<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-23446
ENLIGHTEN SOFTWARE SOLUTIONS, INC.
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 94-3008888
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
999 BAKER WAY, FIFTH FLOOR,
SAN MATEO, CALIFORNIA 94404
--------------------- -----
(Address of principal executive offices) (Zip code)
(650) 578-0700
--------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of March 31, 2000:
<TABLE>
<CAPTION>
Outstanding
Class May 12, 2000
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<S> <C>
COMMON STOCK, NO PAR VALUE 4,953,789
</TABLE>
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ENLIGHTEN SOFTWARE SOLUTIONS, INC.
QUARTERLY REPORT ON FORM 10-QSB
THREE MONTHS ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets: March 31, 2000 and
December 31, 1999........................................... 3
Condensed Consolidated Statements of Operations: Three months
Ended March 31, 2000 and 1999............................... 4
Condensed Consolidated Statements of Cash Flows: Three Months
Ended March 31, 2000 and 1999............................... 5
Notes to Condensed Consolidated Financial Statements........... 6
Item 2. Management's Discussion and Analysis or Plan of Operations..... 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 19
Item 2. Changes in Securities and Use of Proceeds...................... 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
SIGNATURES..................................................... 20
</TABLE>
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
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<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................... $ 748,500 $ 1,045,600
Short-term investments ........................................ 255,500 247,500
Accounts receivable, less allowance for doubtful
accounts of $50,000 .......................................... 355,900 1,285,500
Prepaid expenses and other assets ............................. 207,700 60,900
----------- -----------
Total current assets ........................................ 1,567,600 2,639,500
Property and equipment, net ..................................... 361,900 402,700
Software development costs, net ................................. 193,800 208,400
Other assets .................................................... 324,200 312,100
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$ 2,447,500 $ 3,562,700
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ........................................ $ 166,400 $ 177,000
Accrued and other current liabilities ......................... 361,800 335,600
Deferred revenue .............................................. 117,900 81,800
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Total current liabilities ................................... 646,100 594,400
Commitments and contingencies
Shareholders' equity:
Preferred stock, 1,000,000 shares authorized,
none issued and outstanding .................................. -- --
Common stock, no par value, 10,000,000 shares authorized,
4,235,888 and 4,217,978 issued and outstanding at March
31, 2000 and December 31, 1999, respectively ................. 8,511,500 8,410,400
Deferred stock-based compensation ............................. (101,500) (85,000)
Accumulated other comprehensive income (loss) ................. (24,200) (32,200)
Accumulated deficit ........................................... (6,584,400) (5,324,900)
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Total shareholders' equity .................................. 1,801,400 2,968,300
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$ 2,447,500 $ 3,562,700
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
Revenue: 2000 1999
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<S> <C> <C>
Product license fees ............................................ $ 179,900 $ 739,200
Product maintenance fees ........................................ 172,100 164,200
Consulting services ............................................. 68,400 319,600
Royalties ....................................................... 15,800 42,600
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Total revenue ................................................. 436,200 1,265,600
Cost of revenue:
Product licenses ................................................ 24,800 124,100
Product maintenance ............................................. 56,800 102,200
Consulting services ............................................. 39,200 45,600
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Total cost of revenue ......................................... 120,800 271,900
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Gross margin ................................................ 315,400 993,700
Operating expenses:
Research and development ........................................ 611,100 511,100
Sales and marketing ............................................. 686,500 531,800
General and administrative ...................................... 294,000 230,100
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Total operating expenses ...................................... 1,591,600 1,273,000
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Operating loss ............................................ $(1,276,200) $ (279,300)
Other income, net ................................................. 18,000 30,800
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Loss before income taxes .................................. $(1,258,200) $ (248,500)
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Provision for income taxes ........................................ 1,300 800
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Net loss .................................................. $(1,259,500) $ (249,300)
=========== ===========
Basic and diluted net loss per share .............................. $ (0.30) $ (0.06)
=========== ===========
Shares used in computing basic and diluted net loss per share ..... 4,229,589 3,932,421
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
2000 1999
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<S> <C> <C>
Cash Flows from Operating Activities:
Net loss ............................................................ $(1,259,500) $ (249,300)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ..................................... 84,900 106,500
Compensation expense for stock options issued ..................... 33,500 --
Changes in operating assets and liabilities:
Accounts receivable ............................................. 929,600 (599,100)
Prepaid expenses and other assets ............................... (158,900) (52,600)
Trade accounts payable .......................................... (10,600) (64,100)
Accrued and other liabilities ................................... 26,200 (6,500)
Deferred revenue ................................................ 36,100 27,200
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Net cash used in operating activities ......................... (318,700) (837,900)
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Cash Flows from Investing Activities:
Capitalization of software development costs ........................ (10,200) --
Purchases of property and equipment ................................. (19,200) (41,600)
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Net cash used in investing activities ......................... (29,400) (41,600)
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Cash flows from financing activities:
Proceeds from issuance of stock ..................................... 51,000 113,600
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Net cash provided by financing activities ..................... 51,000 113,600
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Net decrease in cash and cash equivalents ............................. (297,100) (765,900)
Cash and cash equivalents at beginning of periods ..................... 1,045,600 1,900,000
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Cash and cash equivalents at end of periods ........................... $ 748,500 $ 1,134,100
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by Enlighten Software Solutions, Inc. and Subsidiary ("Enlighten"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. These condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-QSB and therefore
certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. However, Enlighten believes that the
disclosures are adequate to make the information presented not misleading. These
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in Enlighten's
Annual Report on Form 10-KSB for the year ended December 31, 1999.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments) that
are, in the opinion of management, necessary to state fairly the financial
position and results as of and for the periods presented. The results for such
periods are not necessarily indicative of the results to be expected for the
full year.
The preparation of condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the condensed consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Certain amounts in the condensed consolidated financial statements as of
December 31, 1999 and for the three months ended March 31, 1999, have been
reclassified to conform with the 2000 presentation.
2. Revenue Recognition
Product license fees are recognized after the following events have occurred: a
product evaluation has been shipped to the customer; the customer elects to
purchase the software following an evaluation period; the customer signs the
related contract; and collection of the sales price is probable. Royalty
revenues that are contingent upon sale to an end-user by original equipment
manufacturers are recognized upon receipt of a report of shipment from the
original equipment manufacturer. Product maintenance fees committed as part of
new product licenses and maintenance resulting from renewed maintenance
contracts are deferred and recognized ratably over the contract period,
generally one year. Consulting service revenue is recognized
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ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
when services are performed for time and material contracts and on a percentage
of completion basis for fixed price contracts.
3. Cash and Cash Equivalents
Enlighten considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Enlighten has classified its investments in commercial paper and U.S. Treasury
notes as "held-to-maturity." All such investments mature in less than one year
and are stated at amortized cost, which approximates fair value. Interest income
is recorded using an effective interest rate, with the associated discount or
premium amortized to interest income.
Additionally, Enlighten has classified its investments in preferred stock of
$255,500 as "available-for-sale." Such investments are recorded at fair value
based on quoted market prices, with unrealized gains and losses reported as a
separate component of stockholders' equity.
4. Comprehensive Income (Loss)
"Comprehensive income (loss)" includes unrealized gains and losses that have
been previously excluded from net income and reflected instead in equity. A
summary of comprehensive income (loss) follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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2000 1999
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<S> <C> <C>
Net loss....................................................... $(1,259,500) $(249,300)
Unrealized gain (loss) on securities........................... 8,000 (5,500)
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Comprehensive loss............................................. $(1,251,500) $(254,800)
=========== =========
</TABLE>
5. Net Loss Per Share
Basic net loss per share is based on the weighted average number of all common
shares issued and outstanding, and is calculated by dividing net loss per share
by the weighted average shares of common stock outstanding during the period.
Diluted net loss per share is calculated by dividing net loss by the weighted
average number of common shares outstanding plus all potentially dilutive common
shares outstanding. Potentially dilutive common shares included in the dilution
calculation consist of dilutive shares issuable upon the exercise of outstanding
commons stock options computed using the treasury stock method. For the periods
in which Enlighten had losses, potential common shares from common stock options
are excluded from the computation of diluted net loss per share, as their
effects are antidilutive.
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ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following is a reconciliation of the weighted average common shares used to
calculate basic net loss per share to the weighted average common and
potentially dilutive common shares used to calculate diluted net loss per share:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
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<S> <C> <C>
Weighted average common shares used to calculate
basic net loss per share ......................................... 4,229,589 3,932,421
Stock options .................................................. -- --
Warrants ....................................................... -- --
--------- ---------
Weighted average common and potentially dilutive common
shares used to calculate diluted earnings (loss) per share ....... 4,229,589 3,932,421
========= =========
</TABLE>
Dilutive weighted average stock options and warrants to purchase 898,142 and
286,046 shares of common stock for the three months ended March 31, 2000 and
1999, respectively, were outstanding but not included in the computation of
diluted earnings per common share because they are anti-dilutive as a result of
Enlighten's net loss.
6. Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." The
objective of this SAB is to provide further guidance on revenue recognition
issues in the absence of authoritative literature addressing a specific
arrangement or a specific industry. Enlighten is required to follow the guidance
in the SAB no later than the second quarter of 2000. The SEC has recently
indicated it intends to issue further guidance with respect to adoption of
specific issues addressed by SAB No. 101. Until such time as this additional
guidance is issued, Enlighten is unable to assess the impact, if any, it may
have, however based on current guidance Enlighten believes adoption of the SAB
will not have a material impact on Enlighten's financial position or results of
operations.
7. Subsequent Event
On April 28, 2000, Enlighten completed a private placement of 715,885 units each
consisting of one share of common stock and on redeemable purchase warrant to
purchase one share of common stock for gross proceeds of approximately
$3,114,100. Enlighten sold the common stock at $4.225 and the warrants at
$0.125, for an aggregate of $4.35 per unit. The price for the common stock was
determined based on the five-day average closing price of the Company's common
stock from April 17 through April 24, 2000. The private placement was completed
entirely with accredited investors as defined in Regulation D promulgated under
the Securities Act of 1933. The warrants have an exercise price of approximately
$4.65 per share and a term of five years.
-8-
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
You should read the following discussion and analysis in conjunction
with our financial statements and the notes thereto included elsewhere herein.
Except for historical information contained herein, the following discussion
contains forward-looking statements based on current expectations that involve
certain risks and uncertainties. Such forward-looking statements include, among
others, those statements including the words "expects," "anticipates,"
"intends," "believes" and similar language. Our actual results could differ
materially from those discussed herein. Factors that could cause actual results
or performance to differ materially or contribute to such differences include,
but are not limited to, those discussed below in "Factors That May Affect Future
Results," "Disclosures about Market Risk," and "Liquidity and Capital
Resources."
OVERVIEW
We provide software products that automate administrative tasks and
monitor critical performance and operational characteristics for commercial
servers and workstations. Our products provide a single console management view
of customers mixed technology environments consisting of Linux, Unix and
Windows. Our products enable integrated, coordinated operations and management
of networked and web based servers and workstations. Our products are designed
for distributed computing environments in the range of ten to 1,000 servers and
workstations. Our core product, the Enlighten(R) Distributed Systems Manager or
EnlightenDSM(TM), allows companies to manage their mission critical servers and
workstations by enabling information technology ("IT") staffs to standardize the
management of diverse Linux, Unix and Windows systems and to monitor the
on-going performance and availability of many different systems running
together.
Our software manages products from vendors such as Compaq Computer
Corporation, Hewlett-Packard Company, International Business Machines
Corporation ("IBM"), Intel Corporation ("Intel"), Microsoft Corporation, The
Santa Cruz Operation, Inc., Silicon Graphics, Inc. ("SGI"), Sun Microsystems,
Inc. ("Sun"), Red Hat, Inc. ("Red Hat"), TurboLinux, Inc. ("TurboLinux"),
Caldera Systems, Inc. and SuSE, Inc. Our award winning EnlightenDSM product
suite is a fully integrated, cross-platform software solution.
The key elements of our strategy include enabling the integration of
Linux into the corporate environment, focusing on the mid-sized organization and
departments of larger companies, adding timely effective manageability to web
based application environments and distributing our products through third-party
relationships such as software vendors, hardware vendors, Linux distributors,
systems management service providers, and Linux appliance manufacturers.
VARIABILITY OF QUARTERLY RESULTS
We have experienced significant quarterly fluctuations in our operating
results and expect that these fluctuations will continue in future periods.
These fluctuations have been
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caused by a number of factors, including the timing of new product or product
enhancement introductions by us or our competitors, the development and
introduction of new operating systems that require additional development
efforts, purchasing patterns of our customers, size and timing of individual
orders, the rate of customer acceptance of new products and pricing and
promotion strategies undertaken by us or our competitors. Future operating
results may fluctuate as a result of these and other factors, including our
ability to continue to develop, acquire, and introduce new products on a timely
basis, the timing and level of sales by our OEMs or other third-party licensees
of computer systems or software incorporating our products, technological
changes in computer systems and environments, quality control of the products
sold, our success in shifting our primary sales strategy from direct to indirect
channels and general economic conditions. Additionally, our operating results
may be influenced by seasonality and overall trends in the global economy.
Because we operate with a relatively small backlog, quarterly sales and
operating results generally depend on the volume and timing of orders received
during the quarter, which are difficult to forecast. Historically, we have
recognized a substantial portion of our license revenues in the last month of
the quarter, particularly the last week. Since our staffing levels and other
operating expenses are based upon anticipated revenues, delays in the receipt of
orders can cause significant fluctuations in income from quarter to quarter.
HISTORICAL RESULTS OF OPERATIONS
Net Revenue
Net revenue decreased $829,400, or 66%, to $436,200 in the first quarter
of 2000, as compared to 1999. For the first quarter of 2000, revenues from our
relationship with SGI were not included in operating results. In prior quarters,
SGI provided Enlighten with revenue information prior to the issuance of
Enlighten's interim financial information and thus revenue had been recorded in
the period in which SGI shipped its servers and workstations. SGI is not
required to report revenue prior to the issuance of Enlighten's interim
financial information and, due to SGI's ongoing restructuring process, SGI does
not expect to report earlier than required. Beginning in the second quarter of
2000, and as a result of later reporting by SGI, revenues from SGI will be
recorded in the quarter in which the revenue is reported.
Revenue from product license fees decreased $559,300, or 76%, to
$179,900 in the first quarter of 2000, as compared to 1999. The decrease was
primarily attributable to revenues from the SGI OEM relationship not included
for the quarter. License fees from SGI are derived from SGI's Unix server and
workstation sales on a per unit shipped basis.
Product maintenance fees increased slightly by $7,900, or 5%, to
$172,100 in the first quarter of 2000, as compared to 1999, due mainly to an
increased end user customer base.
Consulting services revenue decreased by $251,200, or 79%, to $68,400 in
the first quarter of 2000, as compared to 1999. This decrease was primarily due
to the decrease in non- recurring engineering revenues related to Enlighten's
1999 strategic relationship with IBM compared to the Enlighten's 2000 OEM
relationship with Intel.
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Royalties consist primarily of royalties from BMC Corporation ("BMC"),
formerly New Dimensions Software, Inc., from product license fees and product
maintenance fees generated by the Tandem product line sold to BMC in October
1997. Total royalties decreased by $26,800, or 63%, to $15,800 in the first
quarter of 2000, as compared to 1999. This decrease was primarily due to a lower
royalty rate used during 2000 than 1999. Enlighten is entitled to receive
royalties from BMC through September 2000.
Cost of Revenue
Cost of license revenue consists of royalties paid to third parties,
amortization of software acquisition costs, product packaging and documentation,
and software media. Cost of license revenue decreased by $99,300, or 80%, in the
first quarter of 2000, as compared to 1999. This decrease was primarily due to a
decrease in royalties paid to third parties and a decrease in the quantity of
hardcopy product documentation shipped during the first quarter of 2000.
Cost of maintenance revenue includes customer support costs, such as
hot-line and on-site support. Cost of maintenance revenue decreased by $45,400,
or 44%, in the first quarter of 2000, as compared to 1999. This decrease was due
primarily to a decrease in customer support headcount and personnel related
costs.
Cost of consulting services revenue consists of the direct costs
required to provide the consulting services. Cost of consulting services
revenues decreased by $6,400, or 14%, in the first quarter of 2000, as compared
to 1999. This decrease is due primarily to a decrease in royalties paid to third
party software vendors and a decrease in packaging and documentation costs due
to the distribution of documentation in electronic format and the distribution
of software over the Internet.
Research and Development
Research and development expenses consist of personnel expenses and
associated overhead, the costs of short-term independent contractors required in
connection with product development efforts and amortization of software
development costs less amounts capitalized. Enlighten's investment in research
and development, prior to the reduction for capitalization of software
development costs, was $621,300 and $511,100, respectively, representing 142%
and 40% of total revenue for 2000 and 1999, respectively. The increase of
$110,200, or 22%, in the first quarter of 2000, as compared to 1999, was
primarily attributable to increases in employee recruiting and contract labor
costs. Enlighten capitalized approximately $10,200 of software development costs
in 2000 which represented approximately 2% of total research and development
expenditures incurred during the quarter. There were no software development
costs capitalized in the first quarter of 1999. The amount of capitalized
software development costs in any given period may vary depending on the nature
of the development performed.
Costs incurred in the research and development of new software products
are expensed as incurred until technological feasibility is established.
Enlighten expects research and
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development expenses to continue to increase in absolute dollars as Enlighten
continues to invest in the enhancement of existing products and the development
of new products.
Sales and Marketing
Sales and marketing expenses include costs of sales and marketing
personnel, advertising and promotion expenses, customer service and technical
support, travel and entertainment, and other selling and marketing costs. Sales
and marketing expenses increased by $154,700, or 29%, to $686,500 in the first
quarter of 2000, as compared to 1999. This increase was primarily due to
increases in recruiting and trade show expenses, offset by a decrease in
personnel related expenses.
General and Administrative
General and administrative expenses, which include personnel costs for
finance, administration, information systems, and general management, as well as
professional fees, legal expenses, and other administrative costs, increased by
$63,900, or 28%, to $294,000 in the first quarter of 2000, as compared to 1999.
The increase was primarily due to higher compensation expense on stock options
granted to consultants.
Other income, net
Other income and expense includes interest income net of interest
expense and gains and losses on foreign currency transactions. Interest income
is primarily derived from short-term interest-bearing securities and money
market accounts. Other income, net decreased by $12,800, or 42%, to $18,000 in
the first quarter of 2000, as compared to 1999, primarily due to a decrease in
interest income due to a lower average balance of invested cash and short-term
investments.
Provision for income taxes
Provision for income taxes consists of the minimum state income taxes
due for 2000 and 1999, for incorporation in California and New Jersey. No tax
benefits were recognized during these quarters due to the uncertainty related to
Enlighten's ability to recognize a tax benefit for loss and credit
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, our cash and cash equivalents and short-term
investments were $1,004,000, representing 41% of total assets. Cash equivalents
are highly liquid investments with original maturities of ninety days or less.
Our short-term investments are primarily highly liquid investment grade
commercial paper. Our working capital was $921,500 as of March 31, 2000. We had
no debt as of March 31, 2000, other than normal trade payables and accrued
liabilities. Shareholders equity as of March 31, 2000 was $1,801,400.
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During the three months ended March 31, 2000, cash used in operating
activities decreased $519,200 to $318,700, compared to the same period of the
prior year. The change was principally caused by an increase in the net loss
partially offset by a decrease in accounts receivable.
Enlighten's investing activities consisted primarily of additions to
capital equipment and the capitalization of software development costs, which
combined represented $29,400 and $41,600 of cash used for investing activities
during the three months ended March 31, 2000 and 1999, respectively.
Financing activities provided cash of $51,000 in the first three months
of 2000, compared with cash provided of $113,600 in the same period of 1999.
Cash provided from financing activities consisted of the exercise of employee
stock options and the employee stock purchase plan.
On April 28, 2000, Enlighten completed a private placement of 715,884
units each consisting of one share of common stock and one redeemable purchase
warrant to purchase one share of common stock for gross proceeds of
approximately $3,114,100. Our existing capital resources, including the private
placement, are adequate to maintain our current operations through December
2000. However, in order to continue to fund and expand our operations and meet
our other obligations through 2001, we may be required to obtain additional
financing. Our need for additional financing depends on our future performance,
which, in turn, is subject to general economic conditions, and business and
other factors beyond our control. There can be no assurance that we would be
able to obtain such financing, or that any financing would result in a level of
net proceeds required.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Certain statements contained in this Quarterly Report on Form 10-QSB,
including, without limitation, statements containing the words "believes,"
"anticipates," "estimates," "intends," "expects" and words of similar import,
constitute forward-looking statements within the meaning of the Private
Securities Reform Act of 1995. Actual results could vary materially from those
expressed in those statements. Readers are referred to "Products," "Sales and
Distribution," "Product Development," "Competition," "Product Protection" and
"Management's Discussion and Analysis or Plan of Operation" sections contained
herein as well as the factors described below, which identify some of the
important factors or events that could cause actual results or performance to
differ materially from those contained in the forward looking statements.
FURTHER CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
During the last five years we have financed our operations primarily
through sales of equity securities and the sale of our Tandem product line. Our
existing capital resources are adequate to fund and expand our current
operations through December 2000. However, we may
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require substantial additional financing to further our current plans to expand
our operations and fund our long-term product development. On April 28, 2000, we
completed a private placement of 715,884 units each consisting of one share of
common stock and one redeemable purchase warrant to purchase one share of common
stock for gross proceeds of approximately $3,114,100. If we are unable to obtain
additional financing as needed, our long-term product development and
commercialization programs would be delayed or prevented and we may be required
to curtail our operations.
OUR FUTURE REVENUES ARE UNPREDICTABLE, OUR OPERATING RESULTS ARE LIKELY TO
FLUCTUATE FROM QUARTER TO QUARTER AND IF WE FAIL TO MEET THE EXPECTATIONS OF
INVESTORS OR ANALYSTS, OUR STOCK PRICE COULD DECLINE SIGNIFICANTLY
We have experienced significant quarterly fluctuations in operating
results and expect that these fluctuations will continue in future periods.
These fluctuations have been caused by a number of factors, including the timing
of new product or product enhancement introductions by us or our competitors,
the development and introduction of new operating systems that require
additional development efforts, purchasing patterns of our customers, size and
timing of individual orders, the rate of customer acceptance of new products and
pricing and promotion strategies undertaken by us or our competitors. Future
operating results may fluctuate as a result of these and other factors,
including our ability to continue to develop, acquire and introduce new products
on a timely basis, the timing and level of sales by our OEM or other third-party
licensees of computer systems or software incorporating our products,
technological changes in computer systems and environments, quality control of
the products sold, our success in shifting our primary sales strategy from
direct to indirect channels and general economic conditions. Additionally, our
operating results may be influenced by seasonality and overall trends in the
global economy. Because we operate with a relatively small backlog, quarterly
sales and operating results generally depend on the volume and timing of orders
received during the quarter, which are difficult to forecast. Historically, we
have recognized a substantial portion of our license revenues in the last month
of the quarter, particularly the last week. Since our staffing levels and other
operating expenses are based upon anticipated revenues, delays in the receipt of
orders can cause significant fluctuations in income from quarter to quarter.
WE MAY NOT BE SUCCESSFUL IN THE OPEN SYSTEMS MARKET
Through 1997, we derived a substantial portion of our revenue from our
Tandem-based products. However, we sold all rights to our Tandem technology in
October 1997. The future success of our business is substantially dependent on
our ability to generate significant revenue from our Linux, Unix and Windows
product offering. In January 1998, we signed an OEM bundling agreement with
Silicon Graphics under which Silicon Graphics bundles a limited version of our
product on each Unix system shipped. In December 1998, we entered into an
agreement with IBM to integrate the EnlightenDSM product into IBM Suites for
Solaris and AIX. In January 1999, we entered into an agreement with Sun
Microsystems to produce a product that will seamlessly integrate into the Sun
Management Center product (formerly Sun's Enterprise SyMON). In September 1999,
we signed a software license and distribution agreement with TurboLinux in which
TurboLinux will bundle a single user copy of the
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<PAGE> 15
EnlightenDSM product with its Linux operating system distributions. In October
1999, we signed a software license agreement with Intel in which we will
integrate a subset of the Linux version of the EnlightenDSM product into Intel's
LANDesk(R) Server Manager product. While significant, there can be no assurance
that we will be successful in our efforts to generate significant revenue from
these agreements. Additionally, the open systems market is characterized by
rapid technological growth and intense competition. We may not have the
financial or personnel resources to effectively capitalize on, and continue
with, our early and limited success in this market.
WE ARE DEPENDENT ON RESELLERS AND IF WE ARE NOT SUCCESSFUL IN EXPANDING
DISTRIBUTION CHANNELS, OUR ABILITY TO MAINTAIN OR INCREASE OUR REVENUES WILL BE
HARMED
In 1997, we began to shift a majority of our sales and marketing
resources toward third-party resellers in the United States and internationally.
Our growth will be dependent on our ability to continue to expand our
third-party distribution channel to market, sell and support our software
products. We are currently investing, and intend to continue to invest,
significant resources to develop this channel, which could materially adversely
affect our operating margins. We have only limited experience in marketing our
products through distributors. Additionally, we will have no control over our
third-party distributors, their shipping dates, or volumes of systems shipped by
our OEM and other third-party customers. There can be no assurance that we will
be successful in our efforts to generate significant revenue from this channel,
nor can there be any assurance that we will be successful in recruiting new
organizations to represent us and our products.
Additionally, we have become more dependent on our third-party
distributors for the technical support and consultation to end-users. We will
need to increase our training and education efforts related to our third-party
distributors to enable such third parties to obtain the technical proficiency
and knowledge with respect to our products. Despite these efforts, we may not be
able to successfully train our third party distributors to enable them to
provide adequate technical support to the customer base. This may result in,
among other things, increased workload on our internal support and engineering
staff, or poor customer acceptance of the products, or both, either of which
would significantly harm our business.
In January 1998, we signed an OEM bundling agreement with Silicon
Graphics under which Silicon Graphics will bundle a limited version of our
product on each Unix system shipped. In December 1998, we entered into an
agreement with IBM to integrate the EnlightenDSM product into IBM Suites for
Solaris and AIX. In January 1999, we entered into an agreement with Sun
Microsystems to produce a product that will seamlessly integrate into the Sun
Management Center product (formerly Sun's Enterprise SyMON). In September 1999,
we signed a software license and distribution agreement with TurboLinux in which
TurboLinux will bundle a single user copy of the EnlightenDSM product with its
Linux operating system distributions. In October 1999, we signed a software
license agreement with Intel in which we will integrate a subset of the Linux
version of the EnlightenDSM product into Intel's LANDesk(R) Server Manager
product. While we believe that these arrangements will be beneficial, there can
be no assurance that we will be able to deliver our products to these
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<PAGE> 16
companies in a timely manner or that these companies will license our products
in volumes anticipated by us. Further, these agreements are our only significant
third-party distribution agreements to date. While our strategy is to obtain
additional resellers to reduce the dependence on these vendors, we may not be
able to successfully attract additional vendors to distribute our products. Any
such failure would result in our having expended significant resources with
little or no return on its investment, which would significantly harm our
business.
These additional investments and responsibilities will require us to
expend substantial resources and may require us to divert employees from other
projects to provide the support services and development efforts required to
provide products and services to these third party vendors and other new third
parties, if any.
OUR MARKET IS SUBJECT TO INTENSE COMPETITION AND CONTINUED COMPETITION IN OUR
MARKET MAY LEAD TO A REDUCTION IN OUR PRICES, REVENUES AND MARKET SHARE
We experience intense competition from other systems management
companies and the market is rapidly changing. We believe that our ability to
compete successfully depends on a number of factors, including the performance,
price and functionality of our products relative to those of our competitors.
Most of our competitors are larger and have greater financial, technical,
marketing, support and other resources than us. As a result, they may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements than us. In addition, the software industry is characterized by low
barriers to entry. There can be no assurance that our current competitors or any
new market entrants will not develop systems management products that offer
significant performance, price, or other advantages over our technology. In
addition, operating system vendors could introduce new or upgrade existing
operating systems or environments that include systems management functionality
offered by us, which could render our products obsolete and unmarketable. We may
not be able to successfully compete against current or future competitors, which
could significantly harm our business.
100% OF OUR LICENSE REVENUE IS DERIVED FROM A SINGLE PRODUCT FAMILY AND IF THOSE
PRODUCTS FAIL TO ACHIEVE AND MAINTAIN MARKET ACCEPTANCE, OUR BUSINESS MAY BE
SIGNIFICANTLY HARMED
We expect that a substantial majority of our revenue in future periods
will be derived from our EnlightenDSM products. These products have accounted
for 100% of our license revenue since October 1, 1997. We expect that the
EnlightenDSM product family and its extensions and derivatives will continue to
account for a substantial majority, if not all, of our revenue for the
foreseeable future. Broad market acceptance of EnlightenDSM is, therefore,
critical to our future success. Failure to achieve broad market acceptance of
EnlightenDSM, as a result of competition, technological change, or otherwise,
would significantly harm our business. Our future financial performance will
depend in significant part on the successful development, introduction and
market acceptance of EnlightenDSM and its product enhancements. There can be no
assurance that we will be successful in marketing EnlightenDSM or any new
products, applications or product enhancements, and any failure to do so would
significantly harm our business.
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<PAGE> 17
THE MARKET FOR OUR PRODUCTS IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE AND
WE MAY NOT BE ABLE TO DEVELOP OR MARKET NEW PRODUCTS TO RESPOND TO SUCH CHANGE
The market for our products is characterized by rapid technological
developments, evolving industry standards and rapid changes in customer
requirements. The introduction of products embodying new technologies, including
new operating systems, applications, hardware products, systems management
frameworks and network management platforms, the emergence of new industry
standards, or changes in customer requirements could render our existing
products obsolete and unmarketable. As a result, our success depends upon our
ability to continue to enhance existing products, respond to changing customer
requirements and rapidly develop and introduce new products that keep pace with
technological developments and emerging industry standards.
Additionally, other operating systems, such as Windows NT, may
significantly affect deployment of Unix and Linux systems for business critical
applications. A significant portion of our revenue will continue to be derived
from Unix and Linux based computer systems for the foreseeable future. While we
have ported our products to the Windows NT platform, the product requires
customers to control systems management for their heterogeneous environment from
Unix and Linux based systems. A significant decline in sales of Unix and Linux
based systems would decrease the demand for our products and would significantly
harm our business. Finally, we may not be successful in developing and
marketing, on a timely basis, product enhancements or new products that respond
to technological change or evolving industry standards, we may experience
difficulties that could delay or prevent the successful development,
introduction and sale of these products, and any such new products or product
enhancements may not adequately meet the requirements of the marketplace and
achieve market acceptance.
IF THE OPEN SYSTEMS MANAGEMENT MARKET FAILS TO GROW, OUR BUSINESS WOULD BE
SIGNIFICANTLY HARMED
For the foreseeable future, all of our business will be in the open
systems (Linux, Unix and Windows NT) management market, which is still an
emerging market. Our future financial performance will depend in large part on
continued growth in the number of companies adopting systems management
solutions for their client/server computing environments. The market for systems
management solutions may not continue to grow. If the systems management market
fails to grow or grows more slowly than we currently anticipate, or in the event
of a decline in unit price or demand for our products, as a result of
competition, technological change, or other factors, our business would be
significantly harmed. During recent years, segments of the computer industry
have experienced significant economic downturns characterized by decreased
product demand, production overcapacity, price erosion, work slowdowns and
layoffs. Our operations may in the future experience substantial fluctuations
from period-to-period as a consequence of such industry patterns, general
economic conditions affecting the timing of orders from major customers and
other factors affecting capital spending. Such factors may significantly harm
our business.
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<PAGE> 18
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FURTHER SIGNIFICANT LOSSES AND CANNOT
ASSURE YOU THAT WE WILL ACHIEVE PROFITABILITY
We have incurred significant operating losses each of the last five
fiscal years and cannot be certain that we will realize sufficient revenue to
achieve profitability. We expect to continue to incur significant losses for the
foreseeable future and these losses may be higher than our current losses. We
cannot be certain when or if we will achieve profitability. Failure to become
and remain profitable may adversely affect the market price or our common stock
and our ability to raise capital and continue operations. See "Management's
Discussion and Analysis or Plan of Operation."
A SIGNIFICANT PERCENTAGE OF OUR REVENUES IS ATTRIBUTED TO SALES TO ONE OF OUR
CUSTOMERS
Our largest customer accounts for a substantial percentage of our
revenues. During 1999, approximately 60% of our revenues consisted of license
fees received under our OEM relationship with Silicon Graphics to bundle a
subset of features of the EnlightenDSM product with each Unix server and
workstation that SGI ships. License fees from SGI decreased in 1999 when
compared to 1998. If these license fees continue to decline, our revenues and
financial results may be harmed.
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<PAGE> 19
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Enlighten is subject to certain legal actions that have arisen in the
ordinary course of business. Management believes that the ultimate outcome of
these actions will not have a material affect on Enlighten's consolidated
financial statements or results of operations, although there can be no
assurance as to the outcome of such litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.27 Financial Data Schedule
(b) Reports on Form 8-K:
None
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<PAGE> 20
ENLIGHTEN SOFTWARE SOLUTIONS, INC.
FORM 10-QSB, MARCH 31, 2000
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Enlighten Software Solutions, Inc.
DATE: May 12, 2000 SIGNATURE: /s/ Bill Bradley
----------------------------
Bill Bradley
President and
Chief Executive Officer
DATE: May 12, 2000 SIGNATURE: /s/ Stephen E. Giusti
----------------------------
Stephen E. Giusti
Vice President, Finance and
Administration and
Chief Financial Officer
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<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
10.27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-QSB FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 748,500
<SECURITIES> 255,500
<RECEIVABLES> 405,900
<ALLOWANCES> 50,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,567,600
<PP&E> 1,621,000
<DEPRECIATION> 1,259,100
<TOTAL-ASSETS> 2,447,500
<CURRENT-LIABILITIES> 646,100
<BONDS> 0
0
0
<COMMON> 8,511,500
<OTHER-SE> (6,710,100)
<TOTAL-LIABILITY-AND-EQUITY> 2,447,500
<SALES> 436,200
<TOTAL-REVENUES> 436,200
<CGS> 120,800
<TOTAL-COSTS> 120,800
<OTHER-EXPENSES> 1,591,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,258,200)
<INCOME-TAX> 1,300
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,259,500)
<EPS-BASIC> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
