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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended 30 June 2000
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 0-26376
ON TECHNOLOGY CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3162846
-------- ----------
(State of incorporation) (IRS Employer
Identification Number)
Waltham Woods
880 Winter Street, Building 4
Waltham, Massachusetts 02451-1449
(781) 487 - 3300
(Address and telephone of principal executive offices)
-----------
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
14,188,901 shares of the registrant's Common stock, $0.01 par value, were
outstanding as of August 4, 2000.
THIS DOCUMENT CONTAINS 30 PAGES.
----
THE EXHIBIT INDEX IS ON PAGE 30.
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<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
FORM 10-Q, June 30, 2000
CONTENTS
Item Number Page
----------- ----
PART I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Balance sheets:
June 30, 2000 and December 31, 1999 ..................... 3
Statements of operations:
Three and six months ended June 30, 2000 and 1999 ....... 4
Statements of cash flows:
Six months ended June 30, 2000 and 1999 ................. 5
Notes to condensed consolidated financial statements ....... 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 9-24
Item 3. Quantitative and Qualitative Disclosures About Market Risk ...... 25
PART II: OTHER INFORMATION
Item 1. Legal Proceedings ............................................... 26
Item 2. Changes in Securities and Use of Proceeds ....................... 26
Item 3. Defaults Upon Senior Securities ................................. 26
Item 4. Submission of Matters to a Vote of Security Holders ............. 26
Item 5. Other Information ............................................... 27
Item 6. Exhibits and Reports on Form 8-K ................................ 28
SIGNATURES ............................................................... 29
EXHIBIT INDEX ............................................................ 30
2
<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
<TABLE><CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,620 $ 16,941
Accounts receivable, net of allowance for doubtful accounts
and sales returns of $1,023 and $666, respectively 6,547 7,347
Inventories 60 92
Prepaid expenses and other current assets 741 582
-------- --------
Total current assets 19,968 24,962
-------- --------
PROPERTY AND EQUIPMENT, AT COST:
Computers and equipment 5,043 4,561
Furniture and fixtures 773 523
-------- --------
Less - Accumulated depreciation 3,921 3,442
-------- --------
1,895 1,642
-------- --------
Other assets and deposits 295 149
Purchased intangibles, net of $2,034 and $1,999 of
accumulated amortization, respectively -- 35
-------- --------
$ 22,158 $ 26,788
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES:
Accounts payable $ 3,750 $ 4,112
Accrued expenses 2,182 1,655
Due to Meeting Maker, Inc. (MMI) 1,171 --
Reserve for distributor inventories 120 120
Deferred revenue 3,136 3,931
-------- --------
Total current liabilities 10,359 9,818
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock - Authorized 2,000,000 shares Issued - none -- --
Common stock, $.01 par value - Authorized - 30,000,000
shares Issued and outstanding - 14,188,415 shares and
13,848,164 shares, respectively 142 138
Additional paid in capital 75,903 74,596
Accumulated deficit (63,913) (57,694)
Accumulated other comprehensive loss (286) (23)
Treasury stock (15,000 shares at cost) (47) (47)
-------- --------
Total stockholders' equity 11,799 16,970
-------- --------
$ 22,158 $ 26,788
======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
3
<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
<TABLE><CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
-------
Net product revenue $ 3,057 $ 3,908 $ 5,726 $ 8,426
Professional Services Organization (PSO)
and maintenance revenue 1,641 1,441 3,081 2,299
Revenue - Meeting Maker, Inc. (MMI) 1,796 2,050 3,405 3,524
------------ ------------ ------------ ------------
TOTAL REVENUE 6,494 7,399 12,212 14,249
------------ ------------ ------------ ------------
OPERATING EXPENSES:
------------------
Cost of revenue 886 1,133 1,748 2,023
Cost of revenue - MMI 41 151 75 351
Sales and marketing 2,887 3,370 5,640 6,293
Research and development 2,723 2,166 4,934 4,212
General and administrative 1,422 1,124 3,010 2,105
MMI - operating expenses 1,224 672 2,159 1,461
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (2,689) (1,217) (5,354) (2,196)
------------ ------------ ------------ ------------
Interest income, net 150 65 330 120
Other (expense) income (24) 20 (24) 203
------------ ------------ ------------ ------------
LOSS BEFORE ALLOCATION TO MMI
AND PROVISION FOR INCOME TAXES (2,563) (1,132) (5,048) (1,873)
------------ ------------ ------------ ------------
Allocation to MMI (531) -- (1,171) --
------------ ------------ ------------ ------------
LOSS BEFORE PROVISION
FOR INCOME TAXES (3,094) (1,132) (6,219) (1,873)
------------ ------------ ------------ ------------
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
NET LOSS $ (3,094) $ (1,132) $ (6,219) $ (1,873)
============ ============ ============ ============
Basic net loss per share $ (0.22) $ (0.09) $ (0.44) $ (0.15)
============ ============ ============ ============
Diluted net loss per share $ (0.22) $ (0.09) $ (0.44) $ (0.15)
============ ============ ============ ============
Basic shares used in
per share calculation 14,171,799 12,463,022 14,059,282 12,441,958
============ ============ ============ ============
Diluted shares used in
per share calculation 14,171,799 12,463,022 14,059,282 12,441,958
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE><CAPTION>
SIX MONTHS
ENDED JUNE 30,
------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (6,219) $ (1,873)
Adjustments to reconcile net loss
to net cash used in operating activities -
Non-cash compensation expense relating to
stock options and warrants 548 --
Depreciation and amortization 420 810
Changes in assets and liabilities:
Accounts receivable 864 (1,677)
Inventories 32 (17)
Prepaid expenses and other current assets (160) (448)
Accounts payable (687) (165)
Accrued expenses (320) (127)
Due to Meeting Maker, Inc. 1,171 --
Deferred revenue (795) 954
-------- --------
Net cash used in operating activities (5,146) (2,543)
-------- --------
Cash Flows From Investing Activities:
Increase in other assets and deposits (146) --
Purchase of property and equipment (669) (290)
-------- --------
Net cash used in investing activities (815) (290)
-------- --------
Cash Flows From Financing Activities:
Exercise of stock options 626 20
Stock purchased through Employee Stock Purchase Plan 57 66
Principal repayments on obligation under capital lease -- (10)
-------- --------
Net cash provided by financing activities 683 76
-------- --------
Net effect of exchange rates on cash & cash equivalents 957 326
Net decrease in cash and cash equivalents (4,321) (2,431)
Cash and cash equivalents, beginning of period 16,941 8,001
-------- --------
Cash and cash equivalents, end of period $ 12,620 $ 5,570
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for -
Interest paid $ 1 $ 15
======== ========
Income taxes paid $ -- $ --
======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
5
<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q, June 30, 2000
(in thousands, except per share data)
(unaudited)
1. Interim Financial Statements
----------------------------
The accompanying unaudited condensed consolidated financial statements
have been presented by ON Technology Corporation (together with its consolidated
subsidiaries, the "Company") (except for the balance sheet information as of
December 31, 1999) in accordance with generally accepted accounting principles
for interim financial statements and with the instructions to Form 10-Q and
Regulation S-X pertaining to interim financial statements. Accordingly, these
interim financial statements do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. The financial statements reflect all adjustments and accruals which
management considers necessary for a fair presentation of financial position as
of June 30, 2000 and December 31, 1999, and results of operations for the three
and six months ended June 30, 2000 and June 30, 1999. The results for the
interim periods presented are not necessarily indicative of results to be
expected for any future period. The financial statements should be read in
conjunction with the audited financial statements and the notes thereto included
in the Company's Annual Report on Form 10-K.
2. Net Loss per Share
------------------
The Company calculates net loss per share in accordance with Statement of
Financial Accounting Standards No. 128 "SFAS 128", EARNINGS PER SHARE. Basic net
loss per share is calculated by dividing net loss by the weighted average number
of common shares outstanding for the period. For the three and six months ended
June 30, 2000 and 1999, respectively, stock options and warrants have been
excluded from the diluted weighted average shares outstanding calculation, as
their effect would be anti-dilutive.
Basic and diluted net loss per share as required by SFAS 128, are as follows:
<TABLE><CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss $ (3,094) $ (1,132) $ (6,219) $ (1,873)
Basic weighted average shares outstanding 14,172 12,463 14,059 12,442
Weighted average common equivalent shares -- -- -- --
-------- -------- -------- --------
Diluted weighted average shares outstanding 14,172 12,463 14,059 12,442
======== ======== ======== ========
Basic net loss per share $ (0.22) $ (0.09) $ (0.44) $ (0.15)
======== ======== ======== ========
Diluted net loss per share $ (0.22) $ (0.09) $ (0.44) $ (0.15)
======== ======== ======== ========
Anti-dilutive securities, that were not
included in the above table are as follows:
Stock options and warrants 2,568 2,292 2,354 2,297
======== ======== ======== ========
</TABLE>
6
<PAGE>
3. Reporting Comprehensive Income
------------------------------
The Company adopted SFAS 130, "REPORTING COMPREHENSIVE INCOME", effective
January 1, 1998. SFAS 130 establishes standards for reporting and display of
comprehensive income and financial statements. The Company's only item of other
comprehensive income relates to foreign currency translation adjustments, and is
presented separately on the balance sheet as required. If presented on the
statement of operations for the three months ended June 30, 2000 and June 30,
1999, comprehensive loss would be $125 greater and $46 less, respectively, than
reported net loss, due to foreign currency translation adjustments. If presented
on the statement of operations for the six months ended June 30, 2000 and June
30, 1999, comprehensive loss would be $263 greater and $56 less, respectively,
than reported net loss, due to foreign currency translation adjustments.
4. Segment Reporting
-----------------
During the three and six months ended June 30, 2000 and 1999, the Company
had two reportable segments: Desktop Management and Groupware. Management had
organized the segments based on differences in products and services because
each segment required different technology and marketing strategies. The Desktop
Management segment constitutes the ON Command CCM product line, which develops,
markets and supports enterprise desktop management products. The Groupware
segment develops, markets and supports real-time group scheduling products.
The Company evaluates segment performance based on gross margin from
operations and does not capture segment net income (loss) or segment assets.
The following table illustrates segment operating data for the three and six
months ended June 30, 2000 and June 30, 1999, respectively.
THREE MONTHS ENDED, DESKTOP GROUPWARE TOTAL
JUNE 30, 2000 MANAGEMENT
-------------
Net Product Revenue $ 3,057 $ 1,200 $ 4,257
PSO and Maintenance Revenue 1,641 596 2,237
-------- -------- --------
Total Revenue 4,698 1,796 6,494
Cost of Revenue 886 41 927
-------- -------- --------
Gross Margin $ 3,812 $ 1,755 $ 5,567
1999
----
Net Product Revenue $ 3,908 $ 1,586 $ 5,494
PSO and Maintenance Revenue 1,441 464 1,905
-------- -------- --------
Total Revenue 5,349 2,050 7,399
Cost of Revenue 1,133 151 1,284
-------- -------- --------
Gross Margin $ 4,216 $ 1,899 $ 6,115
7
<PAGE>
SIX MONTHS ENDED,
JUNE 30, 2000
-------------
Net Product Revenue $ 5,726 $ 2,227 $ 7,953
PSO and Maintenance Revenue 3,081 1,178 4,259
-------- -------- --------
Total Revenue 8,807 3,405 12,212
Cost of Revenue 1,748 75 1,823
-------- -------- --------
Gross Margin $ 7,059 $ 3,330 $ 10,389
1999
----
Net Product Revenue $ 8,426 $ 2,658 $ 11,084
PSO and Maintenance Revenue 2,299 866 3,165
-------- -------- --------
Total Revenue 10,725 3,524 14,249
Cost of Revenue 2,023 351 2,374
-------- -------- --------
Gross Margin $ 8,702 $ 3,173 $ 11,875
See Note 5 for discussion of the disposition of the Groupware Segment.
5. Disposition of Meeting Maker Business
-------------------------------------
On January 3, 2000 the Company signed an asset purchase agreement with a
newly organized privately held company named Meeting Maker, Inc. to sell the
Company's Groupware business (Meeting Maker) subject to the approval of the
Company's stockholders and certain other conditions. Under the asset purchase
agreement, the Company agreed to sell to Meeting Maker, Inc.(MMI) the Company's
Groupware business (Meeting Maker), including all of the Company's interest in
our real-time group scheduling software (Meeting Maker product), for a purchase
price of $1,000,000 plus MMI's assumption of approximately $900,000 in
liabilities. The Company also agreed to guarantee the receipt of $600,000 of
accounts receivable relating to the Meeting Maker business. In connection with
the sale, the Company would also receive a warrant which entitles the Company to
purchase up to 4.9% of the outstanding common stock of Meeting Maker, Inc. The
Company prepared and filed a Proxy Statement for a Special Meeting of the
Shareholders to seek approval of this proposed sale. The Special Meeting of
Stockholders was held on April 28, 2000, at which time the meeting was adjourned
until Friday, May 26, 2000 to allow the Company additional time to gather the
necessary Shareholder votes to approve the Meeting Maker transaction. The
Company did not receive the required number of shareholder votes to approve the
Meeting Maker transaction at the May 26, 2000 meeting. As a result, the Company
entered into a license agreement with Meeting Maker, Inc., effective as of June
30, 2000 which, among other things, terminated the previously executed asset
purchase agreement and provided for the grant of an exclusive, worldwide license
to market and distribute the Meeting Maker product (including a license to the
underlying source and object code), with the potential for automatic one-year
renewals of such license and the assumption of certain liabilities. The
exclusive license is subject to the payment of minimum license fees from Meeting
Maker, Inc. To the extent that certain of these fees are not paid but the
minimum fees due are paid, the license shall continue on a non-exclusive basis.
As a result of the January 3, 2000 management agreement with Meeting Maker,
Inc., in which the Company transferred effective control of the Groupware
business (Meeting Maker) to Meeting Maker, Inc., and the execution of the
aforementioned license agreement, the Company has had no risk of ownership
related to the operating results from the Groupware business since January 3,
2000, thus 100% of the net income (loss) from the Groupware business since
January 3, 2000 has been allocated to Meeting Maker, Inc.
6. Line of Credit
--------------
At March 31, 2000, the Company was out of compliance with certain
covenants under its line of credit agreement with a commercial bank. Subsequent
to March 31, 2000, the bank informed the Company that the bank would not issue a
waiver of non-compliance with respect to the covenant violations and therefore,
the bank has terminated the line of credit agreement. The Company has two
outstanding letters of credit totaling approximately $2 million that were
secured by the line of credit agreement. Due to the termination of the line of
credit agreement, the Company agreed to maintain minimum cash balances with the
commercial bank to cover the outstanding letters of credit. The Company is
currently in negotiations with a different financial institution to transfer its
banking relationship and obtain a new line of credit.
7. Reclassifications
-----------------
Certain amounts from prior periods have been reclassified to conform with
the current period's presentation.
8
<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis of Financial Condition
and Results of Operations
FORM 10-Q, June 30, 2000
(unaudited)
OVERVIEW
ON Technology Corporation and Subsidiaries (the "Company") provide
enterprise desktop management software for heterogeneous enterprise networks
that is open, scalable, and easy to use and administer. The Company's principle
product, ON Command CCM, or CCM, is designed to address the enterprise desktop
management requirements of large organizations. This product is an advanced
system for managing and controlling PC software across corporate networks and
the internet. It also provides a single, integrated system for managing desktop
and mobile PCs from a centralized server. ON Command CCM can be deployed across
most major hardware platforms and network operating systems and protocols.
On December 30, 1999, the Company announced that it had completed a $12
million private placement of common stock and warrants to two institutional
investors. Each investor purchased 514,837 shares of common stock at a price of
$11.65 per share and received warrants to purchase 257,419 shares of common
stock at an exercise price of $15.15 per share. The number of shares of common
stock issuable upon exercise of these warrants and the exercise price for such
warrants is subject to adjustment in the event that the average closing bid
price per share of common stock for the fifteen trading days preceding December
29, 2000 is below $15.15 per share. The investors also received additional
warrants exercisable upon the occurrence of certain specified events.
Until January 3, 2000, the Company also marketed the Meeting Maker group
scheduling software. Meeting Maker was part of the Company's Groupware business
which remained after the sale of the Company's Network Security and Management
Business to Elron Software, Inc. in 1998. Soon after that sale, the Company
announced that it would de-emphasize its investment in new customer acquisitions
for Meeting Maker its concentrate our efforts on ON Command CCM and related
product and business development activities. On January 6, 2000 the Company
signed an asset purchase agreement with a newly organized privately held company
named Meeting Maker, Inc.(MMI) to sell the Company's Groupware business (Meeting
Maker) subject to the approval of the Company's stockholders and certain other
conditions. Under the asset purchase agreement, the Company agreed to sell to
Meeting Maker, Inc. the Company's Groupware business (Meeting Maker), including
all of the Company's interest in our real-time group scheduling software
(Meeting Maker product), for a purchase price of $1,000,000 plus MMI's
assumption of approximately $900,000 in liabilities. The Company also agreed to
guarantee the receipt of $600,000 of accounts receivable relating to the Meeting
Maker business. In connection with the sale, the Company would also receive a
warrant which entitled the Company to purchase up to 4.9% of the outstanding
common stock of Meeting Maker, Inc. The Company prepared and filed a Proxy
Statement for a Special Meeting of the Shareholders to seek approval of this
proposed sale. The Special Meeting of Stockholders was held on April 28, 2000,
at which time the meeting was adjourned until Friday, May 26, 2000 to allow the
Company additional time to gather the necessary Shareholder votes to approve the
Meeting Maker transaction. The Company did not receive the required number of
shareholder votes to approve the Meeting Maker transaction at the May 26, 2000
meeting. As a result, the Company entered into a license agreement with Meeting
Maker, Inc. effective as of June 30, 2000 which, among other things, terminated
the previously negotiated sale arrangement and provided for the grant of an
exclusive worldwide license to market and distribute the Meeting Maker product
(including a license to the underlying source code and object code), with the
potential for automatic one-year renewals of such license and the assumption of
certain liabilities. The exclusive license is subject to the payment of minimum
license fees from Meeting Maker, Inc. to the Company. To the extent that certain
of these fees are not paid but the minimum fees due are paid, the license shall
continue on a non-exclusive basis. As a result of the January 3, 2000 management
agreement with Meeting Maker, Inc., in which the Company transferred effective
control of the Groupware business (Meeting Maker) to Meeting Maker, Inc. and the
execution of the aforementioned license agreement, and has had no risk of
ownership related to the operating results from the Groupware business since
January 3, 2000, thus, 100% of the net income (loss) has been allocated to
Meeting Maker, Inc. 9
<PAGE>
The Company does not provide forecasts of the future financial performance
of the Company. From time to time, however, the information provided by the
Company or statements made by its employees may contain forward-looking
statements. In particular, statements contained in this Form 10-Q that are not
historical statements (including, but not limited to, statements concerning
estimates of future revenues, operating expense levels and such operating
expense levels relative to the Company's total revenues) constitute
forward-looking statements under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. See "Certain Factors That May Affect
Future Results."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data as percentages of the Company's total revenue:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- -------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
-------- -------- -------- --------
Revenue:
Net product revenue 47.0% 52.8% 46.9% 59.2%
PSO and maintenance revenue 25.3% 19.5% 25.2% 16.1%
Revenue - MMI 27.7% 27.7% 27.9% 24.7%
-------- -------- -------- --------
Total revenue 100.0% 100.0% 100.0% 100.0%
-------- -------- -------- --------
Operating expenses:
Cost of revenue 13.6% 15.3% 14.3% 14.2%
Cost of revenue - MMI 0.6% 2.1% 0.6% 2.5%
Sales and marketing 44.5% 45.5% 46.2% 44.1%
Research and development 41.9% 29.3% 40.4% 29.6%
General and administrative 21.9% 15.2% 24.6% 14.8%
MMI Operating Expense 18.9% 9.1% 17.7% 10.2%
-------- -------- -------- --------
Loss from operations (41.4)% (16.5)% (43.8)% (15.4)%
Interest income, net 2.3% 0.9% 2.7% 0.9%
Other (expense) income (0.4)% 0.3% (0.2)% 1.4%
-------- -------- -------- --------
Loss before allocation to MMI
and provision for income taxes (39.5)% (15.3)% (41.3)% (13.1)%
-------- -------- -------- --------
Allocation to MMI (8.1)% -- (9.6)% --
-------- -------- -------- --------
Loss before provision for income
taxes (47.6)% (15.3)% (50.9)% (13.1)%
-------- -------- -------- --------
Provision for income taxes -- -- -- --
-------- -------- -------- --------
Net loss (47.6)% (15.3)% (50.9)% (13.1)%
======== ======== ======== ========
NET PRODUCT REVENUE. The Company's net product revenue is derived
primarily from the licensing of ON Command CCM software products. For the three
and six months ended June 30, net product revenue decreased $851 thousand
(21.8%) and $2.7 million (32%), respectively, from 1999 to 2000. The decrease in
revenues associated with the Company's Desktop Management software business was
primarily due to an increased emphasis in attracting larger enterprise
customers, computer OEMs, service providers and value added resellers as well as
a general slowdown in the enterprise software marketplace.
PSO AND MAINTENANCE REVENUE. The Company's PSO and maintenance revenue
primarily consists of maintenance, training and professional services revenue
associated with the ON Command CCM products. For the three and six months ended
June 30, other revenue increased $200 thousand (13.9%) and $782 thousand
(34.0%), respectively, from 1999 to 2000. The increase is attributed to new and
renewal maintenance sales and professional service fees associated with the
sales of the Company's desktop management software business.
10
<PAGE>
REVENUE - MMI. The Meeting Maker revenue is derived primarily from the
licensing of the Meeting Maker software product and the associated maintenance
revenue. For the three and six months ended June 30, revenue attributable to the
Meeting Maker business decreased $254 thousand (12.4%) and $119 thousand (3.4%),
respectively, from 1999 to 2000. The marginal decrease in the MMI software
business was attributed to the maturing nature of the Meeting Maker product,
which was partially offset by new and renewal maintenance sales.
COST OF REVENUE. Cost of revenue primarily consists of expenses associated
with product documentation, production, fulfillment and professional services
costs and royalty fees associated with products that are licensed from third
party developers. In addition, cost of revenue includes the amortization of
purchased intangibles. For the three and six months ended June 30, cost of
revenue decreased $247 thousand (21.8%) and $275 thousand (13.6%), respectively,
from 1999 to 2000. This decrease was primarily the result of decreased product
revenue and the completion of the intangible amortization during the first three
months of 2000.
COST OF REVENUE - MMI. Cost of revenue primarily consists of expenses
associated with product documentation, production and fulfillment costs. For the
three and six months ended June 30, cost of revenue decreased $110 thousand
(72.8%) and $276 thousand (78.6%), respectively, from 1999 to 2000. This
decrease was primarily the result of efforts to reduce product production costs
related to the Meeting Maker product.
SALES AND MARKETING EXPENSE. Sales and marketing expense primarily
consists of compensation and benefits paid to sales and marketing personnel.
Sales and marketing expense also includes the costs associated with public
relations, trade shows and conferences, and the telephone and information
technology costs associated with sales activities. For the three and six months
ended June 30, sales and marketing expenses decreased $483 thousand (14.3%) and
$653 thousand (10.4%), respectively, from 1999 to 2000. The decrease is due
primarily to reduced commissions, which are a direct result from lower revenues
during the year, as well as the reclassification of expenses related to the
Meeting Maker product. This decrease was slightly offset by the recording of a
non-cash compensation charge of approximately $75 thousand during the six months
ended June 30, 2000.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
includes costs associated with the development of new products, the enhancement
of existing products, and the provision of pre-sales technical support. For the
three and six months ended June 30, research and development expense increased
$557 thousand (25.7%) and $722 thousand (17.1%), respectively, from 1999 to
2000. The increase is primarily due to additional investments, both human and
mechanical, in the Company's desktop management software business. The Company
plans to continue to make significant investments in research and development
related to the Company's desktop management software business. Research and
development expenses for the three and six months ended June 30, 2000 also
include non-cash compensation charges totaling approximately $24 thousand
recorded during the second quarter of 2000.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
includes executive compensation, executive support costs, accounting operations,
planning, and business development operations. For the three and six months
ended June 30, general and administrative expense increased $298 thousand
(26.5%) and $905 thousand, respectively, from 1999 to 2000. The increase is
primarily due to non-cash compensation charges totaling approximately $66
thousand and $453 thousand for the three and six months ended June 30, 2000,
respectively. Increased consulting and legal fees were also recorded in the
first six months of 2000.
MMI OPERATING EXPENSE. MMI operating expense includes sales and marketing,
research and development and general and administrative expenses as defined
above, directly associated with the Meeting Maker product. For the three and six
months ended June 30, MMI operating expense increased $552 thousand (82.1%) and
$698 thousand (47.8%), respectively, from 1999 to 2000. The increase is
primarily due to new operational investments made by Meeting Maker, Inc. into
the Meeting Maker business including additional personnel.
INTEREST INCOME, NET. Interest income consists primarily of interest
income earned on cash and cash equivalents. For the three and six months ended
June 30, interest income increased $85 thousand (130.8%) and $210 thousand
(175.0%), respectively, from 1999 to 2000. The increase is due primarily to a
higher cash balance available for investment as a result of additional funds
received in December 1999 from the Company's private placement.
OTHER INCOME (EXPENSE). Other income (expense) for the three and six
months ended June 30, 1999 of $20 thousand and $203 thousand resulted from an
insurance receivable. Other expense of $(24) thousand for the three and six
months ended June 30, 2000 resulted from currency translation adjustments.
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ALLOCATION TO MMI. Under the terms of the asset purchase agreement, as
amended, described above, the Company will continue to reflect the financial
position and results of operations of Meeting Maker, Inc. in the Balance Sheet
and Statement of Operations. In addition, as a result of the management
agreement with Meeting Maker, Inc., 100% of the net income (loss) during the
period from entering into the management agreement until a transaction is closed
will be allocated to Meeting Maker, Inc.
INCOME TAXES. There were no tax provisions for the three and six months
ended June 30, 1999 and 2000 due to an operating loss during each period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through private
and public placements of capital stock and the net proceeds received from the
sale of the Company's Network Security and Management business to Elron in 1998.
At June 30, 1999 and 2000, the Company had available cash and cash equivalents
of $5.6 million and $12.6 million, respectively. As of June 30, 2000, the
Company has a $1.0 million letter of credit guarantee outstanding for a
subsidiary against a line of credit with a foreign bank and a $1.0 million
letter of credit guarantee outstanding securing the lease for the Company's
Waltham facility. On March 31, 2000, the Company was out of compliance with
certain covenants under its line of credit agreement with a commercial bank.
Subsequent to March 31, 2000, the bank informed the Company that they would not
issue a waiver of non-compliance with respect to the covenant violations and
therefore, has terminated the line of credit agreement. The Company has two
outstanding letters of credit totalling approximately $2 million that were
secured by the line of credit agreement. Due to the termination of the line of
credit agreement, the Company agreed to maintain minimum cash balances with the
commercial bank to cover the outstanding letters of credit. The Company is
currently in negotiations with a different financial institution to transfer its
banking relationship and obtain a new line of credit agreement.
Net cash used in operating activities for the six months ended June 30,
1999 and June 30, 2000, was $2.5 million and $5.1 million, respectively. For the
six months ended June 30, 1999, net cash used in operating activities consisted
primarily of a net loss of $1.9 million coupled with a net change in operating
assets and liabilities of $(2.4) million offset by depreciation and amortization
$810 thousand and deferred revenue of $954 thousand. For the six months ended
June 30, 2000, net cash used in operating activities consisted primarily of a
net loss of $6.2 million which was offset with a net change in operating assets
and liabilities of $(1.1) million, depreciation and amortization charges of $420
thousand, amortization of deferred compensation charges of $(548) thousand and
the $1.2 million promissory note payable to Meeting Maker, Inc. (MMI).
Net cash used in investing activities for the three months ended June 30,
1999 and June 30, 2000 was $68 thousand and $815 thousand, respectively. For the
six months ended June 30, 1999 cash used in investing activities consisted of
the purchases of property and equipment of $290 thousand. For the six months
ended June 30, 2000 cash used in investing activities consisted of the purchases
of property and equipment of $669 thousand and deposits on certain leases with
greater than one-year terms of $146 thousand
Net cash provided by financing activities for the six months ended June
30, 1999 and June 30, 2000 was $76 thousand and $683 thousand, respectively. For
the six months ended June 30, 1999 cash provided by financing activities
consisted of the exercises of stock options and stock purchases through the ESPP
of $86 thousand offset by the remaining principal repayments on obligations
under capital lease of $10 thousand. For the six months ended June 30, 2000,
cash provided by financing activities consisted of exercises of stock options of
$626 thousand and stock purchases through the ESPP of $57 thousand.
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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
SOME STATEMENTS CONTAINED IN THIS FORM 10-Q THAT ARE NOT HISTORICAL
STATEMENTS (INCLUDING BUT NOT LIMITED TO, STATEMENTS CONCERNING ESTIMATES OF
FUTURE REVENUES, OPERATING EXPENSE LEVELS AND SUCH OPERATING EXPENSE LEVELS
RELATIVE TO THE COMPANY'S TOTAL REVENUES) CONSTITUTE FORWARD-LOOKING STATEMENTS
UNDER THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. THE FOLLOWING RISK FACTORS, AMONG OTHER FACTORS (INCLUDING THE ACCURACY
OF THE COMPANY'S INTERNAL ESTIMATES OF REVENUE AND OPERATING EXPENSE LEVEL AND
OTHER RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION), MAY CAUSE THE COMPANY'S ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THE RESULTS STATED IN SUCH FORWARD LOOKING STATEMENTS.
THE GRANT OF THE LICENSE TO THE MEETING MAKER SOFTWARE TO MEETING MAKER, INC.
WILL ELIMINATE A HISTORICALLY SIGNIFICANT SOURCE OF THE COMPANY'S CASH FLOW AND
MAY RESULT IN CASH FLOW DEFICITS.
For the fiscal years ended December 31, 1998 and 1999, respectively,
Meeting Maker produced approximately $7,530,000 and $7,361,000 in revenues,
$3,882,000 and $4,304,000 in operating profits, and significant cash flow. For
the six months ended June 30, 1999 and 2000, respectively, Meeting Maker
produced approximately $3,524,000 and $3,405,000 in revenues and approximately
$1,712,000 and $1,171,000 in operating profits, and significant cash flow. These
results positively impacted the Company's overall financial performance. In
addition, the cash flow generated by the Meeting Maker business was available to
support the activities of the CCM business which, historically, has been
unprofitable and had negative cash flow. For the fiscal years ended December 31,
1998 and December 31, 1999, respectively, the remaining businesses had operating
losses of approximately $4,415,000 and $6,672,000, producing significant
negative cash flow. For the six months ended June 30, 1999 and 2000,
respectively, the remaining businesses had operating losses of approximately
$3,908,000 and $6,525,000, producing significant negative cash flow. Management
believes that, in the absence of substantial investment, for fiscal 2000 and
thereafter Meeting Maker's operating profits and positive cash flow would
substantially diminish, if not disappear in their entirety. In contrast,
management believes that the CCM business will achieve operating profits and
positive cash flow at some time during fiscal 2000 and beyond. These
expectations form the basis of management's decision to divest the Meeting Maker
business by means of an exclusive license to such software to Meeting Maker,
Inc. If these expectations turn out to be incorrect, especially insofar as CCM
is concerned, the Company may experience substantial cash flow deficits.
OUR CCM PRODUCT MARKETING STRATEGY DIFFERS FROM OUR PREVIOUS MARKETING STRATEGY
The target market for CCM is entirely different from the target market for
the Groupware products we had marketed and sold through our Free Trial Marketing
system prior to 1998. The target market for CCM consists primarily of large
corporations such as Deutsche Telekom, MCI Worldcom and AutoNation (all existing
CCM customers). CCM product sales per customer are generally in the range of
$20,000 to $500,000, as opposed to an average sale per customer for our
Groupware products of approximately $2,500. Sales of CCM products pose
significantly greater financial risks, and require greater up-front investments
in marketing, technical and financial resources, than sales of our historical
products. As a result, we have adopted a marketing strategy using a direct sales
force and in-field service organization. This strategy requires significant
investments in additional marketing and technical personnel, retraining of
existing personnel, ongoing product development and creation of an in-field
service organization. We have developed valuable marketing and service
experience and expertise in Europe and, recently, in the United States. However,
there can be no assurance that we will be able to continue to expand and apply
such experience and expertise to the CCM market.
For the twelve months ended December 31, 1998, one customer accounted for
$3.5 million, or 18% of net revenue from the Company's current products. For the
twelve months ended December 31, 1999, two customers accounted for $7.6 million,
or 24.5% of net revenue. For the six months ended June 30, 1999, two customers
accounted for $4.4 million, or 30.8% of net revenue. For the six months ended
June 30, 2000, one customer accounted for $1.7 million, or 14% of net revenue.
It is possible that the Company's change in marketing strategy will result in
other customers accounting for more than 10% of the Company's net revenues.
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WE WILL NEED TO EXPAND OUR DISTRIBUTION CHANNELS IN ORDER TO DEVELOP OUR
BUSINESS AND INCREASE REVENUE
We sell our products through our direct sales force and a limited number
of distributors, and we provide maintenance and support services through our
technical and customer support staff. We plan to continue to invest large
amounts of resources in our direct sales force, particularly in North America.
In addition, we are developing additional sales and marketing channels through
value added resellers, system integrators, original equipment manufacturers and
other channel partners. We may not be able to attract channel partners that will
be able to market our products effectively, or that will be qualified to provide
timely and cost-effective customer support and service. If we establish
distribution through such indirect channels, our agreements with channel
partners may not be exclusive. As a result, such channel partners may also carry
competing product lines. If we do not establish and maintain such distribution
relationships, this could materially adversely affect our business, operating
results, and financial condition.
IF THE MARKET FOR OUR ENTERPRISE DESKTOP MANAGEMENT SOFTWARE SOLUTIONS DOES NOT
CONTINUE TO DEVELOP AS WE ANTICIPATE, OUR ABILITY TO GROW OUR BUSINESS AND SELL
OUR PRODUCTS WILL BE ADVERSELY AFFECTED
In recent years, the market for enterprise software solutions has been
characterized by rapid technological change, frequent new product announcements
and introductions, and evolving industry standards. In response to advances in
technology, customer requirements have become increasingly complex, resulting in
industry consolidation of product lines offering similar or related
functionality. In particular, we believe that a market exists for integrated
enterprise-wide infrastructure management solutions. However, the existence of
such a market is unproven. If such a market does not fully develop, this could
have a materially adverse effect on our business, results of operations, and
financial condition. Regardless of the development of a market for integrated
infrastructure management solutions, factors adversely affecting the pricing of,
demand for, or market acceptance of our enterprise desktop management
applications could have a material adverse effect on our business, results of
operations, and financial condition.
IF WE DO NOT RESPOND ADEQUATELY TO OUR INDUSTRY'S EVOLVING TECHNOLOGY STANDARDS,
OR DO NOT CONTINUE TO MEET THE SOPHISTICATED NEEDS OF OUR CUSTOMERS, SALES OF
OUR PRODUCTS MAY DECLINE
As a result of rapid technological change in our industry, our position in
existing markets or other markets that we may enter can be eroded rapidly by
product advances. The life cycles of our products are difficult to estimate. Our
growth and future financial performance depend in part upon our ability to
improve existing products and develop and introduce new products that keep pace
with technological advances, meet changing customer needs, and respond to
competitive products. Our product development efforts will continue to require
substantial investments. We may not have sufficient resources to make the
necessary investments.
THE TECHNOLOGICAL REQUIREMENTS OF THE CCM PRODUCTS MAY PRESENT ADDITIONAL
CHALLENGES IN PRODUCT DEVELOPMENT WHICH, IF WE CANNOT MEET, MAY HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS
The technological demands of the CCM products require a commitment of
significant ongoing financial, technical and personnel resources to product
development, training of service technicians and customer training. Because our
historical products were not as technologically sophisticated as CCM, we have
not to date made all of the required investment and have not proven that we can
develop and maintain the organization required to support such products. We
believe that our experience with CCM to date will provide a valuable base on
which to build the necessary financial, technical and personnel resources to
continue to sell, market, develop and support the CCM products. However, there
can be no assurance that we will be able to expand and develop our resources to
support CCM products.
CCM is typically larger and more complex than the products that we have
previously developed. Our ability to continue to enhance CCM to meet customer
and market requirements will depend substantially on our ability to effectively
manage this development effort, to attract and retain the required development
personnel in Waltham, Massachusetts and Starnberg, Germany and to coordinate and
manage geographically remote development efforts.
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We have experienced product development delays in the past and may
experience delays in the future. Difficulties in product development could delay
or prevent the successful introduction or marketing of new or improved products.
Any such new or improved products may not achieve market acceptance. Our current
or future products may not conform to industry requirements. If, for
technological or other reasons, we are unable to develop and introduce new and
improved products in a timely manner, our business, operating results, and
financial condition could be adversely affected.
ERRORS IN OUR PRODUCTS COULD RESULT IN SIGNIFICANT COSTS TO US AND COULD IMPAIR
OUR ABILITY TO SELL OUR PRODUCTS
Because our software products are complex, these products may contain
errors that could be detected at any point in a product's life cycle. In the
past, we have discovered software errors in certain of our products and have
experienced delays in shipment of our products during the period required to
correct these errors. Despite testing by ON and by current and potential
customers, errors in our products may be found in the future. Detection of such
errors may result in, among other things, loss of, or delay in, market
acceptance and sales of our products, diversion of development resources, injury
to our reputation, or increased service and warranty costs. If any of these
results were to occur, our business, operating results and financial condition
could be materially adversely affected.
IN THE FUTURE, INCLUSION OF FUNCTIONS PROVIDED BY CCM IN SYSTEM SOFTWARE AND
APPLICATION SUITES MAY AFFECT OUR COMPETITIVE POSITION
In the future, vendors of operating system software and applications sold
for a single price (generally referred to as application suites) may continue to
enhance their products to include functions that are currently provided by CCM.
In addition, some vendors may bundle these products in their existing
application suites at no additional charge. The widespread inclusion of the
functions provided by our products as standard features of operating system
software could render our products obsolete and unmarketable particularly if the
quality of such functions were comparable to the functions offered by our
products. Furthermore, even if the software functions provided as standard
features by operating systems are more limited than those of our products, there
is no assurance that a significant number of customers would not elect to accept
such functions instead of purchasing additional software. If we were unable to
develop new CCM software products to further enhance operating systems and to
successfully replace any obsolete products, our business, financial condition,
prospects and results of operations would be materially and adversely affected.
NEW PRODUCT INTRODUCTIONS AND THE ENHANCEMENT OF EXISTING PRODUCTS BY OUR
COMPETITORS COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS
The market for our products is highly competitive and diverse. The
technology for enterprise desktop management software products can change
rapidly. New products are frequently introduced and existing products are
continually enhanced. Competitors vary in size and in the scope and breadth of
the products and services offered.
We face competition from a number of sources, including:
o large and established companies such as Microsoft, Computer Associates and
IBM/Tivoli which offer client management capabilities as part of their
systems, network or desktop management systems;
o software companies and others who provide application suites such as Intel
and Network Associates, whose products include client management
applications;
o information technology and systems management companies such as IBM,
Computer Associates International, and Hewlett-Packard Company; and
o the internal information technology departments of those companies with
infrastructure management needs.
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In addition, Microsoft has announced the Zero Administration Initiative
for Windows ("ZAW"), which includes a set of technologies that address some of
the same client management issues as CCM. Microsoft has described components of
ZAW as being available for the Windows 2000 operating system, as well as the
Microsoft Systems Management Server.
Some of our current and many of our potential competitors have much
greater financial, technical, marketing, and other resources than ON has. As a
result, they may be able to respond more quickly to new or emerging technologies
and changes in customer needs. They may also be able to devote greater resources
to the development, promotion, and sale of their products than we can. We may
not be able to compete successfully against current and future competitors. In
addition, competitive pressures faced by ON may materially adversely affect our
business, operating results, and financial condition.
NEW COMPETITORS AND ALLIANCES AMONG EXISTING COMPETITORS COULD IMPAIR OUR
ABILITY TO RETAIN AND EXPAND OUR MARKET SHARE
Because competitors can easily penetrate the software market, we
anticipate additional competition from other established and new companies as
the market for enterprise desktop management applications develops. In addition,
current and potential competitors have established or may in the future
establish cooperative relationships among themselves or with third parties.
Large software companies may acquire or establish alliances with our smaller
competitors. We expect that the software industry will continue to consolidate.
It is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share.
SYSTEM MANAGEMENT COMPANIES MAY ACQUIRE ENTERPRISE DESKTOP MANAGEMENT PROVIDERS
AND CLOSE THEIR SYSTEMS TO OUR PRODUCTS, WHICH COULD HURT OUR ABILITY TO SELL
OUR PRODUCTS
Our ability to sell our products depends in part on their compatibility
with and support by providers of system management products, including Tivoli,
Computer Associates, and Hewlett-Packard. Both Tivoli and Hewlett-Packard have
recently acquired providers of help desk software products. These providers of
system management products may decide to close their systems to competing
vendors like us. They may also decide to bundle their infrastructure management
and/or help-desk software products with other products for enterprise licenses
for promotional purposes or as part of a long-term pricing strategy. If that
were to happen, our ability to sell our products could be adversely affected.
Increased competition may result from acquisitions of help desk and other
infrastructure management software vendors by system management companies. The
results of increased competition, including price reductions of our products,
reduced gross margins, and reduction of market share, could materially adversely
affect our business, operating results, and financial condition.
DUE TO THE TECHNOLOGICAL CHALLENGES ASSOCIATED WITH CCM, WE MAY NOT HAVE THE
FINANCIAL RESOURCES NECESSARY TO CONDUCT THE BUSINESS AS PRESENTLY CONTEMPLATED
Our product development, marketing and sales costs for the CCM products
are approximately $700,000 to $1,500,000 per month. We believe that we have
enough cash from operations to fund these costs through December 31, 2000. There
can be no assurance that our estimate of the marketing, sales and product
development costs of the CCM products is correct, or that these costs will not
exceed our available financial resources, or that we will be locate additional
sources of financing, if and when needed.
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OUR INCREASING RELIANCE ON INTERNATIONAL REVENUE COULD ADVERSELY AFFECT OUR
OPERATING RESULTS
In and fiscal 1999, total revenue from international licenses (license
revenue from outside the United States) represented approximately 54% of our
total revenue. For the fiscal year 2000 and thereafter, we expect that
international revenue may constitute a significantly greater portion of our
total revenue. In the six months ended June 30, 1999 and 2000, total revenues
from international licenses represented approximately 31% and 39%, respectively
of our total CCM revenue. Accordingly, a greater percentage of our total revenue
may be subject to the risks inherent in international sales, including the
impact of fluctuating exchange rates on demand for its products, longer payment
cycles, greater difficulty in protecting intellectual property, greater
difficulty in accounts receivable collection, unexpected changes in legal and
regulatory requirements, seasonality due to the slowdown of European business
activity in the third quarter and tariffs and other trade barriers. There can be
no assurance that these factors will not have a materially adverse effect on our
future international license revenue.
Our continued growth and profitability will require continued expansion of
our international operations, particularly in Europe, Latin America, and the
Pacific Rim. Accordingly, we intend to expand our current international
operations and enter additional international markets. Such expansion will
require significant management attention and financial resources. We have only
limited experience in developing local-language versions of our products and
marketing and distributing our products internationally. We may not be able to
successfully translate, market, sell and deliver our products internationally.
If we are unable to expand our international operations successfully and in a
timely manner, our business, operating results, and financial condition could be
adversely affected.
AS OUR EXPANDING INTERNATIONAL OPERATIONS IN EUROPE AND ELSEWHERE ARE
INCREASINGLY CONDUCTED IN CURRENCIES OTHER THAN THE U.S. DOLLAR, FLUCTUATIONS IN
THE VALUE OF FOREIGN CURRENCIES COULD RESULT IN CURRENCY EXCHANGE LOSSES
A large portion of our business is conducted in foreign currencies.
Fluctuations in the value of foreign currencies relative to the U.S. dollar have
caused and will continue to cause currency transaction gains and losses. We
cannot predict the effect of exchange rate fluctuations upon future operating
results. We may experience currency losses in the future. We may implement a
foreign exchange hedging program, consisting principally of purchases of one
month forward-rate currency contracts. However, our hedging activities may not
adequately protect us against the risks associated with foreign currency
fluctuations.
On January 1, 1999, certain member states of the European Economic
Community, the EEC, fixed their respective currencies to a new currency, the
euro. On that date, the euro became a functional legal currency within these
countries. During the three years beginning on January 1, 1999, business in
these EEC member states will be conducted in both the existing national
currencies, such as the French franc or deutsche mark, and the euro. Companies
operating in or conducting business in EEC member states will need to ensure
that their financial and other software systems are capable of processing
transactions and properly handling the existing currencies, as well as the euro.
We are still assessing the impact that the euro will have on our internal
systems and our products. We will take corrective actions based on the results
of such assessment. We have not yet determined the costs related to this
problem. Issues related to the introduction of the euro may materially adversely
affect our business, operating results, and financial condition.
WE HAVE A HISTORY OF LOSSES, WE CANNOT PREDICT OUR FUTURE OPERATING RESULTS AND
WE CANNOT ASSURE OUR CONTINUED PROFITABILITY
Through June 30, 2000, we have recorded cumulative net losses of
approximately $63.9 million. In addition, our products and marketing strategy
have changed substantially since the mid-1990s. We have acquired or developed a
significant number of products in the last five years. As a result, prediction
of our future operating results is difficult, if not impossible. There can be no
assurance that we will become or remain profitable on a quarterly or annual
basis. In addition, we do not believe that the growth in revenues we have
experienced in recent years is necessarily indicative of future revenue growth
or future operating results.
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FUTURE FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS DUE TO A NUMBER OF
FACTORS, MANY OF WHICH ARE BEYOND OUR CONTROL, COULD ADVERSELY AFFECT OUR STOCK
PRICE
Our quarterly operating results have varied significantly in the past and
may vary significantly in the future depending upon a number of factors, many of
which are beyond our control. These factors include, among others:
o our ability to develop, introduce and market new and enhanced versions of
our software on a timely basis;
o market demand for our software; the size, timing and contractual terms of
significant orders;
o the timing and significance of new software product announcements or
releases by ON or our competitors; changes in our pricing policies or our
competitors;
o changes in our business strategies; budgeting cycles of our potential
customers;
o changes in the mix of software products and services sold;
o reliance on indirect sales forces like systems integrators and channels;
o changes in the mix of revenues attributable to domestic and international
sales; and
o the impact of acquisitions of competitors; seasonal trends; the
cancellations of licenses or maintenance agreements; product life cycles;
software defects and other product quality problems; and personnel
changes.
We have often recognized a substantial portion of our revenues in the last
month or weeks of a quarter. As a result, license revenues in any quarter are
substantially dependent on orders booked and shipped in the last month or weeks
of that quarter. Due to the foregoing factors, quarterly revenues and operating
results are not predictable with any significant degree of accuracy. In
particular, the timing of revenue recognition can be affected by many factors,
including the timing of contract execution and delivery. The timing between
initial customer contact and fulfillment of criteria for revenue recognition can
be lengthy and unpredictable, and revenues in any given quarter can be adversely
affected as a result of such unpredictability. In the event of any downturn in
potential customers' businesses or the economy in general, planned purchases of
our products may be deferred or canceled, which could have a material adverse
effect on our business, operating results and financial condition.
OUR CONCENTRATION ON THE CCM BUSINESS REPRESENTS A NEW DIRECTION FOR OUR
BUSINESS AND PROBLEMS WITH THE IMPLEMENTATION OF THIS STRATEGY MAY ADVERSELY
AFFECT OUR BUSINESS
On January 6, 2000, we entered into an agreement to sell our Groupware
business to Meeting Maker, Inc. The agreement was subsequently terminated and we
entered into an exclusive licensing agreement with Meeting Maker, Inc. relating
to our Groupware products. These actions were designed to focus us on CCM and
end our involvement with the Groupware business. We cannot be sure that our new
corporate strategy will be successfully implemented. Furthermore, we cannot be
sure that we will not engage in further reorganizations or restructurings in the
future.
OUR SALES CYCLE IS LONG AND UNPREDICTABLE, AND POTENTIAL DELAYS IN THE CYCLE
MAKE OUR REVENUES SUSCEPTIBLE TO FLUCTUATIONS
The licensing of our software generally requires us to engage in a sales
cycle that typically takes approximately four to nine months to complete. The
length of the sales cycle may vary depending on a number of factors over which
we may have little or no control, including the size of the transaction and the
level of competition which we encounter in our selling activities. During the
sales cycle, we typically provide a significant level of education to
prospective customers regarding the use and benefits of our products. Any delay
in the sales cycle of a large license or a number of smaller licenses could have
a material adverse effect on our business, operating results and financial
condition.
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SEASONAL TRENDS IN SALES OF OUR SOFTWARE PRODUCTS MAY AFFECT OUR QUARTERLY
OPERATING RESULTS
Our business has experienced and is expected to continue to experience
seasonality. Our revenues and operating results in our December quarter
typically benefit from purchase decisions made by the large concentration of
customers with calendar year-end budgeting requirements, and from the efforts of
our sales force to meet fiscal year-end sales quotas. In addition, we are
currently attempting to expand our presence in international markets, including
Europe. International revenues comprise a significant percentage of our total
revenues, and we may experience additional variability in demand associated with
seasonal buying patterns in such foreign markets.
FUTURE ACQUISITIONS MAY PRESENT RISKS WHICH COULD ADVERSELY AFFECT OUR BUSINESS
In the future, ON may make acquisitions of, or large investments in, other
businesses that offer products, services, and technologies that further our goal
of providing enterprise desktop management software solutions to businesses or
which complement our current business. Any future acquisitions or investments
that we may complete present risks commonly encountered with these types of
transactions. The following are examples of such risks:
o difficulty in combining the technology, operations, or work force of the
acquired business;
o disruption of on-going businesses;
o difficulty in realizing the potential financial and strategic position of
ON through the successful integration of the acquired business;
o difficulty in maintaining uniform standards, controls, procedures, and
policies;
o possible impairment of relationships with employees and clients as a
result of any integration of new businesses and management personnel;
o difficulty in adding significant numbers of new employees, including
training, evaluation, and coordination of effort of all employees towards
our corporate mission;
o diversion of management attention;
o difficulty in obtaining preferred acquisition accounting treatment for
these types of transactions; likelihood that future acquisitions will
require purchase accounting resulting in increased intangible assets and
goodwill, substantial amortization of such assets and goodwill, and a
negative impact on reported earnings; and
o potential dilutive effect on earnings.
The risks described above, either individually or in the aggregate, could
materially adversely affect our business, operating results, and financial
condition. Future acquisitions, if any, could provide for consideration to be
paid in cash, shares of ON common stock, or a combination of cash and ON common
stock.
OUR ABILITY TO MANAGE ANY FUTURE GROWTH WILL AFFECT OUR ABILITY TO ACHIEVE AND
MAINTAIN PROFITABILITY
If we achieve our growth plans, such growth may burden our operating and
financial systems. This burden will require large amounts of senior management
attention and will require the use of other ON resources. Our ability to compete
effectively and to manage future growth (and our future operating results) will
depend in part on our ability to implement and expand operational, customer
support, and financial control systems and to expand, train, and manage our
employees. In particular, in connection with acquisitions, we will be required
to integrate additional personnel and to augment or replace existing financial
and management systems. Such integration could disrupt our operations and could
adversely affect our financial results. We may not be able to augment or improve
existing systems and controls or implement new systems and controls in response
to future growth, if any. Any failure to do so could materially adversely affect
our business, operating results, and financial condition.
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OUR BUSINESS DEPENDS IN LARGE PART UPON THE PROTECTION OF OUR PROPRIETARY
TECHNOLOGY THE LOSS OF WHICH WOULD HAVE A MATERIAL ADVERSE AFFECT ON OUR
BUSINESS
Our success is heavily dependent upon our proprietary software technology.
We rely on a combination of contractual rights, trademarks, trade secrets and
copyright to establish and protect our proprietary rights in software.
We use a printed "shrink-wrap" license for users of our products
distributed through traditional distribution channels in order to protect our
copyrights and trade secrets in those products. Since these shrink-wrap licenses
are not signed by the licensee, many authorities believe that they may not be
enforceable under many state laws and the laws of many foreign jurisdictions. If
such licenses are not enforceable, the user would not be bound by the license
terms, including the terms which seek to protect our proprietary technology. If
the printed shrink-wrap licenses prove to be unenforceable, this may have a
material adverse effect on our business, financial condition, prospects and
results of operations.
The laws of some foreign countries either do not protect our proprietary
rights or offer only limited protection for those rights. Furthermore, in
countries with a high incidence of software piracy, we may experience a higher
rate of piracy of our products.
We have obtained registrations in the United States for the following
trademarks: ON Technology, Meeting Maker, CCM, ON Command CCM, Notework, DaVinci
Systems, ON Technology & Design, ON Location and Instant Update. We have filed
for the trademark "ON Command CCM" in the European Community, Canada and
Australia. As a result, we may not be able to prevent a third party from using
our trademarks in many foreign jurisdictions. We have not to date registered any
of our copyrights.
There can be no assurance that the steps taken by ON to protect our
proprietary software technology will be adequate. Lesser sensitivity by
corporate, government or institutional users to avoiding infringement of
propriety rights could have a material adverse effect on our business, financial
condition, prospects and results of operations.
There has been substantial litigation in the software industry involving
intellectual property rights of technology companies. We have not been involved
in any such litigation. Although we do not believe that we are infringing the
intellectual property rights of others, any involvement in this type of
litigation may have a material adverse effect on our business, financial
condition, prospects and results of operations. In addition, since we may
acquire or license a portion of the software included in our future products
from third parties, our exposure to infringement actions may increase because we
must rely upon these third parties for information as to the origin and
ownership of any software being acquired. We generally obtain representations as
to the origin and ownership of such acquired or licensed software and we
generally obtain indemnification to cover any breach of such representations.
However, there can be no assurance that these representations are accurate or
that such indemnification will provide us with adequate compensation for a
breach of these representations. In the future, we may need to initiate
litigation to enforce and protect trade secrets and other intellectual property
rights owned by us. We may also be subject to litigation to defend against
claimed infringement of the rights of others or to determine the scope and
validity of the proprietary rights of others. This litigation could be costly
and cause diversion of management's attention, either of which could have a
material adverse effect on our business, financial condition, prospects and
results of operations. Adverse rulings or findings in such litigation could
result in the loss of our proprietary rights, subject us to significant
liabilities, require us to seek licenses from third parties or prevent us from
manufacturing or selling our products. Any one of these items could have a
material adverse effect on our business, condition, prospects and results of
operations. Furthermore, there can be no assurance that any necessary licenses
will be available to us on reasonable terms, or at all.
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IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, COMPETITORS MAY BE ABLE
TO USE OUR TECHNOLOGY OR TRADEMARKS AND THIS COULD WEAKEN OUR COMPETITIVE
POSITION, REDUCE OUR REVENUE AND INCREASE COSTS
We rely primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary rights. Such laws provide only limited protection. Despite
precautions that we take, it may be possible for unauthorized third parties to
copy aspects of our current or future products or to obtain and use information
that we regard as proprietary. In particular, we may provide our licensees with
access to our data model and other proprietary information underlying our
licensed applications. Such means of protecting our proprietary rights may not
be adequate. Additionally, our competitors may independently develop similar or
superior technology. Policing unauthorized use of software is difficult and,
while we do not expect software piracy to be a persistent problem, some foreign
laws do not protect our proprietary rights to the same extent as United States
laws. Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets, or to determine the validity and
scope of the proprietary rights of others. Litigation could result in
substantial costs and diversion of resources, and could materially adversely
affect our business, operating results, and financial condition.
THIRD PARTIES COULD ASSERT, FOR COMPETITIVE OR OTHER REASONS, THAT OUR PRODUCTS
INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS, AND SUCH CLAIMS COULD INJURE OUR
REPUTATION, CONSUME TIME AND MONEY, AND ADVERSELY AFFECT OUR ABILITY TO SELL OUR
PRODUCTS
While we are not aware that any of our software product offerings infringe
the proprietary rights of third parties, third parties may claim infringement
with respect to our current or future products. We expect that software product
developers will increasingly be subject to infringement claims as the number of
products and competitors in the software industry grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time consuming, result in costly litigation, cause
product shipment delays, or require us to enter into royalty or licensing
agreements. Royalty or licensing agreements may not be available on acceptable
terms or at all. As a result, infringement claims could have a material adverse
effect on our business, operating results, and financial condition.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN SIGNIFICANT
COSTS TO US
Our license agreements with our customers typically contain provisions
designed to limit exposure to potential product liability claims. Such
limitation of liability provisions may, however, not be effective under the laws
of certain jurisdictions. Although we have not experienced any product liability
claims to date, the sale and support of our products entails the risk of such
claims. We may be subject to such claims in the future. A product liability
claim could materially adversely affect our business, operating results, and
financial condition.
OUR SENIOR MANAGEMENT AND OTHER KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS, AND
IF THEY CHOOSE TO LEAVE ON, IT COULD HARM OUR BUSINESS
Our success will depend to a significant extent on the continued service
of our senior management and certain other key employees, including selected
sales, consulting, technical and marketing personnel. While our employees are
required to sign standard agreements concerning confidentiality and ownership of
inventions, few of our employees are bound by an employment or non-competition
agreement. In addition, we do not generally maintain key man life insurance on
any employee. The loss of the services of one or more of our executive officers
or key employees or the decision of one or more such officers or employees to
join a competitor or otherwise compete directly or indirectly with us could have
a material adverse effect on our business, operating results and financial
condition.
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<PAGE>
WE WILL NEED TO RECRUIT AND RETAIN ADDITIONAL QUALIFIED PERSONNEL TO
SUCCESSFULLY GROW OUR BUSINESS
Our future success will likely depend in large part on our ability to
attract and retain additional highly skilled technical, sales, management, and
marketing personnel. Competition for such personnel in the computer software
industry is intense, and in the past we have experienced difficulty in
recruiting qualified personnel. New employees generally require substantial
training in the use of our products. We may not succeed in attracting and
retaining such personnel. If we do not, our business, operating results, and
financial condition could be materially adversely affected.
FUTURE CHANGES IN THE FEDERAL IMMIGRATION LAWS COULD LIMIT OUR ABILITY TO
RECRUIT AND EMPLOY SKILLED TECHNICAL PROFESSIONALS FROM OTHER COUNTRIES, AND
THIS COULD ADVERSELY AFFECT OUR BUSINESS AND OPERATING RESULTS
To achieve our business objectives, we must be able to recruit and employ
skilled technical professionals from other countries. Any future shortage of
qualified technical personnel who are either United States citizens or otherwise
eligible to work in the United States could increase our reliance on foreign
professionals. Many technology companies have already begun to experience
shortages of such personnel. Any failure to attract and retain qualified
personnel as necessary could materially adversely affect our business and
operating results. Foreign computer professionals such as those employed by us
typically become eligible for employment in the United States by obtaining a
nonimmigrant visa. The number of nonimmigrant visas are limited by federal
immigration law. Currently, Congress is considering approving an increase in the
number of visas available. We cannot predict whether such legislation will
ultimately become law. We also cannot predict what effect any future changes in
the federal immigration laws will have on our business, operating results, or
financial condition.
BECAUSE ON'S OFFICERS AND DIRECTORS OWN A LARGE PORTION OF ON COMMON STOCK, THEY
MAY BE ABLE TO CONTROL MOST MATTERS REQUIRING STOCKHOLDER APPROVAL, AND THIS MAY
PREVENT OR DISCOURAGE POTENTIAL BIDS TO ACQUIRE ON
Based on shares outstanding as of March 6, 2000, ON's officers, directors,
and entities directly related to such individuals together beneficially own
approximately 10.14% of the outstanding shares of ON common stock. As a result,
ON's officers and directors may be able to control most matters requiring
stockholder approval, including the election of directors and the approval of
mergers, consolidations, and sales of all or substantially all of the assets of
ON. Such concentrated share ownership may prevent or discourage potential bids
to acquire ON unless the terms of acquisition are approved by such officers and
directors.
PROVISIONS IN OUR CHARTER DOCUMENTS AND IN DELAWARE LAW MAY DISCOURAGE POTENTIAL
ACQUISITION BIDS FOR ON AND PREVENT CHANGES IN OUR MANAGEMENT WHICH OUR
STOCKHOLDERS FAVOR
Certain provisions of ON's charter documents eliminate the right of
stockholders to act by written consent without a meeting and specify certain
procedures for nominating directors and submitting proposals for consideration
at stockholder meetings. Such provisions are intended to increase the likelihood
of continuity and stability in the composition of the ON board of directors and
in the policies set by the board. These provisions also discourage certain types
of transactions which may involve an actual or threatened change of control
transaction. These provisions are designed to reduce the vulnerability of ON to
an unsolicited acquisition proposal. As a result, these provisions could
discourage potential acquisition proposals and could delay or prevent a change
in control transaction. These provisions are also intended to discourage certain
tactics that may be used in proxy fights. However, they could have the effect of
discouraging others from making tender offers for ON's shares. As a result,
these provisions may prevent the market price of ON common stock from reflecting
the effects of actual or rumored takeover attempts. These provisions may also
prevent changes in the management of ON.
ON's board of directors has the authority to issue up to 2,000,000 shares
of preferred stock in one or more series. The board of directors can fix the
price, rights, preferences, privileges, and restrictions of such preferred stock
without any further vote or action by ON's stockholders. The issuance of
preferred stock allows ON to have flexibility in connection with possible
acquisitions and other corporate purposes. However, the issuance of shares of
preferred stock may delay or prevent a change in control transaction without
further action by the ON stockholders.
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As a result, the market price of the ON common stock and the voting and other
rights of the holders of ON common stock may be adversely affected. The issuance
of preferred stock may result in the loss of voting control to others. ON has no
current plans to issue any shares of preferred stock.
ON is subject to the antitakeover provisions of the Delaware General
Corporation Law, which regulates corporate acquisitions. The Delaware law
prevents certain Delaware corporations, including ON, from engaging, under
certain circumstances, in a "business combination" with any "interested
stockholder" for three years following the date that such stockholder became an
interested stockholder. For purposes of Delaware law, a "business combination"
includes, among other things, a merger or consolidation involving ON and the
interested stockholder and the sale of more than 10% of ON's assets. In general,
Delaware law defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of a company and
any entity or person affiliated with or controlling or controlled by such entity
or person. Under Delaware law, a Delaware corporation may "opt out" of the
antitakeover provisions. ON has not "opted out" of the antitakeover provisions
of Delaware law.
OUR STOCK WILL LIKELY BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME FLUCTUATIONS
WHICH MAY PREVENT STOCKHOLDERS FROM RESELLING THEIR SHARES AT OR ABOVE THE PRICE
AT WHICH THEY PURCHASED THEIR SHARES
In the past, the market price of our common stock has varied greatly and
the volume of our common stock traded has fluctuated greatly as well. We expect
such fluctuation to continue. The fluctuation results from a number of factors
including:
o any shortfall in revenues or net income from revenues or net income
expected by securities analysts;
o announcements of new products by ON or our competitors;
o quarterly fluctuations in our financial results or the results of other
software companies, including those of our direct competitors;
o changes in analysts' estimates of our financial performance, the financial
performance of our competitors, or the financial performance of software
companies in general;
o general conditions in the software industry;
o changes in prices for our products or the products of our competitors;
o changes in our revenue growth rates or the growth rates of our
competitors;
o sales of large blocks of the ON common stock; and
o conditions in the financial markets in general.
In addition, the stock market may from time to time experience extreme
price and volume fluctuations. Many technology companies, in particular, have
experienced such fluctuations. Often, such fluctuations have been unrelated to
the operating performance of the specific companies. The market price of our
common stock may experience significant fluctuations in the future.
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THE LOWER THE TRADING PRICE OF OUR STOCK, THE GREATER THE DILUTION WHICH
SHAREHOLDERS MAY EXPERIENCE AS A RESULT OF THE ISSUANCE OF WARRANTS TO CASTLE
CREEK TECHNOLOGY PARTNERS LLC AND MARSHALL CAPITAL MANAGEMENT INC.
The number of shares of Common Stock of the Company which must be issued
upon exercise of the Warrants issued to castle Creek Technology Partners LLC and
Marshall Capital Management Inc. is tied to the fluctuating market price of the
Company's Common Stock:
o the lower the trading price of the Company's Common Stock on the effective
date of the registration statement filed by the Company on Form S-3
(initially filed on January 25, 2000) and the lower the average trading
price for the fifteen days preceeding December 29, 2000, the greater the
number of shares of Common Stock that must be issued and the greater the
dilution caused by these securities;
o the perceived risk of dilution may cause Creek Technology Partners LLC and
Marshall Capital Management Inc. or other stockholders to sell their
shares, which would contribute to the downward movement in stock price of
the Common Stock; and
o the significant downward pressure on the trading price of the Common Stock
could encourage investors to engage in short sales, which would further
contribute to the downward spiraling price of the Common Stock.
THE ISSUANCE OF WARRANTS IN CONNECTION WITH THE PRIVATE PLACEMENT TRANSACTION ON
DECEMBER 29, 1999 MAY SUBJECT ON TO RISK OF DELISTING BY NASDAQ.
In late January 1999, NASDAQ released its guidance on "future priced
securities" and the necessity of ON to comply with NASDAQ's listing maintenance
requirements in issuing these securities. We believe that the issuance of the
warrants to Castle Creek Technology Partners LLC and Marshall Capital Management
Inc. in connection with the closing of the private placement transaction on
December 29, 1999 does not violate these criteria and that we are in compliance
with NASDAQ's listing maintenance criteria. However, in the event that NASDAQ
were to determine that the issuance of the warrants was in violation of the
NASDAQ listing maintenance requirement, or if we were otherwise unable to
continue to meet NASDAQ's listing maintenance requirements, NASDAQ may delist
the Company. Such delisting could have a material adverse effect on the price of
our common stock and the level of liquidity currently available to our
shareholders. We may not be able to satisfy these requirements on an ongoing
basis.
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Item 3. Quantitative And Qualitative Disclosure About Market Risk
---------------------------------------------------------
The Company is exposed to the impact of interest rate changes, foreign currency
fluctuations, and investment changes.
INTEREST RATE RISK. The Company's exposure to market rate risk for changes in
interest rates relates primarily to the Company's cash equivalent investments.
The Company has not used derivative financial instruments. The Company invests
its excess cash in short-term floating rate instruments and senior secured
floating rate loan funds which carry a degree of interest rate risk. These
instruments may produce less income than expected if interest rates fall.
FOREIGN CURRENCY RISK. International revenues from the Company's foreign
subsidiaries and other foreign sources for the six months ended June 30, 2000
were approximately 57% of total revenues. International sales are made primarily
from the Company's subsidiary in Germany and are denominated in the local
currency. Accordingly, the Company's German subsidiary uses the local currency
as its functional currency. The Company's international business is subject to
risk typical of an international business, including, but not limited to,
differing economic conditions, changes in political climate, differing tax
structures, other regulations and restrictions, and foreign exchange rate
volatility. Accordingly, the Company's future results could be materially
adversely impacted by changes in these or other factors. The Company is exposed
to foreign currency exchange rate fluctuations as the financial results of its
foreign subsidiary are translated into U.S. dollars in consolidation. As
exchange rates vary, these results, when translated, may vary from expectations
and adversely impact overall profitability.
INVESTMENT RISK. The Company may invest in the future in the equity instruments
of privately held companies for business and strategic purposes. However, as of
June 30, 2000, the Company holds no such investments. For these non-quoted
investments, the Company's policy is to regularly review the assumptions
underlying the operating performance and cash flow forecasts in assessing the
carrying values. The Company identifies and records impairment losses on
long-lived assets when events or circumstances indicate that such assets might
be impaired.
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ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
FORM 10-Q, June 30, 2000
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Company held an Annual Meeting of its Stockholders on April 28,
2000 (the "Annual Meeting"). At the Annual Meeting, the Company submitted the
following proposals: (1) a proposal to elect Gina Bornino Miller as a Class II
Director to serve until the Company's Annual Meeting of Stockholders held in
2003 and until her successor is duly elected and qualified ("Proposal One"); (2)
a proposal to approve an amendment to the 1992 Employee and Consultant Stock
Option Plan, increasing the number of shares available under such plan from
3,800,000 to 5,400,000 ("Proposal Two"); and (3) a proposal to ratify the
selection of Arthur Andersen LLP as the independent auditors of the Company for
the fiscal year ending December 31, 2000 ("Proposal Three").
The number of shares issued, outstanding and eligible to vote as of
the record date of March 6, 2000 was 14,253,203. The votes cast at the Annual
Meeting were as follows:
Delivered
Votes for Votes Against Abstain Not Voted
--------- ------------- ------- ---------
Proposal One:
-------------
Gina Bornino Miller:
11,393,064 0 98,878 0
Proposal Two:
-------------
11,177,156 280,066 34,720 0
Proposal Three:
---------------
11, 453,172 23,720 15,050 0
On April 28, 2000 the Company also held a Special Meeting of
Stockholders (the "Special Meeting"). At the Special Meeting, the Company
submitted the following proposals: (1) a proposal to approve an Amendment of the
Company's Certificate of Incorporation to increase the number of shares of
common stock of the Company
26
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from 20,000,000 to 30,000,000 ("Special Proposal One"); (2) a proposal to
approve the issuance of 1,029,674 shares of common stock, the issuance of common
stock purchase warrants, and the reservation of shares of common stock issuable
upon exercise of such warrants, to Castle Creek Technology Partners LLC and
Marshall Capital Management, Inc. ( "Special Proposal Two"); and (3) a proposal
to approve the Asset Purchase Agreement with Meeting Maker Inc. ("Special
Proposal Three").
The number of shares issued outstanding and eligible to vote as of
the record date of March 6, 2000 was 14,253,203. The votes cast at the Special
Meeting was as follows:
Delivered
Votes for Votes Against Abstain Not Voted
--------- ------------- ------- ---------
Special Proposal One:
---------------------
12,341,770 216,937 22,724 0
Special Proposal Two:
---------------------
4,257,674 161,221 13,721 8,148,815
Special Proposal Three:
-----------------------
Proposal Three was tabled without a vote on such proposal for
consideration at an adjournment of the Special Meeting to be held on May 26,
2000.
The Company held the adjournment of the Special Meeting on May 26,
2000. At such adjournment, consideration of Special Proposal Three was once
again postponed until an undetermined later date without a vote on Special
Proposal Three.
Item 5. Other Information
If a stockholder intends to present a proposal at the Annual Meeting
of Stockholders of the Company in 2001 (the "2001 Annual Meeting") and does not
submit such proposal on or before December 31, 2000, such proposal will not be
included in the proxy statement and proxy card related to the 2001 Annual
Meeting. Nonetheless, such stockholder may raise such proposal at the 2001
Annual Meeting; however, as a result of the adoption by the SEC on May 21, 1998
of new rule 14a-4 (c) (1) under the Securities and Exchange Act of 1934, as
amended, if such stockholder fails to notify the Company at least 45 days prior
to March 28, 2001 (i.e., the month and day of the mailing of the Company's proxy
statement and proxy card related to the Annual Meeting of Stockholders of the
Company in 2000) of its intent to raise such proposal at the 2001 Annual
Meeting, then management proxies would be allowed to use their discretionary
voting authority in the event such proposal is raised at the 2001 Annual
Meeting, without any discussion of the matter in the proxy statement related to
the 2001 Annual Meeting.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed in the accompanying Exhibit Index on page 30 are
filed or incorporated by reference as part of this report.
(b) Reports on Form 8-K
1. Current Report on Form 8-K filed with the SEC on April 11,
2000 relating to the Registrant's press release concerning
the Registrant's first quarter results.
2. Current Report on Form 8-K filed with the SEC on June 9,
2000 relating to the Registrant's Special Meeting of
Stockholders and Registrant's relationship with Meeting
Maker, Inc.
28
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ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
FORM 10-Q, June 30, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ON TECHNOLOGY CORPORATION
/s/ Robert L. Doretti
----------------------------
Date: August 14, 2000 Name: Robert L. Doretti
Title: President and
Chief Executive Officer
/s/ Stephen J. Wietrecki
----------------------------
Date: August 14, 2000 Name: Stephen J. Wietrecki
Title: Vice President of Finance
and Chief Financial Officer
29
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ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
FORM 10-Q, June 30, 2000
INDEX TO EXHIBITS
Exhibit No. Exhibit Title
----------- -------------
10.29* License Agreement by and between the Company and Meeting Maker,
Inc. dated as of June 30, 2000.
10.30 First Amendment to the Management Agreement by and between the
Company and Meeting Maker, Inc. dated as of May 30, 2000.
10.31 Second Amendment to the Management Agreement by and between the
Company and Meeting Maker, Inc. dated as of June 30, 2000.
27.0. Financial Data Schedule.
-----------
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
30
