<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q
---------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 0-28436
OPEN MARKET, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3214536
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
245 First Street
Cambridge, Massachusetts 02142
(Address of principal executive offices) (Zip Code)
(617) 621-9500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
As of July 31, 1996, there were 28,162,994 shares of the Registrant's Common
Stock outstanding.
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OPEN MARKET, INC.
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995. 3
Condensed Consolidated Statements of Operations for the three
months and six months ended June 30, 1996 and 1995. 4
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1995. 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION 13
SIGNATURES 14
EXHIBIT INDEX 15
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
OPEN MARKET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 81,786 $ 3,712
Marketable securities 7,905 -
Accounts receivable, net of
allowance for doubtful accounts
of $110 and $25, respectively 1,466 1,227
Loan to founder 1,500 -
Prepaid expenses and other current
assets 1,323 548
------------ ------------
Total current assets 93,980 5,487
------------ ------------
Property and equipment, at cost: 4,658 3,202
Less: Accumulated depreciation and
amortization 1,614 845
------------ ------------
3,044 2,357
Other assets 145 103
------------ ------------
$ 97,169 $ 7,947
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable $ 1,801 $ 1,373
Accrued expenses 4,448 2,657
Deferred revenues 5,952 6,901
Current maturities of long-term
obligations 35 339
------------ ------------
Total current liabilities 12,236 11,270
------------ ------------
Long-term obligations, net of current
maturities 128 659
Commitments
Redeemable convertible preferred stock - 11,205
Stockholders' equity (deficit):
Preferred stock, $.10 par value -
Authorized - 2,000,000 shares;
Issued - none. - -
Common stock, $.001 par value -
Authorized - 100,000,000 shares
Issued and outstanding - 28,141,379
shares and 9,390,312 shares at
June 30, 1996 and December 31, 1995,
respectively 28 9
Additional paid-in capital 114,431 32
Accumulated deficit (29,654) (15,228)
------------ ------------
Total stockholders' equity (deficit) 84,805 (15,187)
------------ ------------
$ 97,169 $ 7,947
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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OPEN MARKET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------
1996 1995 1996 1995
------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Product revenues $ 3,002 $ - $ 5,250 $ -
Service revenues 1,706 173 2,133 261
------------- ---------- ---------- ----------
Total revenues 4,708 173 7,383 261
------------- ---------- ---------- ----------
COST OF REVENUES:
Product revenues 132 - 269 -
Service revenues 1,160 121 1,457 179
------------- ---------- ---------- ----------
Total cost of revenues 1,292 121 1,726 179
------------- ---------- ---------- ----------
------------- ---------- ---------- ----------
Gross profit 3,416 52 5,657 82
------------- ---------- ---------- ----------
OPERATING EXPENSES:
Selling and marketing 5,162 739 9,281 1,056
Research and development 3,927 1,430 7,628 1,952
General and administrative 1,512 473 2,981 668
------------- ---------- ---------- ----------
Total operating expenses 10,601 2,642 19,890 3,676
------------- ---------- ---------- ----------
------------- ---------- ---------- ----------
Loss from operations (7,185) (2,590) (14,233) (3,594)
------------- ---------- ---------- ----------
INTEREST INCOME 571 77 771 78
INTEREST EXPENSE (45) (27) (64) (36)
------------- ---------- ---------- ----------
NET LOSS $ (6,659) $ (2,540) $(13,526) $ (3,552)
============= ========== ========== ==========
PRO FORMA NET LOSS PER COMMON AND
COMMON EQUIVALENT SHARE (Note 2) $ (0.24) $ (0.10) $ (0.50) $ (0.13)
============= ========== ========== ==========
PRO FORMA WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING (Note 2) 27,274 26,330 26,877 26,361
============= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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OPEN MARKET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1996 1995
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (13,526) $ (3,552)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 769 209
Changes in assets and liabilities-
Accounts receivable (239) (32)
Prepaid expenses and other
current assets (775) (257)
Accounts payable 428 93
Accrued expenses 1,791 614
Deferred revenues (949) 492
----------- ------------
Net cash used in
operating activities (12,501) (2,433)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,456) (1,239)
Issuance of loan to founder (1,500) -
Purchases of marketable
securities, net (7,905) -
Increase in other assets (42) (26)
----------- ------------
Net cash used in
investing activities (10,903) (1,265)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term obligations 650 850
Payments on long-term obligations (1,485) (23)
Proceeds from issuance of redeemable
convertible preferred stock, net
of issuance costs 26,050 7,263
Proceeds from initial public
offering, net of issuance costs 76,127 -
Proceeds from issuance of common
stock, net of repurchases 136 -
Proceeds from bridge financing - 1,050
----------- ------------
Net cash provided by
financing activities 101,478 9,140
----------- ------------
Net increase in cash and cash
equivalents 78,074 5,442
Cash and cash equivalents,
beginning of period 3,712 636
----------- ------------
Cash and cash equivalents, end of
period $ 81,786 $ 6,078
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid during the period $ 64 $ 36
=========== ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES:
Conversion of redeemable convertible
preferred stock into common stock $ 38,155 $ -
=========== ============
Conversion of bridge financing into
redeemable convertible preferred
stock $ - $ 1,050
=========== ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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OPEN MARKET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements of Open Market, Inc. (the
Company) presented herein have been prepared pursuant to the rules of the
Securities and Exchange Commission for quarterly reports on Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. These statements should be read in conjunction
with the consolidated financial statements and notes thereto for the year ended
December 31, 1995, included in the Company's prospectus within the Form S-1
filed with the Securities and Exchange Commission on May 22, 1996.
The condensed consolidated financial statements and notes herein are
unaudited but, in the opinion of management, include all adjustments (consisting
of normal, recurring adjustments) necessary to present fairly the consolidated
financial position, results of operations and cash flows of the Company and its
subsidiaries.
The results of operations for the interim periods shown herein are not
necessarily indicative of the results to be expected for any future interim
period or for the entire year.
2. Summary of Significant Accounting Policies
The accompanying condensed consolidated financial statements reflect the
application of certain accounting policies described in this and other notes to
these condensed consolidated financial statements.
(a) Principles of Consolidation
The accompanying condensed consolidated financial statements reflect the
accounts of the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.
(b) Cash, Cash Equivalents and Marketable Securities
The Company accounts for investments under Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Under SFAS No. 115, investments for which the
Company has the positive intent and ability to hold to maturity, consisting
of cash equivalents and marketable securities, are reported at amortized
cost, which approximates fair market value. Cash equivalents are highly
liquid investments with maturities of less than three months at the time of
acquisition. Marketable securities consist of investment grade commercial
paper and corporate bonds with maturities at the time of acquisition of
greater than three months but less than one year. The average maturity of
the Company's marketable securities is approximately four months.
(c) Pro Forma Net Loss per Common and Common Equivalent Share
For the three and six month periods ended June 30, 1996 and 1995, pro
forma net loss per common and common equivalent share is computed by
dividing the net loss by the pro forma weighted average number of common and
common equivalent shares outstanding during the period, which consists of
(i) the weighted average number of common shares
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outstanding, (ii) the weighted average number of shares of common stock
issuable upon conversion of all shares of Series A, B and C redeemable
convertible preferred stock and (iii) for periods prior to the initial
public offering, stock options granted after March 31, 1995 and prior to the
initial public offering as required by the Securities and Exchange
Commission using the treasury stock method. Other common stock equivalents
have not been included, as the effect would be antidilutive. Historical net
loss per share data has not been presented, as such information is not
considered to be relevant or meaningful.
3. Stockholders' Equity and Redeemable Convertible Preferred Stock
(a) Initial Public Offering
In May 1996, the Company completed an initial public offering of
4,600,000 shares of its common stock at $18.00 per share. The Company
received net proceeds of approximately $76,127,000, after deducting the
underwriters' discount and offering costs. Upon the closing of the initial
public offering, all shares of the Company's Series A, B and C redeemable
convertible preferred stock automatically converted into 13,437,025 shares
of the Company's common stock.
(b) Series C Redeemable Convertible Preferred Stock
In January 1996, the Company received net proceeds of approximately
$26,050,000 from the sale of 2,695,000 shares of its Series C Redeemable
Convertible Preferred Stock, after deducting the underwriter's discount and
offering costs. As discussed above, these shares were converted into common
stock on a one-for-one basis upon the closing of the Company's initial
public offering.
(c) 1994 Stock Incentive Plan
The 1994 Stock Incentive Plan (the 1994 Plan) allows for the issuance of
up to 13,001,000 shares of the Company's common stock through the grant of
incentive stock options, nonqualified stock options or the issuance of
restricted common stock to employees and consultants.
A summary of stock option activity under the 1994 Plan is as follows:
<TABLE>
<CAPTION>
Number of Exercise Price
Shares Per Share
------------- --------------------
<S> <C> <C> <C>
Outstanding, December 31, 1995.. 4,904,290 $ .17 - $ 1.50
Granted......................... 1,188,137 4.00 - 35.13
Exercised....................... (714,042) .17 - 1.50
Terminated...................... (80,392) .17 - 12.00
-------------- -------------------
Outstanding, June 30, 1996...... 5,297,993 $ .17 - $35.13
============== ===================
Exercisable, June 30, 1996...... 2,076,551 $ .17 - $10.00
============== ===================
</TABLE>
(d) 1996 Employee Stock Purchase Plan
Effective upon the closing of the Company's initial public offering, the
Company adopted the 1996 Employee Stock Purchase Plan (the Purchase Plan).
Under the Purchase Plan, the Company has reserved 250,000 shares of its
common stock for issuance in accordance with the Purchase Plan. Under the
terms of the Purchase Plan, employees who meet certain eligibility
requirements may purchase shares of the Company's common stock at 85% of the
closing price of the common stock on the first or last day of each offering
period, whichever is lower. Offering periods
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<PAGE>
are every six months commencing August 1, 1996. Participants may have up to
10% of their qualifying compensation deducted and set aside for purchasing
shares in each offering under the Purchase Plan. The Purchase Plan may be
terminated by the Board of Directors at any time.
(e) 1996 Director Option Plan
Effective upon the closing of the Company's initial public offering, the
Company adopted the 1996 Director Option Plan (the Director Plan) under
which each new outside director will be granted an option to purchase that
number of shares of common stock determined by dividing $100,000 by the
option exercise price, at the fair market value, as defined. In addition,
commencing with the 1997 Annual Meeting of the Stockholders, each Director
who is not a founder or employee of the Company will annually be granted an
option to purchase that number of shares of common stock determined by
dividing $30,000 by the option exercise price. These options vest quarterly
over a four-year period and expire 10 years from the date of grant. The
vesting of these options will accelerate upon a change in control, as
defined. The Company has reserved 100,000 shares for the Director Plan.
4. Significant Customers and Related Party Transactions
The Company recorded revenues of greater than 10% of total revenues from the
following customers during the following periods:
<TABLE>
<CAPTION>
Significant Percentage of
----------- -------------
Customers Customer Revenues
----------- -----------------
A B C D E F G
--- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Three months ended June 30, 1996...... 2 24% 22% - - - - -
Three months ended June 30, 1995...... 3 - - - 46% 34% 16% -
Six months ended June 30, 1996........ 3 16% 14% 34% - - - -
Six months ended June 30, 1995........ 4 - - - 31% 32% 10% 27%
</TABLE>
Customer B is a related party through its stock ownership in the Company.
The Company has entered into agreements with certain stockholders which provide
for product and service revenues. The Company believes that the terms of these
transactions are on terms no less favorable to the Company than could be
obtained from unaffiliated third parties. The Company recognized revenues from
certain stockholders of approximately $1,510,000 and $1,667,000 for the three
and six month periods ended June 30, 1996, respectively.
On February 5, 1996, the Company loaned $1,500,000 to a founder and director
of the Company. The loan is non-recourse, secured by a pledge of 375,000 shares
of common stock, bears interest at a rate of 5.61% per annum and is due when the
founder and director can sell a sufficient number of shares of his common stock
to repay the principal and accrued interest on the loan.
-8-
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
Revenues
Total revenues were approximately $4,708,000 for the three months ended June
30, 1996, a significant increase from approximately $173,000 for the three
months ended June 30, 1995. Total revenues for the six months ended June 30,
1996 were approximately $7,383,000 compared to approximately $261,000 for the
six months ended June 30, 1995. Three customers accounted for an aggregate of
approximately 64% of total revenues for the six months ended June 30, 1996, two
of which accounted for an aggregate of 46% of total revenues for the second
quarter of 1996. In the corresponding periods of 1995, four customers accounted
for all of the Company's revenues for both the three months and six months ended
June 30, 1995. While in any particular quarter a single customer may account
for a material portion of revenues, the Company does not expect that it will
derive a material portion of its future revenues from a single customer.
Product revenues were approximately $3,002,000 or 64% of total revenues for
the three months ended June 30, 1996 and approximately $5,250,000 or 71% of
total revenues for the six months ended June 30, 1996. During the second
quarter of 1996, the Company began commercial shipment of OM-Transact/TM/, its
flagship product for Internet commerce, OM-SecureLink/TM/, a commerce enabling
technology, and OM-Axcess/TM/, a product that manages access control. The
Company began recognizing revenues from these products during the second quarter
of 1996 and believes that revenues from these products will represent a
significant percentage of total product revenues for the year ending December
31, 1996. Product revenues for the six month period ended June 30, 1996 also
includes an initial $2 million license fee recognized in the first quarter of
1996 from a reseller for the right to sublicense the Company's Web server
products. Although product revenues from its Web server products represent a
significant portion of the product revenues for the six months ended June 30,
1996, revenues from these products are not expected to represent a significant
percentage of the Company's product revenues in 1997 and beyond. The Company
believes that product revenues as a percentage of total revenues will fluctuate
on a quarterly basis.
Service revenues were approximately $1,706,000 or 36% of total revenues for
the three months ended June 30, 1996 and approximately $2,133,000 or 29% of
total revenues for the six months ended June 30, 1996. Service revenues relate
to (i) development, consulting and other services performed for certain
customers to assist them in their development of services and products for the
Internet and (ii) customer support services, which include postcontract customer
support, installation, training and other services related to product sales. The
Company expects that total service revenues as a percentage of total revenues
will fluctuate on a quarterly basis, due in part to the timing of significant
development contracts.
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<PAGE>
Cost of Revenues
Cost of product revenues for the three and six month periods ended June 30,
1996 consisted primarily of the costs to distribute the products, including the
cost of media on which they are delivered. If, in the future, the Company
incorporates in its products additional technology licensed from third parties,
the Company believes that cost of product revenues may increase as a percentage
of the related product revenues due to increased costs related to such licensed
technology. Cost of service revenues consists primarily of personnel and related
costs incurred in providing development, consulting and other services to
customers. Cost of service revenues increased to approximately $1,160,000 and
$1,457,000 for the three and six month periods ended June 30, 1996,
respectively, from approximately $121,000 and $179,000 for the three and six
month periods ended June 30, 1995, respectively. The increase is directly
attributable to higher service revenues.
Gross profits may fluctuate based on the mix of distribution channels used
by the Company, the mix of products sold, the mix of product revenues versus
service revenues and the mix of international versus domestic revenues. The
Company expects to realize higher gross profits on direct product sales than on
product sales through indirect channels and higher gross profits on product
revenues than on services revenues. In addition, gross profits vary by product
and are generally higher on international product sales as compared to domestic
product sales. Due to its limited operating history, the Company cannot
accurately predict the mix of future product and service revenues.
Operating Expenses
Selling and marketing expenses consist primarily of the cost of sales and
marketing personnel and consultants, as well as the costs associated with
marketing programs and literature. These expenses increased to approximately
$5,162,000 and $9,281,000 for the three and six month periods ended June 30,
1996 from approximately $739,000 and $1,056,000 for the three and six month
periods ended June 30, 1995. The substantial increase in these expenses for
these periods was primarily attributable to the expansion of the Company's sales
and marketing organization through an increase in the number of sales and
marketing personnel and, to a lesser extent, preparation and distribution of new
product sales literature and an increase in promotional and advertising
expenses. The Company intends to increase selling and marketing expenditures in
future periods.
Research and development expenses consist primarily of the cost of research
and development personnel and independent contractors, certain purchased
technology, as well as equipment and facilities costs related to such
activities. These expenses increased to approximately $3,927,000 and $7,628,000
for the three and six month periods ended June 30, 1996, respectively, from
approximately $1,430,000 and $1,952,000 for the three and six month periods
ended June 30, 1995, respectively. The substantial increase in these periods was
primarily attributable to the hiring of additional software engineers and
consultants to develop and enhance the Company's products as well as increased
equipment and facilities-related costs. Qualifying capitalizable software
development costs were immaterial in both periods, and accordingly, the Company
has charged all such expenses to research and development in the period
incurred. The Company believes that significant investments in research and
development are required to
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remain competitive in the software industry. As a result, the Company intends to
increase the amounts of its research and development expenditures in the future.
Certain research and development expenditures are incurred substantially in
advance of the related revenue and in some cases do not generate revenue.
General and administrative expenses consist primarily of the cost of
finance, management and administrative personnel, as well as legal and other
professional fees. These expenses increased to approximately $1,512,000 and
$2,981,000 for the three and six month periods ended June 30, 1996,
respectively, from approximately $473,000 and $668,000 for the three and six
month periods ended June 30, 1995, respectively. The substantial increase for
these periods was primarily attributable to the hiring of additional management
and administrative personnel and to a lesser extent an increase in legal and
other professional fees and the expansion of the Company's operations. The
Company intends to increase general and administrative expenditures in future
periods.
Interest income represents interest earned on cash, cash equivalents and
marketable securities. Interest income increased to approximately $571,000 and
$771,000 for the three and six month periods ended June 30, 1996, respectively,
from approximately $77,000 and $78,000 for the three and six month periods ended
June 30, 1995, respectively. The increase is primarily attributable to higher
average investments in cash, cash equivalents and marketable securities during
the periods, primarily as a result of the closing of the Company's initial
public offering in May 1996 and the sale of Series C Redeemable Convertible
Preferred Stock in January 1996. Interest expense increased to approximately
$45,000 and $64,000 for the three and six month periods ended June 30, 1996,
respectively, from approximately $27,000 and $36,000 for the three and six month
periods ended June 30, 1995, respectively.. The increase in interest expense is
primarily attributable to a higher outstanding balance under the Company's
equipment line of credit and term notes payable, which were paid off during the
second quarter of 1996, and an obligation under a license agreement.
The Company has had losses for tax purposes for all periods to date and,
accordingly, there has been no provision for income taxes.
To date, inflation has not had a significant impact on the Company's
operations.
Liquidity and Capital Resources
At June 30, 1996, the Company had approximately $89,691,000 in cash, cash
equivalents and marketable securities. In May 1996, the Company completed an
initial public offering of 4,600,000 shares of its common stock for net proceeds
of approximately $76,127,000. In January 1996, the Company received net
proceeds of approximately $26,050,000 from the sale of 2,695,000 shares of its
Series C Redeemable Convertible Preferred Stock.
The Company had a $1,500,000 capital equipment line of credit that was
converted into an $850,000, 36-month term note payable and a $650,000, 33-month
term notes payable. Both term notes were paid off during the second quarter of
1996 with the proceeds from the Company's initial public offering.
The Company's operating activities utilized cash and cash equivalents of
approximately $12,501,000 and $2,432,000 for the six month periods ended
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June 30, 1996 and 1995, respectively. Deferred revenues, which have provided
approximately $5,952,000 of cash for operating activities from inception through
June 30, 1996, represent cash received from customers for product and service
revenues in advance of revenue recognition by the Company. Deferred revenues
will fluctuate based upon the timing of cash receipts relative to the
recognition of product and service revenues. There can be no assurance that
certain deferred revenues will be recognized as revenues in future periods and
that the Company will not be required to refund certain cash payments received
from its customers.
The Company's investing activities used cash and cash equivalents of
approximately $10,903,000 and $1,265,000 for the six month periods ended June
30, 1996 and 1995, respectively. The principal uses have been to purchase
marketable securities, the purchase of property and equipment and a $1,500,000
loan to a founder of the Company. See Note 4 of Notes to Condensed Consolidated
Financial Statements.
The Company's financing activities provided cash and cash equivalents of
approximately $101,478,000 and $9,140,000 for the six month periods ended June
30, 1996 and 1995, respectively, primarily from the proceeds from the Company's
initial public offering and the private sales of equity securities.
Capital expenditures were approximately $1,456,000 for the six month period
ended June 30, 1996. The Company has no material purchase commitments as of
June 30, 1996. The Company estimates that capital expenditures in 1996 will be
approximately $4,000,000 to $5,000,000.
At December 31, 1995, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $13,588,000. These losses
are available to reduce federal and state taxable income, if any, in future
years. These losses are subject to review and possible adjustment by the
Internal Revenue Service and may be limited in the event of certain cumulative
changes in ownership interests of significant shareholders over a three-year
period in excess of 50%. The Company believes that it has experienced a change
in ownership in excess of 50% and that it may have experienced an additional
change in ownership in excess of 50% upon completion of the Company's initial
public offering. The Company does not believe that these changes in ownership
will significantly impact the Company's ability to utilize its net operating
loss carryforwards.
The Company believes that its existing capital resources are adequate to
meet its cash requirements for at least the next 12 months. There can be no
assurance, however, that changes in the Company's plans or other events
affecting the Company's operations will not result in accelerated or unexpected
expenditures.
-12-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
None
ITEM 2. Changes in Securities.
None
ITEM 3. Defaults Upon Senior Securities.
None
ITEM 4. Submission of Matters to a Vote of Security Holders.
On April 24, 1996, the stockholders of the Registrant approved by
written consent the following:
(i) to amend and restate the Certificate of Incoporation (the
"Restatement") upon the effective date of the initial public offering of Common
Stock of the Registrant (the "Effective Date") providing (a) for an increase in
the authorized number of shares of Common Stock to 100,000 shares; (b) for the
classification of the Board of Directors into three classes; (c) that
stockholders may not call special meetings of stockholders and stockholders may
not take action by written consent; (d) for certain procedures for the
introduction of business at stockholders' meetings; (e) that a vote of
the holders of at least seventy-five percent (75%) of the stock of the
Registrant is necessary to change the foregoing provisions; (f) that a vote of
the holders of at least two-thirds of the stock of the Registrant is necessary
to remove directors for cause; (g) that 2,000,000 shares of undesignated
preferred stock, $.10 par value per share, be authorized; and (h) for
indemnification of officers and directors of the Registrant under certain
circumstances.
(ii) that the By-laws of the Registrant be amended and restated (the
"Amended and Restated By-laws") subject to the filing of the Restatement with
the Secretary of State of the State of Delaware and effective upon the Effective
Date.
(iii) that, subject to the filing of the Restatement with the Secretary
of State of the State of Delaware and effective upon the Effective Date, the
number of directors for the current year be fixed at eight (8) and that the
current directors of the Registrant be allocated among the newly created classes
of directors in accordance with the Restatement and the Amended and Restated
By-laws as follows:
(a) Class I Directors (initial term expires at the Annual Meeting
of Stockholders to be held in 1997):
Gulrez Arshad, Bruce Judson, Gary B. Eichhorn
(b) Class II Directors (initial term expires at the Annual
Meeting of Stockholders to be held in 1998):
Shikhar Ghosh, William S. Kaiser, Eugene F. Quinn
(c) Class III Directors (initial term expires at the Annual
Meeting of Stockholders to be held in 1999):
David K. Gifford, Robert J. Tarr, Jr.
(iv) to approve the Registrant's 1996 Director Option Plan;
(v) to approve the Registrant's 1996 Employee Stock Purchase Plan;
-13-
<PAGE>
(vi) to approve an amendment to the Registrant's 1994 Stock Incentive
Plan to increase the number of shares of Common Stock which may be issued under
the Plan from 12,501,000 to 13,001,000 shares.
The holders of (a) 8,004,699 shares of Common Stock (approximately
83.91% of the shares of Common Stock of the Registrant issued and outstanding),
(b) 1,850,000 shares of Series A Convertible Preferred Stock (100% of the shares
of Series A Convertible Preferred Stock issued and outstanding), (c) 1,716,800
shares of Series B Convertible Preferred Stock (approximately 99.2% of the
shares of Series B Convertible Preferred Stock issued and outstanding), and (d)
2,240,000 shares of Series C Convertible Preferred Stock (approximately 83.1% of
the shares of Series C Convertible Stock issued and outstanding) voted in favor
of each of the proposals listed above.
The holders of (a) 1,534,523 shares of Common Stock, (b) no shares of
Series A Convertible Preferred Stock, (c) 13,875 shares of Series B Convertible
Preferred Stock, and (d) 455,000 shares of Series C Convertible Preferred Stock
abstained.
ITEM 5. Other Information.
None
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 11 Computation of Earnings Per Share.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
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 hereunto duly authorized.
OPEN MARKET, INC.
(Registrant)
Date: August 13, 1996 By: /s/ Gary B. Eichhorn
-----------------------------
Gary B. Eichhorn,
President & Chief Executive Officer
Date: August 13, 1996 By: /s/ Regina O. Sommer
-----------------------------
Regina O. Sommer,
Chief Financial Officer
(Principal financial and accounting
officer)
-14-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description Page
- ---------- ----------- ----
11 Computation of Earnings Per Share 16
27 Financial Data Schedule (EDGAR) 17
-15-
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net loss........................ $(6,659) $(2,540) $(13,526) $(3,552)
========== ========== =========== ==========
Weighted Average Number of Shares Outstanding
Weighted average common shares
outstanding................... 17,528 9,274 13,476 9,305
Weighted average shares to
reflect common stock options
issued after March 31, 1995,
pursuant to the treasury stock
method........................ 2,068 3,619 2,844 3,619
Weighted average shares to
reflect the conversion of
Series A, B and C Preferred
Stock......................... 7,678 13,437 10,557 13,437
---------- ---------- ----------- ----------
Pro forma weighted average
number of common and common
equivalent shares
outstanding................... 27,274 26,330 26,877 26,361
========== ========== =========== ==========
Pro forma net loss per common
and common equivalent
share......................... $ (0.24) $ (0.10) $ (0.50) $ (0.13)
========== ========== =========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 81,786
<SECURITIES> 7,905
<RECEIVABLES> 1,576
<ALLOWANCES> 110
<INVENTORY> 0
<CURRENT-ASSETS> 93,980
<PP&E> 4,658
<DEPRECIATION> 1,614
<TOTAL-ASSETS> 97,169
<CURRENT-LIABILITIES> 12,236
<BONDS> 0
0
0
<COMMON> 28
<OTHER-SE> 84,777
<TOTAL-LIABILITY-AND-EQUITY> 97,169
<SALES> 3,002
<TOTAL-REVENUES> 4,708
<CGS> 132
<TOTAL-COSTS> 1,292
<OTHER-EXPENSES> 10,601
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> (6,659)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,659)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,659)
<EPS-PRIMARY> (.24)<F1>
<EPS-DILUTED> (.24)<F1>
<FN>
<F1>PRO FORMA NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE-INCLUDES COMMON
STOCK OPTIONS ISSUED AFTER MARCH 31, 1995 AS REQUIRED BY THE SECURITIES AND
EXCHANGE COMMISSION USING THE TREASURY STOCK METHOD.
</FN>
</TABLE>
