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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q/A
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 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)
<TABLE>
<S> <C>
DELAWARE 77-0143293
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
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 July 31, 1998, the registrant had outstanding 12,319,845 shares of
Common Stock.
Item 1 of this Form 10-Q/A contains restated financial statements for the
three month period ended June 30, 1998 (see Note 2 of Notes to Restated
Condensed Consolidated Financial Statements). Item 2 contains a revised
Management's Discussion and Analysis of Financial Condition and Results of
Operations that gives effect to the restated financial statement amounts set
forth in Item 1 and information as to the Company's liquidity as of the date
this Form 10-Q/A is filed.
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OBJECTSHARE, INC.
FORM 10-Q/A
FOR THE QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item
1. Condensed Consolidated Financial Statements................. 2
Condensed Consolidated Balance Sheets as of June 30, 1998
(Unaudited) (Restated -- Note 2) and March 31, 1998......... 2
Condensed Consolidated Statements of Operations (Unaudited)
for the three months ended June 30, 1998 (Restated -- Note
2) and 1997................................................. 3
Condensed Consolidated Statements of Comprehensive Income
(Loss) (Unaudited) for the three months ended June 30, 1998
(Restated -- Note 2) and 1997............................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the three months ended June 30, 1998 (Restated -- Note
2) and 1997................................................. 5
Notes to Restated Condensed Consolidated Financial
Statements (Unaudited)...................................... 6
Item Management's Discussion and Analysis of Financial Condition
2. and Results of Operations................................... 8
PART II. OTHER INFORMATION
Item
6. Exhibits and Reports on Form 8-K............................ 13
SIGNATURE........................................................... 13
</TABLE>
1
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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)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
------------ ---------
(UNAUDITED)
(RESTATED --
NOTE 2)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 4,358 $ 5,134
Marketable securities..................................... -- 600
Accounts receivable, net of allowance of $255 at June 30
and $622 at March 31................................... 3,390 5,166
Inventories............................................... 186 164
Prepaid expenses and other current assets................. 739 819
-------- --------
Total current assets.............................. 8,673 11,883
Property and equipment:
Property and equipment.................................... 6,054 6,051
Less accumulated depreciation............................. (4,975) (4,853)
-------- --------
Net property and equipment........................ 1,079 1,198
Other assets................................................ 455 174
-------- --------
Total assets...................................... $ 10,207 $ 13,255
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,056 $ 1,134
Accrued compensation and related expenses................. 781 1,088
Other accrued liabilities................................. 1,414 2,492
Deferred revenue.......................................... 2,599 3,215
Accrued restructuring costs............................... 280 534
-------- --------
Total current liabilities......................... 6,130 8,463
Commitments and contingencies............................... -- --
Stockholders' equity:
Common stock, $0.001 par value:
Authorized shares -- 30,000
Issued and outstanding shares -- 12,255 at June 30 and
12,199 at March 31.................................... 12 12
Additional paid-in capital................................ 50,047 49,992
Accumulated deficit....................................... (45,776) (44,998)
Accumulated other comprehensive loss...................... (206) (214)
-------- --------
Total stockholders' equity........................ 4,077 4,792
-------- --------
Total liabilities and stockholders' equity........ $ 10,207 $ 13,255
======== ========
</TABLE>
See accompanying notes.
2
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OBJECTSHARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JUNE 30,
-----------------------
1998 1997
------------ -------
(RESTATED --
NOTE 2)
<S> <C> <C>
Net revenues:
Service................................................... $ 2,285 $ 3,340
License................................................... 1,418 1,782
------- -------
Total net revenues.......................................... 3,703 5,122
Cost of net revenues:
Service................................................... 1,084 1,964
License................................................... 173 385
------- -------
Total cost of net revenues.................................. 1,257 2,349
------- -------
Gross profit................................................ 2,446 2,773
Operating expenses:
Sales and marketing....................................... 1,817 2,565
Research and development.................................. 1,002 1,541
General and administrative................................ 720 1,282
Restructuring costs....................................... (135) --
------- -------
Total operating expenses.................................... 3,404 5,388
------- -------
Loss from operations........................................ (958) (2,615)
Interest and other income, net.............................. 131 117
------- -------
Loss before provision/(benefit) for income taxes............ (827) (2,498)
(Benefit)/provision for income taxes........................ (49) 17
------- -------
Net loss.................................................... $ (778) $(2,515)
======= =======
Basic and diluted net loss per share........................ $ (0.06) $ (0.21)
======= =======
Shares used in computing basic and diluted net loss per
share..................................................... 12,231 11,925
======= =======
</TABLE>
See accompanying notes.
3
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OBJECTSHARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JUNE 30,
-----------------------
1998 1997
------------ -------
(RESTATED --
NOTE 2)
<S> <C> <C>
Net loss.................................................... $(778) $(2,515)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment................ 8 (4)
----- -------
Comprehensive loss.......................................... $(770) $(2,519)
===== =======
</TABLE>
See accompanying notes.
4
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OBJECTSHARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JUNE 30,
-----------------------
1998 1997
------------ -------
(RESTATED --
NOTE 2)
<S> <C> <C>
Operating activities:
Net loss.................................................... $ (778) $(2,515)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 122 359
Changes in operating assets and liabilities:
Accounts receivable.................................... 1,776 1,544
Inventories............................................ (22) (3)
Other current assets................................... 80 141
Accounts payable and accrued liabilities............... (1,463) (152)
Accrued restructuring costs............................ (254) (211)
Deferred revenue....................................... (616) (495)
------- -------
Net cash used in operating activities....................... (1,155) (1,332)
Investment activities:
Capitalized software........................................ (236) --
Purchases of property and equipment......................... (3) (13)
Maturities of marketable securities......................... 600 2,000
Increase in other assets.................................... (45) (55)
------- -------
Net cash provided by investing activities................... 316 1,932
Financing activities:
Proceeds from issuance of common stock, net of
repurchases............................................... 55 --
------- -------
Net cash provided by financing activities................... 55 --
Effect of exchange rate changes on cash and cash
equivalents............................................... 8 (4)
------- -------
Net (decrease) increase in cash and cash equivalents........ (776) 596
Cash and cash equivalents at beginning of period............ 5,134 7,418
------- -------
Cash and cash equivalents at end of period.................. $ 4,358 $ 8,014
======= =======
</TABLE>
See accompanying notes.
5
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OBJECTSHARE, INC.
NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed 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 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 financial statements and include all adjustments (consisting only of
normal recurring adjustments, except for the restatement adjustments discussed
in Note 2) necessary for a fair presentation of the financial position and
results of the operations for interim periods presented. The operating results
for the three months ended June 30, 1998 are not necessarily indicative of the
results for any future period.
2. RESTATEMENT
On February 17, 1999, the Company reported that in preparing its condensed
consolidated financial statements for the quarter and nine month period ended
December 31, 1998, the Company identified accounting issues in the condensed
financial statements contained in its previously filed Form 10-Qs for the
quarters ended June 30 and September 30, 1998. Such issues primarily related to
the recognition of software license revenue (see Note 7) and the capitalization
of software development costs. The accompanying restated condensed consolidated
statement of operations for the three months ended June 30, 1998 reflects the
following adjustments: a reduction of software license revenue of $764,000;
additional software development expense of $85,000 for costs that were
originally capitalized; and other net adjustments of ($42,000). As a result, the
Company's net loss for the three months ended June 30, 1998 is $778,000 rather
than net income of $29,000 as originally reported.
3. LOSS 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 loss per share for financial statement purposes.
Basic net loss per share is computed by dividing loss available to common
stockholders by the weighted average number of common shares outstanding.
Diluted net loss per share includes the effect of the potential shares
outstanding, including dilutive stock options and warrants using the treasury
stock method.
4. 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.
5. 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 first quarter of
fiscal 1999, the Company made payments of $119,000 and recorded a return to
operations of reserves of $135,000 provided in prior years for events that were
completed in the current period. The Company expects to utilize the remaining
reserve in fiscal 1999.
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OBJECTSHARE, INC.
NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 (CONTINUED)
(UNAUDITED)
6. OTHER ASSETS
Other assets consist of the following at:
<TABLE>
<CAPTION>
RESTATED
JUNE 30, MARCH 31,
1998 1998
-------- ---------
<S> <C> <C>
Capitalized software........................................ $236,000 $ --
Deposits.................................................... 70,000 150,000
Other....................................................... 149,000 24,000
-------- --------
Total....................................................... $455,000 $174,000
======== ========
</TABLE>
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. Amortization of
capitalized software development costs commences when products are available for
general release to customers and is determined using the straight-line method
over the expected useful life of the related products.
7. 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.
8. 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 shareholders' equity
except those resulting from investments by and distributions to stockholders.
9. 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 shareholders 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.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
ObjectShare, Inc. develops and supports object-oriented software
development solutions that allow customers to create distributed, customized
business applications. The Company's range of services includes customer
support, training and consulting as integral components of a complete solution,
as well as a family of products known as application development environments
("ADEs") including VisualWorks Smalltalk and PARTS for Java, a visual
programming environment based on the Java programming language.
Included in the range of services that the Company provides are:
- - Technical and program management consulting services assisting or providing
turn-key solutions in a wide range of industries, including
telecommunications, banking, insurance, manufacturing, distribution, energy
and others, utilizing object-oriented development technology.
- - Training customer's personnel in object-oriented application software
development and methods utilizing computer-based training tools, curriculum
management and in-depth subject and teaching expertise.
- - ADEs that provide visual programming environments that enable programmers to
develop, deploy and maintain applications ranging from workgroup and
departmental applications to complex enterprise-wide mission-critical
client/server and Web-enabled applications.
On February 17, 1999, the Company reported that in preparing its condensed
consolidated financial statements for the quarter and nine month period ended
December 31, 1998, the Company identified accounting issues in the condensed
financial statements contained in its previously filed Form 10-Qs for the
quarters ended June 30 and September 30, 1998. Such issues primarily related to
the recognition of software license revenue and the capitalization of software
development costs. The accompanying restated condensed consolidated statement of
operations for the three months ended June 30, 1998 reflect the following
adjustments: a reduction of software license revenue of $764,000; additional
software development expense of $85,000 for costs that were originally
capitalized; and other net adjustments of ($42,000). As a result, the Company's
net loss for the three months ended June 30, 1998 is $778,000 rather than net
income of $29,000 as originally reported. This amended filing contains the
restated financial information and related disclosures for the three months
ended June 30, 1998. The following discussion of quarterly financial statement
information included in this amended filing reflects, where appropriate, changes
as a result of the restatements and information as to the Company's liquidity as
of the date this form 10-Q/A is filed.
8
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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>
PERCENTAGES OF TOTAL NET REVENUES
FOR THE THREE MONTHS ENDED PERCENT CHANGE
---------------------------------- RESTATED 1998
JUNE 30, 1998 JUNE 30, 1997 COMPARED TO 1997
-------------- -------------- ----------------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Net revenues
Service............................. 62% 65% (32)%
License............................. 38 35 (20)
---- ----
Total net revenues.................... 100 100 (28)
Cost of net revenues
Service............................. 29 38 (45)
License............................. 5 8 (55)
---- ----
Total cost of net revenues............ 34 46 (46)
---- ----
Gross margin.......................... 66 54 (12)
Operating expenses
Sales and marketing................. 49 50 (29)
Research and development............ 27 30 (35)
General and administrative.......... 20 25 (44)
Restructuring costs................. (4) -- (100)
---- ----
Total operating expenses.............. 92 105 (37)
---- ----
Loss from operations.................. (26) (51) (63)
Interest and other income, net........ 4 2 12
---- ----
Loss before income taxes.............. (22) (49) (67)
(Benefit) provision for income
taxes............................... (1) -- (388)
---- ----
Net loss.............................. (21)% (49)% (69)
==== ====
Gross margin
Service............................. 53% 41% (13)
License............................. 88% 78% (11)
</TABLE>
Net revenues
Total net revenues for the three months ended June 30, 1998 were $3.7
million, a decrease of 28% from the comparable period of fiscal 1998.
Service revenues for the first quarter of fiscal 1999 decreased 32% from
the comparable period of fiscal 1998. The results for the first quarter of
fiscal 1998 reflected a backlog of service work that was being completed during
the first quarter of fiscal 1998, and a similar level of work was not repeated
in the first quarter of fiscal 1999. Billings do not reflect the booking of the
Bell Atlantic consulting work which commenced in the second quarter of fiscal
1999.
License revenues for the first quarter of fiscal 1999 decreased 20% from
the comparable period of fiscal 1998. The decrease in this market segment in the
first quarter is primarily a result of weakened demand for Smalltalk IDE's, and
the termination of the VSE product line in prior years. The decline in revenue
reflects a continued weakness in the overall software development tools market,
as well as a continued weakness in demand for Smalltalk products. Also, the
present environment for selling software tools for custom application
development is very difficult and is expected to remain difficult until at least
2000, as many customers have shifted their IT (Information Technology) focus to
ensuring Y2K (Year 2000) compliance, thus delaying other development projects
until Y2K implementations have been successfully completed. International
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license revenue in the first quarter of fiscal 1999 was $274,000 with 19% of the
Company's revenues coming from outside the United States.
Cost of revenues
Cost of service revenues consists primarily of salaries, facility expenses,
and travel-related expenses. Costs of service revenues for the first quarter of
fiscal 1999 decreased by 45% from the comparable period of fiscal 1998 because
consultant and training overheads were greatly reduced as a result of the prior
year's restructuring. This cost as a percentage of service revenues in the three
months ended June 30, 1998 was 47% compared to 59% in the comparable period 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 decreased 55% from the comparable period of fiscal year 1998, due
primarily to the reduction of royalties and lower packaging costs. This cost as
a percentage of license revenues in the three months ended June 30, 1998 was 12%
compared to 22% in the comparable period of fiscal 1998. The gross margin was
higher in the first quarter of fiscal 1999 due to lower packaging and royalty
costs.
Operating expenses
Operating expenses for the first quarter of fiscal 1999, excluding
restructuring costs, declined $1.8 million compared to the first quarter of
fiscal year 1998.
Sales and marketing expenses consisting primarily of salaries, commissions,
facility expenses, travel-related expenses, and advertising, declined by 29% and
dropped by $748,000 over the same period of fiscal 1998. Sales and marketing
expenses were at 49% of revenues for the first quarter of fiscal 1999 compared
to 50% in the first quarter of fiscal 1998. The decrease is largely due to a
reduction of personnel and reductions in overall marketing expenditures.
Research and development expenses for the first quarter of fiscal 1999 were
$1.0 million, a decrease of 35% from the comparable period of fiscal 1998. The
decrease was due to manpower reductions, and the capitalization of software
production costs aggregating $236,000 related to the Company's VEOS product,
after the project achieved technological feasibility in April 1998. During the
first quarter of fiscal 1998, the Company was not working on any development
projects that qualified for capitalization and, as a result, all its related
development costs were expensed.
General and administrative expenses for the first quarter were $720,000, a
decrease of 44% from the comparable period of fiscal 1998. This decrease was
largely due to the reduction in workforce, which resulted in the cross training
of personnel to handle different operational areas.
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 first quarter of
fiscal 1999, the Company made payments of $119,000 and recorded a return to
operations of reserves of $135,000 provided in prior years for events that were
completed in the current period. The Company expects to utilize the remaining
reserve in fiscal 1999.
Interest and other income, net
Interest and other income, which includes foreign exchange gains of
$70,000, was $131,000 in the first quarter of fiscal 1998 compared to $117,000
in the first quarter of the prior year.
Provision for income taxes
The Company recorded a benefit of $49,000 for the first three months of
fiscal 1999 for foreign taxes paid in prior periods. In the prior period, the
Company also recorded a loss, but recorded a provision of $17,000 for similar
items incurred in the period.
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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 license revenue orders shipped.
The Company generally ships orders as received and, as a result, typically has
little or no 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.
Intense competition for qualified technical personnel continues to be a
threat, in particular given the reduced size of the Company's technical staff.
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.
The Company does not currently believe its products will be impacted by the
Year 2000 issue. Internal company operating systems have been evaluated for Year
2000 compliance and have been found to be non-compliant. An internal software
selection and implementation project was expected to be completed January 1,
1999. Costs related to this transition will be expensed as incurred and are not
projected to be material to the Company's operating results. Although the
Company is not aware of any significant potential problems of its customers or
suppliers that it believes will have a material adverse effect on the Company's
business, it is not possible to quantify the effect of Year 2000 issues residing
with the Company's customers and suppliers.
LIQUIDITY AND CAPITAL RESOURCES
The Company used cash for operations of $1.2 million in the first three
months of fiscal 1999, which was comprised of: cash used to fund operating
losses; decreases in accounts payable, accrued liabilities, accrued
restructuring costs, and deferred revenues of $2.3 million; offset by a decrease
in accounts receivable of $1.8 million and depreciation and amortization of
$122,000. The Company has no significant unfulfilled capital commitments for
fiscal 1999.
As of June 30, 1998, the Company had cash, cash equivalents and marketable
securities of $4.4 million and working capital of $2.5 million compared to $5.7
million and $3.4 million, respectively, as of March 31, 1998.
During December 1998, the Company entered into a $5 million line of credit
with a commercial bank that expires in December 1999. Borrowings under the line
are secured by the Company's accounts receivable and intellectual property, are
limited to 70% of eligible accounts receivable and bear interest at the bank
prime rate plus 3/4%. At December 31, 1998, the Company was not in compliance
with a covenant in the line of credit that requires the Company to maintain a
certain level of tangible net worth. As a result, the bank may demand repayment
of $1 million borrowed in January 1999 and has the right to terminate the credit
facility. There is no assurance that the Company will be able to cure the
covenant violation or that it will be able to obtain alternative financing in
the event that the credit agreement is terminated.
Management of the Company anticipates implementing certain cost cutting
measures in early March 1999 to attempt to reduce the Company's cost structure
to be commensurate with estimated revenues. Such cost cutting measures could
have the initial effect of increasing expenses for the period during which such
actions are taken. Although management's goal is to reduce losses and,
ultimately, return the Company to
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profitability, there can be no assurance that these actions will allow the
Company to achieve profitability. After giving effect to the planned cost
cutting measures, management believes that the Company will have sufficient
sources of financing to continue its operations throughout fiscal 1999 and
fiscal 2000. However, due to the uncertainties inherent in management's plan,
there can be no assurance that the Company will have sufficient sources of
financing to attain planned levels of operations. Ultimately, the Company's
long-term success is dependent upon its ability to successfully execute its
strategic plan and achieve sustained profitable operations.
As of December 31, 1998, the Company's total shareholders' equity was below
the minimum level required to maintain its listing on The NASDAQ National Market
(NASDAQ) and, as a result of the Company reporting that it would restate its
financial statements for the interim periods ended June 30 and September 30,
1998, on February 17, 1999, NASDAQ halted trading of the Company's common stock
pending the receipt and review of certain requested information. Management of
the Company is attempting to resolve these issues; however, there is no
assurance that the Company's common stock will be able to maintain its listing
and/or trade on NASDAQ.
The matters discussed herein could adversely impact employee morale and
customer relations. In the event the Company were to lose employees and/or
customers as a result of such matters, the Company's performance could be
materially adversely affected.
FORWARD-LOOKING STATEMENTS/FUTURE PROSPECTS
This Form 10-Q/A 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, the size and timing of customer orders 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 above 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.
12
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) The exhibit listed below is filed herewith as part of this report.
27 Financial Data Schedule
B) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months ended June 30,
1998.
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: February 22, 1999
OBJECTSHARE, INC. a
Delaware Corporation
By: /s/ EUGENE L. GODA
------------------------------------
Eugene L. Goda
President and Chief Executive
Officer
By: /s/ GLENN J. BROWN
------------------------------------
Glenn J. Brown
Vice President and Chief Financial
Officer
(on behalf of the Registrant and as
principal financial officer)
13
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the Company's Form 10-Q/A for the period
ending June 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,358
<SECURITIES> 0
<RECEIVABLES> 3,645
<ALLOWANCES> (255)
<INVENTORY> 186
<CURRENT-ASSETS> 8,673
<PP&E> 6,054
<DEPRECIATION> (4,975)
<TOTAL-ASSETS> 10,207
<CURRENT-LIABILITIES> 6,130
<BONDS> 0
0
0
<COMMON> 50,059
<OTHER-SE> (45,982)
<TOTAL-LIABILITY-AND-EQUITY> 10,207
<SALES> 3,703
<TOTAL-REVENUES> 3,703
<CGS> 1,257
<TOTAL-COSTS> 3,404
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131
<INCOME-PRETAX> (827)
<INCOME-TAX> (49)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (778)
<EPS-PRIMARY> (0.06)<F1>
<EPS-DILUTED> (0.06)
<FN>
<F1>For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
