<PAGE> 1
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 AND
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _________ to _____________
Commission file number 0-26074
---------
SPYGLASS, INC.
(Exact name of registrant as specified in its charter)
Delaware 37-1258139
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1240 E. Diehl Road, 4th Floor, Naperville, IL 60563 (630) 505-1010
------------------------------------------------------------------
(Address of principal executive offices, zip code, registrant's telephone
number, including area code)
_________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
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 report) and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1997
- --------------------------------------- -----------------------------
Common Stock (par value $.01 per share) 12,049,567
<PAGE> 2
SPYGLASS, INC.
FORM 10-Q
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets
March 31, 1997 and September 30, 1996 3
Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996
Six Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended March 31, 1997 5
Consolidated Statements of Cash Flows
Six Months Ended March 31, 1997 and 1996 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
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SPYGLASS, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, SEPTEMBER 30,
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 20,693 $ 16,490
Short-term investments 16,148 17,593
Accounts receivable, net of allowance for
doubtful accounts of $350 and $470, respectively 4,940 7,608
Prepaid expenses and other assets 2,656 2,094
-------------- -----------
Total current assets 44,437 43,785
Properties, net 4,631 3,377
Long-term accounts receivable 305 618
Other assets 1,368 989
-------------- ------------
TOTAL ASSETS $ 50,741 $ 48,769
============== ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,444 $ 2,160
Deferred revenues 1,026 1,453
Accrued compensation and related benefits 1,192 952
Accrued restructuring costs 800 -
Accrued expenses and other liabilities 85 103
Deferred income taxes 216 -
-------------- ------------
Total current liabilities 5,763 4,668
Long-term deferred revenues 105 210
-------------- ------------
Total liabilities 5,868 4,878
-------------- ------------
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares authorized,
none issued - -
Common stock, $.01 par value, 50,000,000 shares
authorized, 12,034,273 and 11,819,545 shares
issued and outstanding, respectively 120 118
Additional paid-in capital 39,815 39,341
Retained earnings 4,938 4,432
-------------- ------------
Total stockholders' equity 44,873 43,891
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 50,741 $ 48,769
============== ============
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
3
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SPYGLASS, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
(In thousands, except per share amounts) 1997 1996 1997 1996
- ----------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net revenues:
World-Wide Web technology revenues $ 10,961 $ 4,205 $ 13,975 $ 8,527
Service revenues 1,054 795 1,925 1,226
--------- --------- --------- ---------
Total net revenues 12,015 5,000 15,900 9,753
Cost of revenues:
Cost of technology revenues 847 408 1,126 891
Cost of service revenues 360 30 540 30
--------- --------- --------- ---------
Total cost of revenues 1,207 438 1,666 921
--------- --------- --------- ---------
Gross profit 10,808 4,562 14,234 8,832
Operating expenses and other:
Sales and marketing 2,216 1,219 4,030 2,536
Research and development 3,435 1,488 6,360 2,679
General and administrative 1,502 979 3,120 1,879
Restructuring charge 900 - 900 -
--------- --------- --------- ---------
Income (loss) from operations 2,755 876 (176) 1,738
Other income 553 431 992 893
--------- --------- --------- ---------
Income before income taxes 3,308 1,307 816 2,631
Income tax provision 1,257 555 310 1,037
--------- --------- --------- ---------
Net income $ 2,051 $ 752 $ 506 $ 1,594
========= ========= ========= =========
Earnings per common share
and equivalents:
Net income $ 0.16 $ 0.06 $ 0.04 $ 0.12
Weighted average number of common
shares and equivalents outstanding 12,736 12,962 12,759 12,927
========= ========= ========= =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
4
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SPYGLASS, INC.
Consolidated Statements of Changes in Stockholders' Equity
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------- PAID-IN RETAINED
(In thousands, except share amounts) SHARES AMOUNT CAPITAL EARNINGS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 11,912,015 $ 119 $ 39,444 $ 2,887
Exercise of stock options 122,258 1 251
Issuance of incentive stock options 20
Issuance of incentive stock options
related to restructuring 100
Net income 2,051
---------- ---------- ---------- -----------
BALANCE AT MARCH 31, 1997 12,034,273 $ 120 $ 39,815 $ 4,938
========== ========== ========== ===========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
5
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SPYGLASS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
(In thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 506 $ 1,594
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 764 297
Deferred income taxes 216 (1,899)
Incentive stock option compensation 140 41
Other - (201)
Changes in operating assets and liabilities:
Accounts and long-term receivables 2,981 (1,814)
Prepaid expenses and other assets (941) (605)
Accounts payable 284 680
Deferred revenues (532) (309)
Accrued compensation and related benefits 240 527
Accrued restructuring costs 800 -
Accrued expenses and other liabilities (18) (300)
------- -------
Net cash provided by (used in) operating activities 4,440 (1,989)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term investments, net activity 1,445 -
Capital expenditures (2,018) (1,513)
------- -------
Net cash (used in) investing activities (573) (1,513)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options, including
tax related benefits 336 3,321
------- -------
Net cash provided by financing activities 336 3,321
------- -------
Net increase (decrease) in cash and cash equivalents 4,203 (181)
Cash and cash equivalents at beginning of period 16,490 34,872
------- -------
Cash and cash equivalents at end of period $20,693 $34,691
======= =======
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
6
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SPYGLASS, INC.
FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997
NOTE 1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared by the
Company in accordance with generally accepted accounting principles,
although certain information and footnote disclosures normally
included in the Company's audited annual financial statements have
been condensed or omitted. In the opinion of management, the
accompanying unaudited financial statements include all adjustments
(consisting only of normal recurring items) necessary for a fair
presentation of the Company's financial position, results of
operations and cash flows at the dates and for the periods indicated.
It is suggested that these interim financial statements be read in
connection with the audited financial statements for the fiscal years
ended September 30, 1996, 1995 and 1994 which are included in the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996.
The results of operations for the three and six months ended
March 31, 1997 are not necessarily indicative of the results of
operations to be expected for the full fiscal year.
NOTE 2. MICROSOFT AMENDMENT
On January 21, 1997, the Company amended its license
arrangement with Microsoft Corporation ("Microsoft"). This amendment
converted Microsoft's existing license for the Spyglass Mosaic browser
technology into a fully paid-up license in consideration of an
additional $8,000,000 payment from Microsoft. This payment consisted
of $7,500,000 in cash and $500,000 in software and product
maintenance. Spyglass recognized the revenue from this payment in the
second quarter of fiscal year 1997 ending March 31, 1997.
NOTE 3. RESTRUCTURING CHARGE
On March 10, 1997, the Company consolidated its Champaign,
Illinois development facility with its Naperville, Illinois and
Cambridge, Massachusetts locations. This consolidation reflects the
Company's evolution from its desktop focus to the Internet device
market and the realignment of its product
7
<PAGE> 8
development activities with the needs of this market. A pre-tax
charge of $900,000 was recorded in the second quarter of fiscal
1997 and consists primarily of severance and related personnel
costs of $730,000 and lease cancellation and other exit costs of
$170,000. Included in the charge for personnel costs was $100,000
of compensation expense related to the acceleration of the
exercisability of certain stock options.
NOTE 4. STOCK OPTION EXCHANGE PROGRAM
The Company uses stock options as a significant element of the
compensation of employees, in part because it believes options
provide an incentive to employees to maximize shareholder value.
Stock options also serve as a means of retaining employees.
Because the market value of the Company's common stock has fallen
significantly below the exercise price of most outstanding options,
the value of such stock options as a means of motivating and
retaining employees has been significantly diminished. The Board
of Directors concluded that the Company needed to restore the value
of the existing stock options as a means of motivating and
retaining employees in order to promote the successful
implementation of the Company's growth strategies.
As a result, on April 8, 1997, the Board of Directors approved
a stock option exchange program (the "Exchange Program"), pursuant
to which full-time permanent employees holding stock options under
the Company's 1995 Stock Incentive Plan were given the opportunity
to exchange the unexercised portion of such options (the "Existing
Options") for new options (the "New Options") on a basis of four
shares of common stock for every five shares covered by the
Existing Option and having an exercise price of $6.875 per share
(the fair market value of the Company's common stock on such date).
The New Options expire ten years from the Date of Grant and have
the same vesting schedule and other terms as the Existing Option
cancelled in exchange therefor. Option holders who own more than
1% of the Company's outstanding common stock and Directors were
excluded from the Exchange Program.
8
<PAGE> 9
SPYGLASS, INC.
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Spyglass, Inc. ("Spyglass" or the "Company") was organized as an Illinois
corporation in February 1990 and reincorporated in Delaware in May 1995.
Spyglass entered the Internet market during fiscal 1994 and from fiscal 1994
through fiscal 1996, focused its efforts on developing, marketing and
distributing World Wide Web ("WWW" or "Web") client and server technologies
for incorporation into a variety of Internet-based products and services.
Beginning in fiscal 1997, the Company has been focusing on the development,
marketing and distribution of its technologies to the Internet device market.
This market consists of non-PC devices and the underlying Internet
infrastructure. Spyglass markets Internet connectivity products to a variety
of companies such as real time operating system (RTOS) vendors and consumer and
industrial device manufacturers in the device segment of this market and
markets Internet infrastructure and application products to a variety of
companies such as the Regional Bell Operating Companies (RBOCs), telephone
companies, cable companies, Internet Service Providers (ISPs) and
internetworking hardware providers in the infrastructure segment of this
market. These technologies are designed to be embedded within Internet devices,
software applications and on-line services to bring Web functionality to these
products and services. Spyglass technology offerings include Spyglass Device
Mosaic, Spyglass MicroServer, SurfWatch ProServer, SurfWatch and SurfWatch for
Microsoft Proxy Server which began shipping in January 1997. Spyglass Web
technology is designed to be embedded inside various end-user products,
including but not limited to televisions, office equipment, database
applications, set-top boxes, CAD-CAM software, network computers and consumer
kiosks.
Spyglass acquired Stonehand Inc. ("Stonehand"), OS Technologies
Corporation ("OS Tech") and SurfWatch Software, Inc. ("SurfWatch"), in February
1996, April 1996 and April 1996, respectively, in transactions accounted for as
pooling of interests. All financial information presented includes the
accounts and results of operations of these companies for all periods
presented.
The Company pays royalties to the University of Illinois with respect to
licenses of Spyglass Mosaic. Under its agreement with the University of
Illinois, the Company's royalty rate decreased effective January 1, 1995 from
the rate previously in effect. In addition, the Company pays royalties to RSA
Data Security, Inc. with respect to licenses of the Company's technologies
containing certain RSA code, to Sun Microsystems, Inc. with respect to licenses
of the Company's technologies containing certain Java code and to Versant
Industries, Inc. with respect to licenses of SurfWatch ProServer. These
royalties are reflected in cost of revenues.
9
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This Form 10-Q contains a number of forward-looking statements. Any
statements contained herein (including without limitation statements to the
effect that the Company or its management "believes", "expects", "anticipates",
"plans" and similar expressions) that are not statements of historical fact
should be considered forward-looking statements. There are a number of
important factors that could cause the Company's actual results to differ
materially from those indicated by such forward-looking statements. These
factors include, without limitation, those set forth below.
The Company has announced an increased strategic focus on the Internet
device market. The Company is focused on the development and marketing of
technologies that enable devices, such as business productivity products,
consumer electronic devices and office equipment, to access the Web. Because
this is a new and undeveloped market, there can be no assurance as to the
extent of the demand for product offerings similar to those of the Company,
or the extent to which the Company will be successful in penetrating this
market. Moreover, the Company expects that its revenues may be adversely
affected during fiscal 1997 and 1998 as the Company redirects its business
strategy to the Internet device market, rather than vendors of desktop
software applications. In addition, the Company expects to significantly
increase its expenditures in product development, marketing and sales in
order to position itself as a leader in the Internet device market, which
should negatively impact net income during fiscal 1997.
Other factors that may affect the Company's future results of operations
include, but are not limited to, the extent to which the market for Internet
services and products develops and grows; competition from other companies that
develop and market Web technologies, as well as from potential OEM customers
which choose to internally develop Web technologies; the Company's ability to
develop and introduce new products, such as SurfWatch for Microsoft Proxy
Server and Spyglass Device Mosaic; the success of any products introduced by
the Company in the future, such as the planned releases of Spyglass Remote
Mosaic and Spyglass Prism; the performance of the Company's customers who
incorporate the Company's technology into their products; claims of
infringement of third party proprietary rights resulting in restrictions on the
Company's ability to distribute certain products or to include particular
features in its products, or requiring the Company to pay royalties in
connection with the distribution of its products; and any adverse developments
affecting the computer or communications industries in general.
The Company's quarterly operating results have varied and they may
continue to vary significantly depending on factors such as the timing of
significant license agreements, the terms of the Company's licensing
arrangements with its customers and the timing of new product introductions and
upgrades by the Company and its competitors. The Company typically structures
its license agreements with customers to require commitments for a significant
minimum number of licenses, and license revenues are recognized as the
committed licenses are purchased. The Company typically experiences the
greatest proportion of revenues in the first quarter of a license arrangement.
Additional revenues from a customer will not be earned unless and until the
initial committed levels are exceeded. The Company's revenues in any quarter
will therefore depend in significant part on its ability to sell licenses to
new customers in that quarter
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in addition to the timing of product deployment by its customers. The Company
typically structures its professional service agreements with customers to
recognize revenue on the percentage of completion method of accounting. The
Company's expense levels are based in part on expectations of future revenue
levels and any shortfall in expected revenue could therefore result in a
disproportionate decrease in the Company's net income.
On January 21, 1997, the Company amended its license arrangement with
Microsoft to convert Microsoft's existing license for the Spyglass Mosaic
browser technology into a fully paid-up license in consideration of an
additional $8,000,000 payment from Microsoft. Spyglass recognized the revenue
from this payment in the quarter ended March 31, 1997. Management believes
that its results of operations, without giving effect to this one-time event,
present a more accurate presentation of the Company's ongoing business.
Accordingly, the following analyses, including amounts and percentages, exclude
the $8,000,000 of revenue as well as the associated $600,000 of cost of sales
and $400,000 of sales expense.
SIX MONTHS ENDED MARCH 31, 1997 COMPARED WITH SIX MONTHS ENDED MARCH 31, 1996
Technology revenues for the six months ended March 31, 1997 decreased
$2,552,000 or 30%, to $5,975,000 compared to $8,527,000 for the six months
ended March 31, 1996. This decrease in technology revenues was due primarily
to a significant decline in revenues from vendors of desktop software
applications as the Company has redirected its strategic focus to the Internet
device market. During this period of strategic redirection, initial technology
license revenues will typically be a smaller component of total revenue until
such time as customer devices utilizing the Company's technology are introduced
commercially and the contractual royalty revenue stream commences.
Service revenues for the six months ended March 31, 1997 increased
$699,000, or 57%, to $1,925,000 compared to $1,226,000 for the six months ended
March 31, 1996. During the quarter ended June 30, 1996, the Company formed a
Partner Services group to serve the Internet device market. This group is
comprised of customer support and professional services personnel. The
increase in service revenues was due primarily to the increase in the number of
professional services agreements entered into by the Company. Revenues from
professional services totalled approximately $860,000 for the six months ended
March 31, 1997. The Company expects service revenues to increase both in
absolute dollars and as a percentage of revenues during fiscal 1997.
Gross profit as a percentage of revenues was 86.5% for the six months
ended March 31, 1997 compared to 90.6% for the six months ended March 31, 1996.
This decrease in gross profit percentage resulted primarily from an increase
in service revenues as a percentage of revenues, which have significantly
higher costs as a percentage of revenues than technology revenues. The Company
expects gross profit as a percentage of revenues to decline throughout fiscal
1997 as service revenues as a percentage of revenues increase.
Sales and marketing expenses for the six months ended March 31, 1997
increased $1,094,000, or 43%, to $3,630,000 from $2,536,000 for the six
months ended March 31, 1996,
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and increased as a percentage of revenues to 45.9% from 26.0%. The increased
expenses reflected staff additions in sales, marketing, and product support
(which increased the cost of salary and related personnel expenses to
$1,659,000 from $1,214,000 between these periods) to support the sale and
marketing of Spyglass product lines to the device market and higher commission
costs (which increased to $363,000 from $259,000 between these periods) due
primarily to a change in the commission structure of Spyglass as well as a
change in the former commission structures of Stonehand, OS Tech and SurfWatch
to conform to the commission structure of Spyglass. Additionally, certain
marketing initiatives, which included a print campaign as well as increased
travel and trade show appearances which were focused on increasing awareness of
the Company's products among the business and technology communities, accounted
for an increase of $448,000 in sales and marketing expenses. The Company
expects to increase its sales and marketing expenses throughout fiscal 1997 as
the Company focuses its efforts on the Internet device market.
Research and development expenses for the six months ended March 31,
1997 increased $3,681,000, or 137%, to $6,360,000 from $2,679,000 for the six
months ended March 31, 1996 and increased as a percentage of revenues to
80.5% from 27.5%. The increase in research and development expenses was due
primarily to costs of additional personnel associated with enhancements to
existing technologies as well as the development of new technologies. The
Company believes that it is necessary to make significant investments in
research and development and acquisitions of new technologies to remain
competitive and establish a leadership position in the emerging Internet
device market. The Company's current plans include increasing research and
development expenses throughout fiscal 1997.
General and administrative expenses for the six months ended March 31,
1997 increased $1,241,000, or 66%, to $3,120,000 from $1,879,000 for the six
months ended March 31, 1996 and increased as a percentage of revenues to 39.5%
from 19.3%. The increase in general and administrative expenses was due to
increases in personnel, which increased salary and related personnel expenses
to $1,341,000 from $830,000. Additionally, in order to effectively and rapidly
transition the focus of the Company from the desktop market to the Internet
device market it was necessary to incur significantly more conference, travel
and meeting expenses, which increased general and administrative expenses by
$475,000 for the six months ended March 31, 1997 as compared to the six months
ended March 31, 1996.
On March 10, 1997, the Company consolidated its Champaign, Illinois
development facility with its Naperville, Illinois and Cambridge, Massachusetts
locations. This consolidation reflects the Company's evolution from its
desktop focus to the Internet device market and the realignment of its product
development activities with the needs of this market. A pre-tax charge of
$900,000 ($558,000 after-tax or $0.04 per share for the six months ended March
31, 1997) was recorded in the second quarter of fiscal 1997 and consists
primarily of severance and related personnel costs of $730,000 and lease
cancellation and other exit costs of $170,000. Included in the charge for
personnel costs was $100,000 of compensation expense related to the
acceleration of the exercisability of certain stock options.
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The provision for income taxes for the six months ended March 31, 1997
decreased $727,000 to $310,000 from $1,037,000 for the six months ended March
31, 1996 as a result of the Company's lower income before income taxes.
QUARTER ENDED MARCH 31, 1997 COMPARED WITH QUARTER END MARCH 31, 1996
Technology revenues for the quarter ended March 31, 1997 decreased
$1,244,000 or 30%, to $2,961,000 compared to $4,205,000 for the quarter ended
March 31, 1996. This decrease in technology revenues was due primarily to a
significant decline in revenues from vendors of desktop software applications
as the Company has redirected its strategic focus to the Internet device
market.
Service revenues for the quarter ended March 31, 1997 increased $259,000,
or 33%, to $1,054,000 compared to $795,000 for the quarter ended March 31,
1996. The increase in service revenues was due primarily to the formation of
the Partner Services group and the increase in the number of professional
services agreements entered into by the Company. Revenues from professional
services approximated $557,000 in the quarter ended March 31, 1997.
Gross profit as a percentage of revenues was 84.9% for the quarter ended
March 31, 1997 compared to 91.2% for the quarter ended March 31, 1996. This
decrease in gross profit percentage resulted primarily from an increase in
service revenues as a percentage of revenues, which have significantly higher
costs as a percentage of revenues than technology revenues.
Sales and marketing expenses for the quarter ended March 31, 1997
increased $597,000, or 49%, to $1,816,000 from $1,219,000 for the quarter ended
March 31, 1996, and increased as a percentage of revenues to 45.2% from 24.4%.
The increased expenses reflected staff additions in sales, marketing, and
customer support (which increased the cost of salary and related personnel
expenses to $822,000 from $624,000 between these periods) to support the sale
and marketing of Spyglass technologies. Additionally, certain marketing
initiatives, which included increased travel and trade show appearances, which
were focused on increasing awareness of the Company's products among the
business and technology communities, accounted for an increase of $186,000 in
sales as marketing expenses.
Research and development expenses for the quarter ended March 31, 1997
increased $1,947,000, or 131%, to $3,435,000 from $1,488,000 for the quarter
ended March 31, 1996 and increased as a percentage of revenues to 85.6% from
29.8%. The increase in research and development costs was due primarily to
costs of increased personnel associated with enhancements to existing
technologies as well as the development of new technologies.
General and administrative expenses for the quarter ended March 31, 1997
increased $523,000, or 53%, to $1,502,000 from $979,000 for the quarter ended
March 31, 1996 and increased as a percentage of revenues to 37.4% from 19.6%.
The increase in general and administrative expenses was due primarily to
increases in personnel, which increased salary and related personnel expenses
to $833,000 from $437,000.
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A pre-tax charge of $900,000 ($558,000 after-tax or $0.04 per share for
the three months ended March 31, 1997) was recorded in the second quarter of
fiscal 1997 and consists primarily of severance and related personnel costs of
$730,000 and lease cancellation and other exit costs of $170,000 related to the
consolidation of the Company's research and development facilities.
The provision for income taxes for the quarter ended March 31, 1997
increased $702,000 to $1,257,000 from $555,000 for the quarter ended March 31,
1996 as a result of the Company's higher income before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had no debt and had cash and cash
equivalents and short-term investments of $36,841,000 and working capital of
$38,674,000. The Company's operating activities provided cash of $4,440,000
and used cash of $1,989,000 for the six months ended March 31, 1997 and March
31, 1996, respectively. The Company received $7,500,000 in cash from Microsoft
during the quarter ended March 31, 1997 in connection with the Company's
license arrangement as discussed in Note 2.
The Company's net accounts receivable balance decreased to $5,245,000 at
March 31, 1997 from $8,226,000 at September 30, 1996. This decrease was
primarily due to a decrease in revenues in addition to increased collection
efforts of the Company.
The Company's capital expenditures totaled $2,018,000 and $1,513,000 for
the six months ended March 31, 1997 and 1996, respectively. This increase
consists primarily of furniture, leasehold improvements and computer equipment
relating to the continued growth of the Company's infrastructure.
The Company believes that its current cash and cash equivalents, together
with funds expected to be generated from operations, will be sufficient to
finance the Company's operations through at least the twelve-month period
ending March 31, 1998.
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SPYGLASS, INC.
FORM 10-Q
PART II.
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 12, 1997, the following items were voted on at the Annual
Meeting of shareholders:
<TABLE>
<S> <C> <C> <C>
Proposal For Against Abstain
---- --------- ---------
1. To elect Timothy Krauskopf as a
Class II director to serve for a three-
year term expiring at the Annual
Meeting following the fiscal year
ended September 30, 1999 11,567,549 N/A N/A
To elect William Kaiser as a
Class II director to serve for a three-
year term expiring at the Annual
Meeting following the fiscal year
ended September 30, 1999 11,567,399 N/A N/A
2. To approve an amendment to the
Company's 1995 Stock Incentive
Plan increasing the number of shares
of Common Stock issuable under the
Plan from 1,800,000 shares to
2,550,000 shares 4,793,239 1,046,294 117,151
3. To ratify the selection of Price Water-
house LLP as the Company's
independent auditors for the current
fiscal year 11,540,178 98,309 59,757
</TABLE>
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
The exhibits are listed in the accompanying Index to Exhibits immediately
following the signature page.
(b) Reports on Form 8-K
None.
16
<PAGE> 17
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.
Spyglass, Inc.
--------------
Registrant
Date: May 14, 1997 /s/ Gary Vilchick
-----------------------
Gary Vilchick
Executive Vice President, Finance,
Administration and Operations and Chief
Financial Officer
17
<PAGE> 18
INDEX TO EXHIBITS
Sequential
Page
Exhibit No. Description Number
----------- ----------------------- ----------
27 Financial Data Schedule
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 20,693
<SECURITIES> 0<F1>
<RECEIVABLES> 5,290<F2>
<ALLOWANCES> 350<F2>
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 44,437
<PP&E> 4,631
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 50,741
<CURRENT-LIABILITIES> 5,763
<BONDS> 0<F1>
0<F1>
0<F1>
<COMMON> 120
<OTHER-SE> 44,753
<TOTAL-LIABILITY-AND-EQUITY> 50,741
<SALES> 10,961
<TOTAL-REVENUES> 12,015
<CGS> 847
<TOTAL-COSTS> 1,207
<OTHER-EXPENSES> 8,053
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 0<F1>
<INCOME-PRETAX> 3,308
<INCOME-TAX> 1,257
<INCOME-CONTINUING> 2,755
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> 2,051
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
<FN>
<F1>Amounts inapplicable or not disclosed as a separate line on the Consolidated
Balance Sheets or Consolidated Statement of Operations are reported as 0
herein.
<F2>* -Notes and accounts receivable-trade are reported net of allowances for
doubtful accounts in the Consolidated Balance Sheets.
</FN>
</TABLE>
