, 1999.
2. Earnings Per Share
The Company has adopted SFAS 128, "Earnings Per Share," and applied this
pronouncement to all periods presented. This statement requires the
presentation of both basic and diluted net income (loss) per share for
financial statement purposes. Basic net income (loss) per share is computed
by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding. Diluted net income
(loss) per share includes the effect of the potential shares outstanding,
including dilutive stock options and warrants using the treasury stock
method.
3. Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Short-term
marketable securities consist principally of debt instruments with
maturities between three and twelve months.
4. Restructuring Costs
The Company has recorded restructuring costs in prior years, the reserve
balance at the beginning of fiscal 1999 was $534,000. In the second quarter
of fiscal 1999, the Company made payments of $148,000 and recorded a return
of reserve of $31,000 for events that were completed. The Company expects to
utilize the remaining reserve in fiscal 1999.
7
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OBJECTSHARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 (continued)
(Unaudited)
5. Other Assets
Other assets consist of the following at:
SEPTEMBER 30, MARCH 31,
1998 1998
------------- ---------
Capitalized software $667,000 $ --
Deposits 154,000 150,000
Other 18,000 24,000
-------- --------
Total $839,000 $174,000
======== ========
The company's policy is to capitalize software development costs incurred
subsequent to the time the products reach technological feasibility. Based
on the Company's product development process, technological feasibility is
generally established upon completion of a working model. However, for
certain projects technological feasibility is determined after completion of
the detailed program design.
6. Software Revenue Recognition
In October 1997, the Accounting Standards Executive Committee of the AICPA
issued SOP 97-2, Software Revenue Recognition, which provides guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions. SOP 97-2 is intended to reduce the diversity in
accounting for software revenue recognition and changes certain of the
specific criteria for recognizing revenue related to software licensing
arrangements. Specifically, the new SOP contains more restrictive revenue
recognition provisions for software arrangements containing multiple
elements (i.e. upgrades, enhancements, implementation and other services)
similar to the arrangements entered into by the Company. Effective April
1998, the Company has implemented the provisions of the new SOP. Adoption of
this new standard had no effect on the results of operation of the Company.
7. Comprehensive Income
In April 1998, the Company adopted FASB Statement No. 130, Reporting
Comprehensive Income, which establishes standards for the reporting and
display of comprehensive income and its components in financial statements.
Comprehensive income generally represents all changes in stockholders'
equity except those resulting from investments by and distributions to
stockholders.
8. Segment Information
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information, which requires publicly-held
companies to report financial and descriptive information about its
operating segments in financial statements issued to stockholders for
interim and annual periods. The statement also requires additional
disclosures with respect to products and services, geographical areas of
operations and major customers. The Company will adopt Statement No. 131 at
the end of fiscal 1999.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
ObjectShare, Inc. develops and markets object-oriented product and service
solutions, for use in creating distributed networking applications. The
Company's range of services includes customer support, training and
consulting as integral components of a complete solution. The Company's
primary products are VisualWorks, VisualWave and Distributed Smalltalk,
which are application development environments ("ADEs") based on the
Smalltalk programming language, and PARTS for Java, a visual programming
environment based on the Java programming language. VisualWorks, the
Company's primary ADE, provides a visual programming environment that
enables programmers to develop, deploy and maintain applications ranging
from workgroup and departmental applications to complex enterprise-wide
mission-critical client/server applications.
A new management team was installed during the Company's fiscal year ended
March 31, 1998, to refocus key areas, including marketing, product
development and services, sales and operations. These actions included
leveraging and redirecting the Company's technology and consulting resources
and revamping the marketing strategy to incorporate a more solutions and
services-oriented approach.
The new management team has achieved three straight quarters of net income,
following three straight years of losses. This has been achieved largely
through successful expansion of the Company's professional services
offerings in object and component consulting and training, together with
significant reductions in expenditures. Training and consulting revenues
increased 20% during the quarter ended September 30, 1998 versus the
comparable period last year.
New orders for object-oriented program language training hit an all-time
high with orders exceeding $1.2 million in the quarter. Consulting bookings
also continued to grow as Bell Atlantic signed contract addendums, growing
the total contract from Bell Atlantic another 37% above the multi-million
dollar levels announced earlier this year, driving overall backlog up from $
6.8 million at June 30, 1998 to $7.4 million at September 30, 1998.
License revenues decreased 25% during the quarter ended September 30, 1998
versus the comparable period last year. The decline in revenue reflects a
continued weakness in the overall software product market, as well as a
continued weakness in demand for the Company's Smalltalk product. Also, the
present environment for selling software tools for custom application
development is very difficult and is expected to remain lackluster until
2000, as many customers have shifted their IT focus on ensuring Y2K (Year
2000) compliance, delaying other development projects until Y2K and ERP
implementations have been successfully completed. The ability to
successfully offer high value-added consulting and training expertise into
the voracious market demand for those services has been a significant area
for revenue growth for ObjectShare, Inc., as it has been for IBM, Oracle and
other major technology companies.
Cost controls continue to play an important part in the Company's return to
profitability. Overall personnel declined from 116 at June 30, 1998 to 112
at September 30, 1998, with significant growth in consulting and training
headcounts being offset with streamlining of administrative and back-office
personnel. 61% of all personnel are now in direct technology development,
services or customer support, 28% in direct sales and marketing and only 11%
in administration. These ratios are expected to improve in the 3rd and 4th
quarters, as services will continue to expand, driving better utilization
and more hiring direct for contract requirements.
9
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The Company's balance sheet remains strong with days sales outstanding
dropping down to 76 days from 88 days at the end of June. Cash balances
decreased to $ 3.0 million during the quarter. The Company continues to
operate without debt and with minimal inventories. Capitalized software
increased by $346,000 with the completion of the Company's new middleware
product, VEOS during the second quarter.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated (I) the percentage of
net revenues represented by certain line items in the Company's Condensed
Consolidated Statements of Operations, (II) the gross margins on license and
service revenues and (III) the percentage changes from the preceding periods.
<TABLE>
<CAPTION>
Percentage of total net revenues
for the
--------------------------------
Three months Six months
ended ended
September 30, September 30, Percent change
-------------- ------------- of dollar amounts
1998 1997 1998 1997 1998 compared to 1997
---- ---- ---- ---- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Service 70% 64% 60% 65% (3%) (18%)
License 30% 36% 40% 35% (25%) (1%)
-------- --------- -------- --------
Total net revenues 100% 100% 100% 100% (11%) (12%)
Cost of net revenues:
Service 31% 40% 28% 39% (31%) (38%)
License 7% 10% 5% 9% (42%) (47%)
-------- --------- -------- --------
Total cost of net revenues 38% 50% 33% 48% (33%) (40%)
-------- --------- -------- --------
Gross margin 62% 50% 67% 52% 10% 13%
Operating expenses:
Sales and marketing 32% 44% 36% 47% (36%) (32%)
Research and development 19% 27% 20% 29% (39%) (40%)
General and administrative 12% 26% 15% 25% (58%) (48%)
Restructuring costs (1%) 59% (2%) 28% (101%) (106%)
-------- --------- -------- --------
Total operating expenses 62% 156% 69% 129% (65%) (53%)
-------- --------- -------- --------
Income/(loss) from operations 0% (106%) (2%) (77%) (100%) (98%)
Interest and other income, net 0% 1% 2% 2% (84%) (21%)
-------- --------- -------- --------
Income/(loss) before income 0% (105%) 0% (75%) (100%) (100%)
taxes
Provision/(benefit) for income 0% 0% (1%) 0% (100%) (292%)
taxes
-------- --------- -------- --------
Net income/(loss) 0% (105%) 1% (75%) (100%) (101%)
Gross margin:
License 78% 72% 87% 75% (19%) 15%
Service 55% 38% 54% 40% 41% 12%
</TABLE>
Net revenues
- ------------
Total net revenues for the second quarter and six months ended September 30,
1998 were $4.2 million and $8.7 million, respectively, a decrease of 11% and
12%, respectively, from the comparable periods of fiscal 1998.
10
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Service revenues for the second quarter and first six months of fiscal 1999
decreased 3% and 18%, respectively, from the comparable periods of fiscal 1998.
Maintenance backlog, tied directly to license sales in previous periods, dropped
33% during the quarter ended September 30, 1998 versus the comparable period
last year, as 1998's results reflected bookings from fiscal 1997 and license
sales are running at far lower rates in fiscal 1999. This was offset by a 20%
increase in training and consulting revenue compared to the second quarter
of fiscal 1998, highlighted by the Bell Atlantic contract spooling up and strong
training demand.
License revenues for the second quarter and first six months of fiscal 1999
decreased 25% and 1%, respectively, from the comparable periods of fiscal 1998.
The decline is attributable to lower sales of development environments and the
continuing diversion of development dollars to Year 2000 issues by potential
customers. International license revenues in the second quarter of fiscal 1999
were $265,000 or 21% of license revenue.
Cost of revenues
- ----------------
Cost of service revenues consists primarily of salaries, commissions, facility
expenses, travel-related expenses, and advertising expenses. Costs of service
revenues for the second quarter and first six months of fiscal 1999 decreased by
31% and 38%, respectively, from the comparable periods of fiscal 1998, as
consultant and training overhead expenses have been reduced, as a result of the
prior year's restructuring. This cost as a percentage of service revenues in the
second quarter and first six months was 45% and 46%, respectively, compared to
62% and 60%, respectively in the comparable periods of fiscal 1998.
Cost of license revenues is primarily comprised of the cost of production of the
Company's products and related royalties. Costs associated with license revenues
for the second quarter and first six months of fiscal 1999 decreased 42% and
47%, respectively, from the comparable periods of fiscal year 1998, due
primarily to the reduction of license revenues along with a reduction of
royalties and lower packaging costs. This cost as a percentage of license
revenues in the second quarter and first six months was 22% and 13%,
respectively, compared to 28% and 25%, respectively in the comparable periods of
fiscal 1998.
Operating expenses
- ------------------
Operating expenses for the second quarter and first six months of fiscal 1999,
excluding restructuring costs, declined 42% and 38%, respectively, from the
comparable periods of fiscal year 1998.
Sales and marketing expenses consist primarily of salaries, commissions,
facility expenses, travel-related expenses, and advertising. These expenses for
the second quarter and first six months of fiscal 1999 were $1.3 million and
$3.2 million, respectively, representing a decrease of 36% and 32%,
respectively, over the comparable periods of fiscal 1998. The decrease is
largely due to the delayering of management, tightened marketing focus and
strategic direction, which resulted in a reduction of personnel and reduction in
overall marketing expenditures.
Research and development expenses for the second quarter and first six months of
fiscal 1999 were $800,000 and $1.7 million, respectively, representing a
decrease of 39% and 40%, respectively, over the comparable periods of fiscal
1998. The decrease was due to the capitalization of certain software development
costs, personnel reductions and refocusing of personnel to key development
milestones.
11
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General and administrative expenses for the second quarter and first six months
of fiscal 1999 were $514,000 and $1.3 million, respectively, representing a
decrease of 58% and 48%, respectively, over the comparable periods of fiscal
1998. This decrease was largely due to the reduction in workforce, which was
achieved in part through improved cross training of personnel to handle
different operational areas and improved staff expertise in key areas.
Interest and other income, net
- ------------------------------
Interest and other income, which includes foreign exchange losses of $30,000,
was $10,000 in the second quarter of fiscal 1999 compared to $62,000 in the
second quarter of the prior year. This decrease also reflects lower interest
income from reduced cash and marketable securities balances.
Provision for income taxes
- --------------------------
The Company recorded income for the second quarter of fiscal 1999 compared to
losses for the comparable period of fiscal 1999. It recorded a benefit of
$48,000 in the first six months of fiscal 1999 for foreign taxes paid in prior
periods compared to provisions of $8,000 and $25,000 for the second quarter and
first six months of fiscal 1998, respectively.
Restructuring costs
- -------------------
The Company has recorded restructuring costs in prior years, the reserve balance
at the beginning of fiscal 1999 was $534,000. In the second quarter of fiscal
1999, the Company made payments of $148,000 and recorded a return of reserve of
$31,000 for events that were completed. The Company expects to utilize the
remaining reserve in fiscal 1999.
FACTORS AFFECTING FUTURE RESULTS
The Company has experienced significant quarterly fluctuations in operating
results and anticipates such fluctuations in the future. The Company's results
in recent quarters are not necessarily indicative of future results and the
Company believes that period-to-period comparisons of its financial results
should not be relied upon as an indicator of future performance.
License revenues in any quarter depend on orders shipped. The Company generally
ships orders as received and, as a result, typically has little or no product
backlog. Quarterly revenues and operating results therefore depend on the volume
and timing of orders received during the quarter, which are difficult to
forecast. Historically, the Company has received a substantial portion of its
product orders in the last month of the quarter, with a concentration of such
orders in the last week. Delays in the receipt of orders can therefore cause
significant variations in quarterly license revenues. License revenues may also
be affected by seasonal trends, as well as other factors. Service revenues tend
to fluctuate as consulting projects, which may continue over several quarters,
are completed.
The Company believes that its recent stabilization of total revenues and
reductions in operating expenses have created a more stable environment, which
has resulted in lower turnover of technical staff during the past three
quarters. Intense competition for qualified technical personnel continues to be
a threat, in particular given the reduced size of the technical staff. In the
last several quarters, the Company has focused on improving its strategic
marketing and technology relationships to leverage complementary technologies.
12
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The Company does not appear to have significant direct exposure to Asian market
fluctuation as less than 5% of sales are to the region. Indirect impact on the
Company as caused by the economic difficulties in Asia on the Company's
customers is harder to predict.
Year 2000 Compliance
- --------------------
Many existing computer systems and applications, and other control devices, use
only two digits to identify a year in the date field, without considering the
impact of the upcoming change in the century. Others do not correctly process
"leap year" dates. As a result, such systems and applications could fail or
create erroneous results unless corrected to process data related to the year
2000 and beyond. The problems are expected to increase in frequency and severity
as the year 2000 approaches, and are commonly referred to as the "Year 2000
Problem". The Company relies on its systems, applications and devices in
operating and monitoring all major aspects of its business, including internal
business, infrastructure, networks and telecommunications equipment. The Company
also relies, directly and indirectly, on external systems of business
enterprises such as customers, suppliers, creditors, financial organizations and
governmental entities, both domestic and international, for accurate exchange of
data.
The Company is continuing to assess the impact that the Year 2000 Problem may
have on its operations and has identified the following four key areas of its
business that may be affected:
Products - The Company has completed Year 2000 compliance testing on its
currently supported products. Based upon the evaluation and testing completed,
the Company believes that its currently supported products are Year 2000
compliant. The Company's testing did not assess compliance of products modified
by customers or third parties nor did it assess compliance of products connected
to individual customer work environments.
Internal Business Systems - The Year 2000 Problem could affect the systems,
transaction processing computer applications and devices used by the Company to
operate and monitor all major aspects of its business, including financial
systems, infrastructure, networks and telecommunications systems. The Company
has completed its assessment phase and believes that it has identified
substantially all of the major systems, software applications and related
equipment used in connection with its internal operations that must be modified
or upgraded in order to minimize the possibility of a material disruption to its
business. The Company is currently in its remediation phase of modifying and
upgrading all affected systems and expects to complete this phase by the
beginning of the fourth quarter of fiscal year 1999. However, any unforeseen
problems that occur during the testing phase may adversely effect the Company's
Year 2000 readiness.
Third-Party Suppliers - The Company relies, directly and indirectly, on external
systems utilized by its suppliers. The Company will request confirmation from
its suppliers of their Year 2000 compliance; however, there can be no assurance
that these suppliers will resolve any or all Year 2000 Problems with their
systems in a timely manner. Any failure of these third parties to resolve their
Year 2000 Problems in a timely manner could result in the material disruption of
the business of the Company. Any such disruption could have a material adverse
effect on the Company's business, financial condition and results of operations.
Facility Systems - Systems such as heating, sprinklers, test equipment and
security systems at the Company's facilities may also be affected by the Year
2000 Problem. The Company has contacted its facility owners seeking assurances
of Year 2000 compliance.
13
<PAGE> 14
The Company has incurred $35,000 as of September 30, 1998 to address its Year
2000 issues. The Company presently estimates that the total cost of addressing
its Year 2000 issues will be approximately $50,000 to $75,000. This estimate was
derived utilizing numerous assumptions, including the assumption that the
Company has already identified its most significant Year 2000 issues and that
the plans of its third party suppliers will be fulfilled in a timely manner
without cost to the Company. However, there can be no guarantee that these
assumptions are accurate, and actual results could differ materially from those
anticipated.
The Company recognizes the need for developing contingency plans to address the
Year 2000 issues that may pose a significant risk to its on going operations.
Such plans could include the implementation of manual procedures to compensate
for system deficiencies. During the remediation phase of the internal business
systems, the Company will be evaluating potential failures and attempt to
develop responses in a timely manner. However, there can be no assurance that
any contingency plans evaluated and potentially implemented by the Company would
be adequate to meet the Company's needs without materially impacting its
operations, that any such plan would be successful or that the Company's results
of operations would not be materially and adversely affected by the delays and
inefficiencies inherent in conducting operations in an alternative manner.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had cash, cash equivalents and marketable
securities of $3.0 million and working capital of $3.2 million compared to $5.7
million and $3.4 million, respectively, as of March 31, 1998.
The Company used cash for operations of $2.2 million in the first six months of
fiscal 1999, which was comprised largely of decreases in accrued liabilities of
$2.5 million and deferred revenue of $1.2 million, offset by a decrease in
accounts receivable of $1.3 million. Cash used for investing was $156,000,
consisting of $91,000 of capital expenditures and capitalized software of
$667,000 which was offset by the maturity of $600,000 of short term investments.
Net cash provided by financing activities was $121,000 which was generated from
the issuance of common stock under the Company's Employee Stock Purchase Plan.
The Company has no significant capital commitments for fiscal 1999.
The Company believes it has adequate resources to sustain its present level of
operations for at least the next twelve months. Management believes that its
existing balances of cash and cash equivalents in combination with cash expected
to be generated from operations, should be sufficient to meet its cash
requirements for continuing its core business.
The Company may from time to time consider the acquisition of products,
technologies or businesses complementary to its overall business strategy
FORWARD - LOOKING STATEMENTS / FUTURE PROSPECTS
This Form 10-Q includes a number of forward-looking statements that are subject
to certain risks and uncertainties that could cause the Company's actual results
and financial position to be affected negatively as events unfold in the market
for the Company's products. These events include, but are not limited to, the
risks inherent in the development and marketing of relatively new technologies,
and the Company's ability to deliver competitive products, retain key employees
and maintain sufficient sales revenue to fund ongoing research and development,
as well as the risks discussed below under "Factors Affecting Future Results".
The Company assumes no obligation to update or revise any such forward-looking
statements to reflect events or circumstances that may arise after this report
is filed, and that may have an effect on the Company's overall performance. The
Company intends that its forward looking statements be protected by the safe
harbors provided in Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1998 Annual Meeting of Stockholders on September 17, 1998.
The stockholders voted as follows:
1. The stockholders elected each of the five nominees for
director, to serve until the next Annual Meeting of Stockholders. The
elected directors are: Eugene Goda (9,663,344 shares for, 256,728 shares
withheld), Jos Henkens (9,583,934 shares for, 336,138 shares withheld),
Lester "Buck" Hill (9,663,294 shares for, 256,778 shares withheld), Sam
Inman (9,603,135 shares for, 316,937 shares withheld), and James Sutter
(9,523,757 shares for, 396,315 shares withheld). There were no broker
non-votes. These five directors constitute all of the members of the
Board of Directors.
2. The stockholders approved an amendment to the Company's 1993
Stock Plan to increase by 500,000 the number of shares authorized for
issuance thereunder (9,010,703 shares for, 889,832 shares against,
19,537 shares abstaining and 0 broker non-votes).
3. The stockholders approved an amendment to the Company's 1993
Employee Stock Purchase Plan to increase by 100,000 the number of shares
available for issuance thereunder (9,626,358 shares for, 274,027
against, 19,687 abstaining and 0 broker non-votes).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) The exhibit listed below is filed herewith as part of this report.
Exhibit No. 27 - Financial Data Schedule
B) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months ended September
30, 1998.
15
<PAGE> 16
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.
DATE: November 12, 1998
OBJECTSHARE, INC. a
Delaware Corporation
By: /s/ GLENN J. BROWN
------------------------------------
Glenn J. Brown
Vice President and Chief Financial
Officer (on behalf of the Registrant
and as principal financial officer)
16
<PAGE> 17
EXHIBIT INDEX
Exhibit No. Description
- ------------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial informatioin extracted from the
financial statements contained in the Company's Form 10-Q for the period ending
September 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,983
<SECURITIES> 0
<RECEIVABLES> 4,190
<ALLOWANCES> (291)
<INVENTORY> 131
<CURRENT-ASSETS> 7,933
<PP&E> 6,142
<DEPRECIATION> (5,141)
<TOTAL-ASSETS> 9,773
<CURRENT-LIABILITIES> 4,753
<BONDS> 0
0
0
<COMMON> 50,125
<OTHER-SE> (45,105)
<TOTAL-LIABILITY-AND-EQUITY> 9,773
<SALES> 4,221
<TOTAL-REVENUES> 4,221
<CGS> 1,592
<TOTAL-COSTS> 2,629
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 10
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
