SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 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 0-22466
FTP SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2906463
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 BRICKSTONE SQUARE, FIFTH FLOOR
ANDOVER, MASSACHUSETTS 01810
(Address of principal executive offices) (Zip Code)
(508) 685-4000
(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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 33,436,471
-------------------------------------- ----------------------------
Class Outstanding at August 8, 1996
FTP SOFTWARE, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at June 30, 1996
and December 31, 1995 (unaudited) 3
Consolidated Statements of Operations for the three and six
months ended June 30, 1996 and 1995 (unaudited) 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1995 (unaudited) 5
Notes to Interim Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature 22
2
FTP SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 14,150 $ 30,417
Short-term investments 27,836 36,211
Accounts receivable, net of allowance
for doubtful accounts of $1,800
for 1996 and $1,600 for 1995 18,036 30,787
Inventories 1,277 1,063
Prepaid expenses and other current
assets 7,077 3,623
Income taxes 14,626 9,969
---------- ------------
Total current assets 83,002 112,070
Property and equipment, net 21,018 18,703
Purchased software, net 8,267 4,359
Investments 53,849 52,751
Deferred income taxes 2,774 1,717
Other assets 5,469 368
---------- ------------
Total assets $174,379 $189,968
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 10,946 $ 9,904
Accrued employee compensation and
benefits 3,180 4,533
Current portion of long-term
obligations 576 811
Deferred revenue 8,750 9,091
---------- ------------
Total current liabilities 23,452 24,339
Deferred income taxes 2,283 --
Long-term obligations 821 821
---------- ------------
Total liabilities 26,556 25,160
---------- ------------
Stockholders' equity:
Preferred stock, $0.01 par value;
authorized 5,000,000 shares;
none issued and outstanding -- --
Common stock, $0.01 par value;
authorized 50,000,000 shares;
issued and outstanding
26,967,104 and 26,506,729
in 1996 and 1995,
respectively 270 265
Additional paid-in capital 93,360 92,607
Retained earnings 50,541 72,130
Equity adjustments 3,652 (194)
---------- ------------
Total stockholders' equity 147,823 164,808
Total liabilities and ---------- ------------
stockholders' equity $174,379 $189,968
========== ============
The accompanying notes are an integral part of these financial statements.
3
FTP SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, June 30,
1996 1995 1996 1995
---------------------- ------------------------
REVENUE:
Product revenue $ 23,922 $30,884 $ 48,896 $ 59,545
Service revenue 4,209 3,199 8,239 5,852
-------- ------- -------- --------
Total revenue 28,131 34,083 57,135 65,397
-------- ------- -------- --------
COST OF REVENUE:
Product cost 2,659 1,705 5,235 3,653
Service cost 2,997 2,463 5,647 4,826
-------- ------- -------- --------
Total cost of revenue 5,656 4,168 10,882 8,479
-------- ------- -------- --------
GROSS MARGIN 22,475 29,915 46,253 56,918
-------- ------- -------- --------
OPERATING EXPENSES:
Sales and marketing 13,081 8,420 25,575 15,503
Product development 18,619 4,934 39,392 10,494
General and administrative 5,623 3,088 10,563 5,932
-------- ------- -------- --------
Total operating expenses 37,323 16,442 75,530 31,929
-------- ------- -------- --------
Income (loss) from operations (14,848) 13,473 (29,277) 24,989
Investment income 1,156 1,253 2,185 2,296
-------- ------- -------- --------
Income (loss) taxes (13,692) 14,726 (27,092) 27,285
(Benefit) provision for
income taxes (545) 5,412 (5,503) 10,121
-------- ------- -------- --------
Net income (loss) $(13,147) $ 9,314 $(21,589) $ 17,164
======== ======= ======== ========
Net income (loss) per
share $(.49) $.33 $(.80) $.61
======== ======= ======== ========
Weighted average common
and common equivalent
shares outstanding 26,966 28,344 26,953 28,189
======== ======= ======== ========
The accompanying notes are an integral part of these financial statements.
4
FTP SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
SIX MONTHS ENDED JUNE 30,
1996 1995
---------- ----------
Cash flows from operating activities:
Net income (loss) $(21,589) $17,164
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 5,425 2,611
Gain on disposition of property and
equipment (6) --
Provision for doubtful accounts 200 --
Write-off of acquired in-process
technology 21,761 1,129
Amortization of discounts and
premiums on investments 20 --
Tax benefit of stock option activity -- 9,883
Changes in operating assets and
liabilities net of effects
from acquisitions:
Accounts receivable 13,726 (5,791)
Inventories (87) (310)
Prepaid expenses and other
current assets (2,122) (488)
Income taxes (6,629) (1,849)
Other assets (371) (138)
Accounts payable and accrued expenses 127 (1,008)
Accrued employee compensation and
benefits (1,924) 149
Deferred revenue (341) 2,106
-------- ----------
Net cash provided by operating
activities 8,190 23,458
-------- ----------
Cash flows from investing activities:
Capital expenditures (5,820) (2,966)
Proceeds from disposition of property
and equipment 16 --
Maturities of investments 13,716 6,453
Acquisitions, net of cash acquired (28,638) (2,365)
Increase in notes receivable (4,171) --
Other investing activities (56) --
-------- ----------
Net cash (used for) provided by
investing activities (24,953) 1,122
-------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock 758 4,163
Principal payments on long-term
obligations (235) --
-------- ----------
Net cash provided by financing
activities 523 4,163
-------- ----------
Effect of exchange rate changes on cash (27) --
-------- ----------
Net (decrease) increase in cash and
cash equivalents (16,267) 28,743
Cash and cash equivalents, beginning of
period 30,417 10,896
-------- ----------
Cash and cash equivalents, end of period $ 14,150 $39,639
======== ==========
The accompanying notes are an integral part of these financial statements.
5
FTP SOFTWARE, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM FINANCIAL DATA
The accompanying unaudited consolidated financial statements have been
prepared by FTP Software, Inc. ("FTP" or the "Company") in accordance with
generally accepted accounting principles. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all
adjustments, consisting only of those of a normal recurring nature, 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. While the
Company believes that the disclosures presented are adequate to make the
information not misleading, these financial statements should be read in
conjunction with the audited consolidated financial statements and notes related
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
The results of the three- and six-month periods ended June 30, 1996 are not
necessarily indicative of the results to be expected for the full fiscal year.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. ACQUISITIONS
On April 1, 1996, the Company acquired all of the outstanding stock of
Campbell Services, Inc. ("Campbell Services"), the Southfield, Michigan-based
developer of OnTime, for a net cash purchase price of approximately $15.0
million through the merger of a subsidiary of FTP into Campbell Services, which
continues to operate as a wholly-owned subsidiary of FTP. This transaction was
accounted for as a purchase. Based upon a valuation of the assets acquired,
approximately $3.2 million was allocated to completed technology, which is
included in purchased software and is being amortized over its estimated useful
life of three years; approximately $9.8 million was allocated to in-process
technology and charged to product development expense in the three-month period
ended June 30, 1996; approximately $0.5 million was allocated to the net assets
of Campbell Services; and the remaining $1.5 million was recorded as goodwill,
which is included in other assets and is being amortized over its estimated
useful life of three years.
In February 1996, the Company acquired the Mariner product line of
Networking Computing Devices, Inc. for a net cash purchase price of
approximately $7.4 million. In March 1996, the Company acquired substantially
all of the assets of HyperDesk Corporation, including its GroupWorks product,
for a net cash purchase price of approximately $6.3 million. These transactions
were accounted for as purchases and accordingly the Company has allocated
approximately $1.8 million primarily to completed technology, which is included
in purchased
6
software and is being amortized over their estimated useful lives
of three years. The remaining $11.9 million was allocated to in-process
technology and charged to product development expense in the three-month period
ended March 31, 1996.
Results of operations include activity from the Mariner, HyperDesk and
Campbell Services acquisitions since the dates of the acquisitions in February,
March and April of 1996, respectively. Pro forma presentation as if these
transactions occurred at January 1, 1996 is not presented as the impact would be
immaterial.
On July 22, 1996, the Company acquired Firefox Communications Inc.
("Firefox"), a supplier of server-centric departmental and LAN-based IP
solutions and services, through a merger of a wholly-owned subsidiary of the
Company into Firefox (the "Merger"). Pursuant to the Merger, all of the
outstanding shares of the common stock of Firefox were converted into a total of
approximately 6,397,324 shares of the Company's common stock and approximately
$9.1 million in cash. The transaction will be accounted for as a purchase, and
the Company expects that a significant portion of the purchase price will be
allocated to in-process technology and charged to operations in the third
quarter of 1996.
The Company allocates the purchase price of acquired technologies to
completed technology and in-process technology based upon their respective fair
values. Completed technology that had reached technological feasibility was
valued using a risk adjusted cash flow model under which future cash flows were
discounted, taking into account risks related to existing and future markets and
assessments of the life expectancy of completed technology. In-process
technology that had not reached technological feasibility and that had no
alternative future use was valued by using the same method. Expected future
cash flows associated with in-process technology were discounted considering
risks and uncertainties related to the viability of and to potential changes in
the future target markets and to the completion of the products expected to
ultimately be marketed by the Company. Amounts charged to product development
expense for in-process technology are either not fully deductible in the same
period or are non-deductible for tax purposes.
3. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year's presentations.
Certain components of the statement of cash flows for the six-month period
ended June 30, 1995 have been reclassified to appropriately reflect the
acquisition of substantially all of the assets of Keyword Office Technologies
Ltd. in March 1995. These reclassifications had no impact on the net increase
in cash and cash equivalents during the period.
4. LEGAL PROCEEDINGS
On March 14, 1996, a class action lawsuit was filed in the United States
District Court for the District of Massachusetts, naming FTP, certain of its
officers and two former officers as defendants. The lawsuit, captioned Lawrence
--------
M. Greebel v. FTP Software Inc., et al., Civil Action No. 96-10544, alleges that
- ---------------------------------------
the defendants publicly issued false and misleading statements and omitted to
disclose material facts necessary to make such statements not false and
misleading, which the plaintiffs contend caused an artificial inflation in the
price of FTP's
7
common stock. Specifically, the complaint alleges that the
defendants knowingly concealed adverse facts and made false or misleading
forward and non-forward looking statements concerning the operating results and
financial condition of FTP, the effects of the Company's July 1995 corporate
restructuring and changing competitive factors in FTP's industry. The lawsuit,
which is purportedly brought on behalf of a class of purchasers of FTP's common
stock during the period from July 14, 1995 to January 3, 1996, alleges
violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Rule 10b-5 thereunder and seeks
relief in the form of unspecified compensatory damages, costs and expenses and
such other relief as the Court deems proper and just. Plaintiffs have indicated
that they intend to file an amended complaint sometime in the near future.
Until then, defendants are not required to respond to the complaint. FTP has
reviewed the allegations in the lawsuit, believes them to be without merit, and
intends to defend itself and its officers vigorously. In order to support an
adequate defense, FTP may be required to expend substantial sums for legal and
expert fees and costs. The cost of defending the litigation and the outcome of
the litigation are uncertain and cannot be estimated. If the lawsuit were
determined adversely to FTP, FTP could be required to pay a substantial
judgment, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
On February 23, 1996, a class action lawsuit, captioned Richard Zeid and
----------------
Siom Misrahi et al. v. John Kimberley, Frank M. Richardson, Mark A. Rowlinson
- -----------------------------------------------------------------------------
and Firefox Communications, Inc., Case No. C96 20136, was filed in the United
- --------------------------------
States District Court for the Northern District of California, San Francisco
Division (transferred to the San Jose Division) naming Firefox and certain of
its current and former officers and former directors as defendants. The
original complaint alleged that the defendants misrepresented or failed to
disclose material facts about Firefox's operations and financial results, which
the plaintiffs contended resulted in an artificial inflation of the price of
Firefox's common stock. The suit was purportedly brought on behalf of a class
of purchasers of Firefox's common stock during the period from August 3, 1995 to
January 2, 1996. The complaint alleged claims for violations of Sections 10(b)
and 20(a) of the Exchange Act and Rule 10b-5 thereunder and sought relief in the
form of unspecified compensatory damages, pre- and post-judgment interest,
attorneys and expert witness fees and other extraordinary, equitable and/or
injunctive relief as permitted by law, equity and the federal statutory
provisions under which the suit was brought. On June 5, 1996, the District
Court entered an order dismissing plaintiffs' complaint. Certain of plaintiffs'
claims that alleged that Firefox was responsible for false and misleading
analysts reports, Firefox statements and financial statements were dismissed
with leave to amend. In addition, certain of plaintiffs' claims that warnings
and disclosures in Firefox's Form 10-Qs were false and misleading were dismissed
with prejudice.
On July 19, 1996, plaintiffs filed an amended complaint. The amended
complaint alleges that defendants misrepresented or failed to disclose material
facts about Firefox's operations and financial results which the plaintiffs
contend resulted in an artificial inflation of the price of Firefox's common
stock. The amended complaint is purportedly brought on behalf of a class of
purchasers of Firefox's common stock during the period from July 20, 1995 to
January 2, 1996. The amended complaint also alleges claims for violations of
Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder and seeks
relief in the form of unspecified compensatory damages, pre- and post-judgment
interest, attorneys and expert witness fees and such extraordinary, equitable
and/or injunctive relief as is permitted by law, equity and the federal
statutory provisions under which the suit was brought. Specifically, the
8
amended complaint alleges that defendants knew allegedly material adverse non-
public information about Firefox's financial results and business conditions
which allegedly was not disclosed, that they improperly directed that certain
sales and revenues be recognized and failed to keep adequate reserves and
participated in drafting, reviewing and/or approving allegedly misleading
statements, releases, analysts reports and other public representations,
including disclaimers and warnings of and about Firefox. The amended complaint
also alleges that John A. Kimberley, an officer and director of Firefox, and
Frank Richardson, a former officer and director of Firefox, are liable as
"controlling persons" of Firefox.
Firefox has reviewed the allegations in the lawsuit, believes them to be
without merit and intends to defend itself and its officers and directors
vigorously. In order to support an adequate defense, Firefox may be required to
expend substantial sums for legal and expert fees and costs. The cost of
defending the litigation and the outcome of the litigation are uncertain and
cannot be estimated. If the lawsuit were determined adversely to Firefox,
Firefox could be required to pay a substantial judgment, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW; RECENT DEVELOPMENTS
The following discussion and analysis provides information that management
of FTP Software, Inc. ("FTP" or the "Company") believes is relevant to an
assessment and understanding of FTP's consolidated results of operations and
financial condition for the three- and six-month periods ended June 30, 1996.
This discussion should be read in conjunction with FTP's unaudited consolidated
financial statements and the notes related thereto included elsewhere herein.
Forward-looking statements in this section and elsewhere in this Report are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. All forward-looking statements involve risks and
uncertainties, and actual results could differ materially from those projected
in the forward-looking statements contained herein for a variety of reasons.
These reasons include, but are not limited to, competition, technological and
other market changes, increased demands on management as a result of recent
acquisitions, changes in distributor terms or performance, and other risks
outlined in Exhibit 99, "Cautionary Factors Relevant to Forward-Looking
Statements," to this Report ("Exhibit 99"), incorporated herein by reference.
FTP designs, develops, markets and supports software products that enable
personal computer users to find, access and use heterogeneous hardware,
information and applications resources across local area, enterprise-wide and
global networks. The Company's principal networking products, OnNet(R) and
PC/TCP(R), which are based upon the industry standard Transmission Control
Protocol/Internet Protocol ("TCP/IP") data communications protocol suite, enable
remote access, file and resource sharing and other applications across a variety
of operating systems, computing platforms and network environments. To date,
substantially all of FTP's revenue has been attributable to sales of its OnNet
and PC/TCP product lines. Other FTP products allow users to search, organize and
share information, view and convert documents in a large number of different
formats, including legacy formats, and collaborate with other users. The
Company's products emphasize performance, reliability, functionality, robustness
and compatibility, which the Company believes are the key purchasing criteria,
along with technical support and special engineering capability, for
organizations establishing and expanding computer networks.
FTP made substantial investments in new technologies during the six-month
period ended June 30, 1996. In February 1996, FTP acquired the Mariner product
line of Network Computing Devices, Inc. for a net cash purchase price of
approximately $7.4 million. In March 1996, FTP acquired substantially all of the
assets of HyperDesk Corporation, including its GroupWorks product, for a net
cash purchase price of approximately $6.3 million. In April 1996, FTP acquired
all of the outstanding stock of Campbell Services, Inc. ("Campbell Services"),
the Southfield, Michigan-based developer of OnTime, for a net cash purchase
price of approximately $15.0 million through the merger of a subsidiary of FTP
into Campbell Services, which continues to operate as a wholly-owned subsidiary
of FTP.
In 1996, it became evident that the increasingly rapid evolution of the
Internet market was resulting in confusion among even sophisticated users of
TCP/IP and Internet products as
10
to the capabilities and the interplay of the various products available in the
market, including the potential for the combination of such products to form
private intranets. As a result, and in connection with its determination to
effect certain cost-cutting measures, FTP decided to reorganize its operations
to better position itself to address customer needs and to take advantage of the
market potential for intranet product suites incorporating both TCP/IP and
Internet products. Such cost-cutting measures included a reduction of
approximately 10% in the number of FTP's full-time employees, effected May 1,
1996. See "-- Liquidity and Capital Resources" below.
On July 22, 1996, FTP acquired Firefox Communications Inc. ("Firefox")
through the merger of a subsidiary of FTP into Firefox, which continues to
operate as a wholly-owned subsidiary of FTP. Pursuant to the merger, all of the
outstanding common stock of Firefox was converted into a total of approximately
6,397,324 shares of FTP's common stock and approximately $9.1 million in cash.
Firefox develops, markets and supports server-based networking connectivity and
communications software. Firefox's products provide connectivity for local area
networks ("LANs") running Novell NetWare and allow work groups to access local
and remote computing resources, including the Internet, across different
networking protocols and client operating systems. Firefox's products are
centrally configured on the server and integrated with the network operating
system ("NOS"), thereby taking advantage of the management and security features
already implemented in the NOS and enhancing control, administration and
security of the LAN.
Looking forward, FTP intends to continue to make substantial investments in
its business (including through internal and joint third party development
activities, royalty agreements and acquisitions) over the foreseeable future,
through the use of FTP's internal cash resources, the issuance of shares of its
common stock or other securities, or a combination thereof. There can be no
assurance, however, that the capital resources necessary in order to fund such
investments will be available or that, if available, such resources will be on
terms acceptable to FTP.
TOTAL REVENUE
Total revenue consists of product revenue and service revenue. Product
revenue includes revenue from product sales and royalties from certain OEM
customers. Service revenue includes revenue from maintenance, consulting and
training contracts and is recognized ratably over the length of the contract
periods.
Total revenue decreased from approximately $34.1 million in the second
quarter of 1995 to approximately $28.1 million in the second quarter of 1996.
Product revenue decreased from approximately $30.9 million in the second quarter
of 1995 to approximately $23.9 million in the second quarter of 1996. As a
percentage of total revenue, product revenue decreased from approximately 91% in
the second quarter of 1995 to approximately 85% in the same period in 1996.
Service revenue increased from approximately $3.2 million in the second quarter
of 1995 to approximately $4.2 million in the second quarter of 1996. As a
percentage of total revenue, service revenue increased from approximately 9% in
the second quarter of 1995 to approximately 15% in the same quarter of 1996.
The Company's total revenue decreased from approximately $65.4 million
in the first six months of 1995 to approximately $57.1 million in the first six
months of 1996. Product revenue
11
decreased from approximately $59.5 million (approximately 91% of total revenue)
in the first six months of 1995 to approximately $48.9 million (approximately
86% of total revenue) in the first six months of 1996. Service revenue increased
from approximately $5.9 million (approximately 9% of total revenue) in the first
six months of 1995 to approximately $8.2 million (approximately 14% of total
revenue) in the first six months of 1996.
While unit sales increased from the three- and six-month periods ended
June 30, 1995 to the three- and six-month periods ended June 30, 1996, product
revenue decreased over such periods primarily as a result of an increase in the
number of competitors and competing products offered in the TCP/IP market, and
both a lengthening of the product sales cycles and lower average unit sales
prices for FTP's products, which FTP believes was attributable not only to such
increased competition but also to an increase in lower-priced or no-cost
products introduced by certain of FTP's competitors in the third and fourth
quarters of 1995 and a decrease in customer demand for DOS-based products. In
addition, the Company believes that federal government budgetary uncertainties
that existed during 1995 and the first three months of 1996 resulted in a
decrease in sales to federal government customers during the first quarter of
1996, which also contributed to the product revenue decrease in the current year
six-month period. The increases in service revenue from the three- and six-
month periods ended June 30, 1995 to the three- and six-month periods ended June
30, 1996 were primarily attributable to increased growth in FTP's installed
product base from which such revenues are obtained. FTP anticipates that
service revenue will continue to increase as a percentage of total revenue as
FTP's installed product base continues to grow and as FTP markets its services
more effectively to customers.
International sales consist of export sales, primarily to customers in
Europe, Asia Pacific and Canada. International sales of approximately $14.6
million and $9.9 million accounted for approximately 43% and 35% of total
revenue for the second quarter of 1995 and 1996, respectively. International
sales of approximately $29.6 million and $23.8 million accounted for
approximately 45% and 42% of the Company's total revenue for the six months
ended June 30, 1995 and 1996, respectively. The decreases from the second
quarter of 1995 to the second quarter of 1996 and from the first six months of
1995 to the first six months of 1996 were primarily due to increased
competition, longer sales cycles and lower average unit sales prices as
described in the preceding paragraph. Also contributing to the percentage
decreases over such periods was the effect of an increase in the Company's U.S.
sales base resulting from the acquisition of Campbell Services. Unfavorable
monetary conditions that existed in certain Latin American countries during the
first quarter of 1996 resulted in a slight decrease in sales and/or a slight
decrease in average unit sales prices to customers in those countries during
that quarter, which also contributed to the product revenue decrease in the
current year six-month period.
Historically, FTP has priced, invoiced and collected international sales
primarily in United States dollars. Accordingly, currency fluctuations have not
had a material effect on FTP's income from operations. However, Firefox prices,
invoices and collects a substantial portion of its sales in foreign currencies,
primarily British pounds sterling. In addition, FTP anticipates that as the size
of its international customers and contracts increases, it will also transact a
greater number of sales in local currencies. Accordingly, the Company
anticipates that currency fluctuations will have an increased effect on its
results of operations and financial condition.
12
As indicated above, FTP is facing increasing competition in the TCP/IP
market which has resulted in a lengthening of the sales cycles and a decrease in
average unit sales prices for FTP's products. In response to increased pricing
pressures from competitors, FTP may further reduce the average unit sales prices
for its products. If this occurs and if FTP is unable to increase unit sales to
offset any such reduction or effect offsetting cost reductions, there may be a
material adverse effect on FTP's results of operations and financial condition.
The slow-down in FTP's sales is also due, in part, to technological changes in
the market such as the decline in the use of DOS-based computing systems, to the
embedding of competing products into new PCs, and to slower sales rates similar
in effect to those experienced and announced by hardware and other software
manufacturers. The continuation of these trends may continue to have a material
adverse effect on FTP's revenue.
Additionally, management of FTP believes that the rapid expansion of its
sales and marketing force since January 1, 1995, from 220 persons at December
31, 1994 to 329 persons at December 31, 1995 to 375 persons at May 2, 1996, and
the opening and expansion of several new offices outside of the United States
during 1995 and early 1996 has resulted in certain inefficiencies in its sales
and marketing organizations. If such inefficiencies cannot be eliminated, FTP
will not be able to take full advantage of the expansion of its sales and
marketing organizations, which may have a material adverse effect on its results
of operations. Also, the Company's recent acquisitions, particularly its
acquisition of Firefox, have required the attention and dedication of management
and other resources, which has caused a disruption of the business activities of
the Company and, in the case of the Firefox acquisition, Firefox, as well as a
loss of momentum in the business of Firefox. Finally, the Company has
experienced a loss of additional personnel since the May 1996 reorganization
described above under "-- Overview," which the Company believes is attributable
to increased competition for qualified personnel in the industry and, to a
lesser extent, the integration of Firefox and other recent acquisitions. FTP's
ability to maintain or increase revenue will be dependent upon its ability to
effectively respond to these factors. See Exhibit 99 for additional discussion
of these and other factors which may affect FTP's business, revenue and
financial condition.
GROSS MARGIN
Product gross margin as a percentage of product revenue was approximately
94% for both the three- and six-month periods ended June 30, 1995 and
approximately 89% for both the three- and six-month periods ended June 30, 1996.
The product gross margin percentage decreases from 1995 to 1996 reflected both
the decreases in product revenue described above under "-- Total Revenue" and
increases in costs, primarily those associated with the amortization of
technologies licensed or purchased in 1995 and 1996. Amortization expenses were
approximately $0.8 million and $2.2 million for the three- and six-month periods
ended June 30, 1996, respectively, compared to approximately $0.7 million and
$1.6 million, respectively, for the same periods in 1995.
Service gross margin as a percentage of service revenue was approximately
23% and 29% for the second quarter of 1995 and 1996, respectively, and
approximately 18% and 31% for the six months ended June 30, 1995 and 1996,
respectively. These increases are primarily attributable to a higher rate of
increase in FTP's installed product base from which such revenues are obtained
over the cost of providing such services.
13
The gross margins reported above are not necessarily indicative of gross
margin for future periods, which may vary significantly depending on, among
other things, product mix, price competition, technological change, cost changes
and changes in product distribution channels. As noted above under "-- Total
Revenue," FTP believes that average unit sales prices for its products may
continue to decrease as the markets for those products continue to become more
competitive, reducing gross margin on those products.
SALES AND MARKETING
Sales and marketing expenses increased from approximately $8.4 million
in the second quarter of 1995 to approximately $13.1 million in the second
quarter of 1996. Such expenses as a percentage of total revenue were
approximately 25% in the second quarter of 1995 and approximately 47% in the
second quarter of 1996. Sales and marketing expenses increased from
approximately $15.5 million in the first six months of 1995 to approximately
$25.6 million in the first six months of 1996. Such expenses as a percentage of
total revenue were approximately 24% and 45% for the six-month periods ended
June 30, 1995 and 1996, respectively. The $4.7 million increase in the second
quarter of 1996 and the $10.1 million increase in the first six months of 1996
were primarily the result of efforts to increase sales through the opening and
expansion of several international and domestic offices beginning in the first
quarter of 1995 (including the opening and expansion of offices in Europe and
the opening of offices in Japan and Singapore), increasing the number of sales
and marketing employees and increasing the levels of advertising, trade show and
international marketing activities. The percentage increases over these periods
were due to both the dollar increases in such expenses described above and the
dollar decreases in revenue over such periods described under "-- Total Revenue"
above.
FTP expects to continue to incur significant expenses during 1996 relating
to continued domestic and international sales and marketing activities and the
expansion of certain of FTP's international offices. In addition, FTP expects to
incur both proportionately and incrementally higher sales and marketing expenses
in the remainder of 1996 related to the integration of Firefox. As a result of
these factors, sales and marketing expenses are expected to continue to increase
both in dollars and as a percentage of revenue in 1996.
PRODUCT DEVELOPMENT
Product development expenses increased from approximately $4.9 million in
the second quarter of 1995 to approximately $18.6 million in the second quarter
of 1996, representing approximately 14% and 66% of total revenue for each
period, respectively. Product development expenses increased from approximately
$10.5 million in the first six months of 1995 to approximately $39.4 million in
the first six months of 1996, representing approximately 16% and 69% of total
revenue for each period, respectively.
The $13.7 million increase in product development expenses in the second
quarter of 1996 is primarily attributable to a charge of approximately $9.8
million (approximately 35% of total revenue) for acquired in-process technology
related to the acquisition of Campbell Services and to additional compensation
expenses related to an increase in personnel compared to the prior year period.
The $28.9 million increase in product development expenses in the first six
months of 1996 is primarily attributable to charges totaling approximately $21.8
million (approximately 38% of total revenue) for acquired in-process
14
technologies related to the Campbell Services, HyperDesk and Mariner
acquisitions described under "-- Overview" and to additional compensation
expenses related to the aforementioned increase in personnel.
Excluding the $9.8 million charge for acquired in-process technology in the
second quarter of 1996, product development expenses as a percentage of total
revenue increased from approximately 14% for the second quarter of 1995 to
approximately 31% for the second quarter of 1996. Excluding a $1.1 million
charge for acquired in-process technology in the first quarter of 1995 and the
$21.8 million charges for acquired in-process technologies in the current year
six-month period, product development expenses as a percentage of total revenue
increased from approximately 14% for the six months ended June 30, 1995 to
approximately 31% for the six months ended June 30, 1996. Such percentage
increases are primarily attributable to the decreases in total revenue and the
increases in personnel-related expenses in the current year periods compared to
the prior year periods.
FTP expects product development expenses to continue to increase in the
remainder of 1996 both as a result of the growing demand of customers for
increased functionality in networking software products and as a result of the
Campbell Services and Firefox acquisitions.
The Company allocates the purchase price of acquired technologies to
completed technology and in-process technology based upon their respective fair
values. Completed technology that has reached technological feasibility is
valued using a risk adjusted cash flow model under which future cash flows are
discounted, taking into account risks related to existing and future markets and
assessments of the life expectancy of the completed technology. In-process
technology that has not reached technological feasibility and that has no
alternative future use is valued using the same method. Expected future cash
flows associated with in-process technology are discounted considering risks and
uncertainties related to the viability of and to the potential changes in future
target markets and to the completion of the products expected to ultimately be
marketed by the Company. Amounts charged to product development expense for in-
process technology are either not fully deductible in the same period or are
non-deductible for tax purposes.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased from approximately $3.1
million in the second quarter of 1995 to approximately $5.6 million in the
second quarter of 1996, representing approximately 9% and 20% of total revenue
for such periods, respectively. General and administrative expenses increased
from approximately $5.9 million in the first six months of 1995 to approximately
$10.6 million in the first six months of 1996, representing approximately 9% and
18% of total revenue, respectively. Approximately $1.0 million of both the $2.5
million increase in the second quarter of 1996 and the $4.7 million increase in
the first six months of 1996 was related to expenses incurred in connection with
the May 1996 reorganization of the Company described above under "-- Overview";
the remainder of the increases in the current year three- and six-month periods
was primarily due to expenses relating to an increase in personnel compared to
the same periods of 1995. The percentage increases over such periods were also
due to such factors as well as to the decreases in revenue over such periods
described above under "-- Total Revenue."
15
INCOME (LOSS) FROM OPERATIONS
The Company had income from operations of approximately $13.5 million in
the second quarter of 1995 compared to a loss from operations of approximately
$14.8 million in the second quarter of 1996, representing approximately 40% and
(53)% of total revenue for each period, respectively. The Company had income
from operations of approximately $25.0 million in the six months ended June 30,
1995 compared to a loss from operations of approximately $29.3 million in the
six months ended June 30, 1996, representing approximately 38% and (51)% of
total revenue for each period respectively. These decreases were primarily due
to the decreases in total revenue described above under "--Total Revenue," the
charges for the acquisitions of in-process technologies described above under
"--Product Development," the expenses related to the Company's May 1996
reorganization described above under "-- General and Administrative," and the
other increases in expenses described above.
Excluding the $9.8 million charge for acquired in-process technology in the
second quarter of 1996 and the $1.0 million of expenses related to the Company's
May 1996 reorganization referred to above, loss from operations was
approximately $4.0 million (approximately (14)% of total revenue) for the second
quarter of 1996. For the six months ended June 30, 1995, excluding a $1.1
million charge for acquired in-process technology in the first quarter of 1995,
income from operations was approximately $26.1 million (approximately 40% of
total revenue); for the six months ended June 30, 1996, excluding the $21.8
million of charges for acquired in-process technology and the expenses of the
May 1996 reorganization, loss from operations was approximately $6.5 million
(approximately (11)% of total revenue).
As described in its Joint Proxy Statement/Prospectus dated June 26, 1996
relating to the Firefox acquisition, the Company expects that a significant
portion of the purchase price for the Firefox acquisition will be allocated to
in-process technology and charged to operations in the third quarter of 1996,
which is expected to cause the Company to incur a loss from operations both for
that quarter and for 1996.
INVESTMENT INCOME
Investment income decreased from approximately $1.3 million in the second
quarter of 1995 to approximately $1.2 million in the second quarter of 1996 and
from approximately $2.3 million in the first six months of 1995 to approximately
$2.2 million in the first six months of 1996. The decreases from 1995 to 1996
were primarily attributable to a reduction in the Company's investment portfolio
resulting from the investment of cash in the acquisition of new technologies in
1996 as described above under "-- Overview." The Company places net cash
provided by operating activities into high grade tax-free municipal bonds, U.S.
government treasury obligations, high grade corporate obligations and equity
investments.
PROVISION FOR INCOME TAXES
The provision for income taxes was approximately $5.4 million in the
second quarter of 1995 compared to a benefit of approximately $0.5 million in
the second quarter of 1996. The effective tax rate decreased from 37% in the
second quarter of 1995 to 4% in the second quarter of 1996. The provision for
income taxes was approximately $10.1 million in the first six months of 1995
compared to a benefit of approximately $5.5 million in the first six months of
1996. The effective tax rate decreased from 37% in the first six months of 1995
to 20% in the
16
first six months of 1996. The Company has decreased its effective tax rate in
the current year periods to adjust for the non-deductibility for federal income
tax purposes of certain of the expenses incurred or to be incurred by the
Company in connection with the Campbell Services acquisition and the decline in
operating results in 1996. Also contributing to the difference between the
statutory rate and the effective rate for each period were the tax benefits from
the Company's foreign sales corporation, exempt interest income and research and
experimentation credits.
Because certain of the additional expenses incurred or to be incurred by
FTP subsequent to the second quarter of 1996 in connection with the Firefox
acquisition will not be deductible for federal income tax purposes, FTP
anticipates that the effective tax rate for subsequent quarters of 1996 will
continue to be adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, FTP had an aggregate of approximately $95.8 million in
cash and cash equivalents, short-term investments and long-term investments. Of
this amount, approximately $14.2 million was invested primarily in highly liquid
investments with original maturities of three months or less, approximately
$27.8 million was invested in short-term investments consisting of U.S.
government obligations and commercial paper with maturities of less than one
year and approximately $53.8 million was invested U.S. government obligations,
commercial paper and municipal obligations with maturities of greater than one
year and in equity investments. For the six months ended June 30, 1995 and 1996,
FTP generated funds from operations of approximately $23.5 million and $8.2
million, respectively.
Accounts receivable, net, totaled approximately $30.8 million at December
31, 1995 and approximately $18.0 million at June 30, 1996. The decrease in
accounts receivable from December 31, 1995 to June 30, 1996 is primarily
attributable to the decrease in revenue in the first six months of 1996 and to
the payment in early 1996 of a substantial portion of the accounts receivable
outstanding at December 31, 1995.
In March 1995, FTP acquired substantially all of the assets of Keyword
Office Technologies Ltd. for a net cash purchase price of approximately $2.4
million. As noted above under "-- Overview," in February 1996, FTP acquired the
Mariner product line of Network Computing Devices, Inc. for a net cash purchase
price of approximately $7.4 million; in March 1996, FTP acquired substantially
all of the assets of HyperDesk Corporation for a net cash purchase price of
approximately $6.3 million; and in April 1996, FTP acquired all of the
outstanding stock of Campbell Services by merger for a net cash purchase price
of approximately $15.0 million. In July 1996, FTP acquired Firefox by merger
pursuant to which all of the outstanding common stock of Firefox was converted
into a total of approximately 6,397,324 shares of FTP's common stock and
approximately $9.1 million in cash.
FTP made capital expenditures of approximately $3.0 million and $5.8
million in the six months ended June 30, 1995 and 1996, respectively. The
increase in capital expenditures in the six months ended June 30, 1996 is
primarily the result of the purchase of equipment, primarily relating to
information systems.
In connection with the May 1996 reorganization described above under
"-- Overview," FTP recorded a restructuring charge during the second quarter of
1996 of approximately $1.0
17
million, which includes severance payments and other related expenses incurred
in connection with such reorganization.
To date, inflation has not had a material impact on the Company's financial
results.
Looking forward, FTP believes that its available cash, cash equivalents and
short-term investments and expected cash flow from operations will be sufficient
to fund FTP's operations at least through 1996. As noted above under
"-- Overview," FTP intends to fund its future acquisitions through its cash
resources, the issuance of shares of its common stock or other securities, or a
combination thereof. There can be no assurance, however, that the capital
resources necessary to continue to fund its operations or such acquisitions will
be available or that, if available, such resources will be on terms acceptable
to FTP.
On March 14, 1996, a class action lawsuit was filed in the United States
District Court for the District of Massachusetts, naming FTP, certain of its
officers and two former officers as defendants. The lawsuit, captioned
Lawrence M. Greebel v. FTP Software Inc., et al., Civil Action No. 96-10544,
- -------------------------------------------------
alleges that the defendants publicly issued false and misleading statements and
omitted to disclose material facts necessary to make such statements not false
and misleading, which the plaintiffs contend caused an artificial inflation in
the price of FTP's common stock. Specifically, the complaint alleges that the
defendants knowingly concealed adverse facts and made false or misleading
forward and non-forward looking statements concerning the operating results and
financial condition of FTP, the effects of the Company's July 1995 corporate
restructuring and changing competitive factors in FTP's industry. The lawsuit,
which is purportedly brought on behalf of a class of purchasers of FTP's common
stock during the period from July 14, 1995 to January 3, 1996, alleges
violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Rule 10b-5 thereunder and seeks
relief in the form of unspecified compensatory damages, costs and expenses and
such other relief as the Court deems proper and just. Plaintiffs have indicated
that they intend to file an amended complaint sometime in the near future.
Until then, defendants are not required to respond to the complaint. FTP has
reviewed the allegations in the lawsuit, believes them to be without merit, and
intends to defend itself and its officers vigorously. In order to support an
adequate defense, FTP may be required to expend substantial sums for legal and
expert fees and costs. The cost of defending the litigation and the outcome of
the litigation are uncertain and cannot be estimated. If the lawsuit were
determined adversely to FTP, FTP could be required to pay a substantial
judgment, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
On February 23, 1996, a class action lawsuit, captioned Richard Zeid
------------
and Siom Misrahi et al. v. John Kimberley, Frank M. Richardson, Mark A.
- -----------------------------------------------------------------------
Rowlinson and Firefox Communications, Inc., Case No. C96 20136, was filed in the
- ------------------------------------------
United States District Court for the Northern District of California, San
Francisco Division (transferred to the San Jose Division) naming Firefox and
certain of its current and former officers and former directors as defendants.
The original complaint alleged that the defendants misrepresented or failed to
disclose material facts about Firefox's operations and financial results, which
the plaintiffs contended resulted in an artificial inflation of the price of
Firefox's common stock. The suit was purportedly brought on behalf of a class
of purchasers of Firefox's common stock during the period from August 3, 1995 to
January 2, 1996. The complaint alleged claims for violations of Sections 10(b)
and 20(a) of the Exchange Act and Rule 10b-5 thereunder and sought relief in the
form of
18
unspecified compensatory damages, pre- and post-judgment interest, attorneys and
expert witness fees and other extraordinary, equitable and/or injunctive relief
as permitted by law, equity and the federal statutory provisions under which the
suit was brought. On June 5, 1996, the District Court entered an order
dismissing plaintiffs' complaint. Certain of plaintiffs' claims that alleged
that Firefox was responsible for false and misleading analysts reports, Firefox
statements and financial statements were dismissed with leave to amend. In
addition, certain of plaintiffs' claims that warnings and disclosures in
Firefox's Form 10-Qs were false and misleading were dismissed with prejudice.
On July 19, 1996, plaintiffs filed an amended complaint. The amended
complaint alleges that defendants misrepresented or failed to disclose material
facts about Firefox's operations and financial results which the plaintiffs
contend resulted in an artificial inflation of the price of Firefox's common
stock. The amended complaint is purportedly brought on behalf of a class of
purchasers of Firefox's common stock during the period from July 20, 1995 to
January 2, 1996. The amended complaint also alleges claims for violations of
Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder and seeks
relief in the form of unspecified compensatory damages, pre- and post-judgment
interest, attorneys and expert witness fees and such extraordinary, equitable
and/or injunctive relief as is permitted by law, equity and the federal
statutory provisions under which the suit was brought. Specifically, the
amended complaint alleges that defendants knew allegedly material adverse non-
public information about Firefox's financial results and business conditions
which allegedly was not disclosed, that they improperly directed that certain
sales and revenues be recognized and failed to keep adequate reserves and
participated in drafting, reviewing and/or approving allegedly misleading
statements, releases, analysts reports and other public representations,
including disclaimers and warnings of and about Firefox. The amended complaint
also alleges that John A. Kimberley, an officer and director of Firefox, and
Frank Richardson, a former officer and director of Firefox, are liable as
"controlling persons" of Firefox.
Firefox has reviewed the allegations in the lawsuit, believes them to be
without merit and intends to defend itself and its officers and directors
vigorously. In order to support an adequate defense, Firefox may be required to
expend substantial sums for legal and expert fees and costs. The cost of
defending the litigation and the outcome of the litigation are uncertain and
cannot be estimated. If the lawsuit were determined adversely to Firefox,
Firefox could be required to pay a substantial judgment, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
19
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For a description of certain legal proceedings involving FTP and a
description of certain legal proceedings involving Firefox, see "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Part I of this Report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. EXHIBITS
EXHIBIT NO. TITLE
- ----------- -----
3.1 Restated Articles of Organization of the Company(1)
3.2 Certificate of Designation, Preferences and Rights of Junior
Preferred Stock of the Company(1)
3.3 Amended and Restated Bylaws of the Company(1)
4.1 Specimen common stock certificate(1)
4.2 Rights Agreement dated as of December 2, 1995 between the
Company and State Street Bank and Trust Company, as Rights
Agent (including form of Rights Certificate)(1)
10.1 Indenture of Lease between the Company and North Andover Mills
Realty dated November 19, 1991(1)
10.2 Amendment No. 1 to Indenture of Lease between the Company and
North Andover Mills Realty dated as of September 1, 1992(1)
10.3 Amendment No. 2 to Indenture of Lease between the Company and
North Andover Mills Realty dated as of January 6, 1993(1)
10.4 Amendment No. 3 to Indenture of Lease between the Company and
North Andover Mills Realty dated as of June 18, 1993(1)
10.5 Amendment No. 4 to Indenture of Lease between the Company and
North Andover Mills Realty dated as of September 30, 1993(1)
10.6 Amendment No. 5 to Indenture of Lease between the Company and
North Andover Mills Realty Limited Partnership dated August
12, 1995(1)
10.7 Employment Agreement between the Company and David H. Zirkle
dated as of March 1, 1993(1)
10.8 Amendment No. 1 to Employment Agreement between the Company and
David H. Zirkle dated as of June 14, 1993(1)
10.9 Amendment No. 2 to Employment Agreement between the Company and
David H. Zirkle dated as of August 15, 1994(1)
10.10 Amendment No. 3 to Employment Agreement between the Company and
David H. Zirkle dated as of February 28, 1995(1)
20
EXHIBIT NO. TITLE
- ----------- -----
10.11 FTP Software, Inc. Stock Option Plan(1)
10.12 FTP Software, Inc. 1993 Non-Employee Directors' Stock
Option Plan(1)
10.13 Amendment No. 1 to FTP Software, Inc. 1993 Non-Employee
Directors' Stock Option Plan effective as of June 2, 1995(1)
10.14 FTP Software, Inc. 1993 Executive Bonus Plan(1)
10.15 FTP Software, Inc. 1994 Executive Compensation Plan(1)
10.16 FTP Software, Inc. 1995 Executive Compensation Plan(1)
10.17 Indenture of Lease between the Company and Andover Mills Realty
Limited Partnership dated as of October 1, 1993(1)
10.18 Amendment No. 1 to Indenture of Lease between the Company and
Andover Mills Realty Limited Partnership dated as of
February 10, 1994(1)
10.19 Amendment No. 2 to Indenture of Lease between the Company and
Andover Mills Realty Limited Partnership dated as of
June 7, 1995(1)
10.20 FTP Software, Inc. 1995 V-P Sales Plan(1)
10.21 Amended and Restated Agreement and Plan of Merger by and among
the Company, Firefox Acquisition Corp. and Firefox Communications
Inc. dated as of May 21, 1996(2)
11 Weighted Shares Used in Computation of Earnings Per Share*
27 Financial Data Schedule*
99 Cautionary Statements Relevant to Forward-Looking Statements*
_____________________
*Filed herewith
(1) Included with, and incorporated herein by reference to, the Company's
Registration Statement on Form S-4 (No. 333-06917) filed with the
Securities and Exchange Commission (the "Commission") on June 26, 1996.
(2) Included as Appendix A to, and incorporated herein by reference to, the
Company's Joint Proxy Statement/Prospectus for its Special Meeting of
Stockholders filed with the Commission on July 1, 1996.
21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FTP SOFTWARE, INC.
/s/ John J. Warnock, Jr.
Date: August 14, 1996 By:--------------------------------------
John J. Warnock, Jr.
Senior Vice President, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting Officer)
22
EXHIBIT INDEX
EXHIBIT NO. TITLE
----------- -----
3.1 Restated Articles of Organization of the Company(1)
3.2 Certificate of Designation, Preferences and Rights of
Junior Preferred Stock of the Company(1)
3.3 Amended and Restated Bylaws of the Company(1)
4.1 Specimen common stock certificate(1)
4.2 Rights Agreement dated as of December 2, 1995 between the
Company and State Street Bank and Trust Company, as Rights
Agent (including form of Rights Certificate)(1)
10.1 Indenture of Lease between the Company and North Andover
Mills Realty dated November 19, 1991(1)
10.2 Amendment No. 1 to Indenture of Lease between the Company
and North Andover Mills Realty dated as of September 1,
1992(1)
10.3 Amendment No. 2 to Indenture of Lease between the Company
and North Andover Mills Realty dated as of January 6,
1993(1)
10.4 Amendment No. 3 to Indenture of Lease between the Company
and North Andover Mills Realty dated as of June 18, 1993(1)
10.5 Amendment No. 4 to Indenture of Lease between the Company
and North Andover Mills Realty dated as of September 30,
1993(1)
10.6 Amendment No. 5 to Indenture of Lease between the Company
and North Andover Mills Realty Limited Partnership dated
August 12, 1995(1)
10.7 Employment Agreement between the Company and David H. Zirkle
dated as of March 1, 1993(1)
10.8 Amendment No. 1 to Employment Agreement between the Company
and David H. Zirkle dated as of June 14, 1993(1)
10.9 Amendment No. 2 to Employment Agreement between the Company
and David H. Zirkle dated as of August 15, 1994(1)
10.10 Amendment No. 3 to Employment Agreement between the Company
and David H. Zirkle dated as of February 28, 1995(1)
10.11 FTP Software, Inc. Stock Option Plan(1)
10.12 FTP Software, Inc. 1993 Non-Employee Directors' Stock Option
Plan(1)
10.13 Amendment No. 1 to FTP Software, Inc. 1993 Non-Employee
Directors' Stock Option Plan effective as of June 2, 1995(1)
i
EXHIBIT NO. TITLE
----------- -----
10.14 FTP Software, Inc. 1993 Executive Bonus Plan(1)
10.15 FTP Software, Inc. 1994 Executive Compensation Plan(1)
10.16 FTP Software, Inc. 1995 Executive Compensation Plan(1)
10.17 Indenture of Lease between the Company and Andover Mills
Realty Limited Partnership dated as of October 1, 1993(1)
10.18 Amendment No. 1 to Indenture of Lease between the Company and
Andover Mills Realty Limited Partnership dated as of
February 10, 1994(1)
10.19 Amendment No. 2 to Indenture of Lease between the Company and
Andover Mills Realty Limited Partnership dated as of June 7,
1995(1)
10.20 FTP Software, Inc. 1995 V-P Sales Plan(1)
10.21 Amended and Restated Agreement and Plan of Merger by and
among the Company, Firefox Acquisition Corp. and Firefox
Communications Inc. dated as of May 21, 1996(2)
11 Weighted Shares Used in Computation of Earnings Per Share*
27 Financial Data Schedule*
99 Cautionary Statements Relevant to Forward-Looking Statements*
_____________________
*Filed herewith
(1) Included with, and incorporated herein by reference to, the Company's
Registration Statement on Form S-4 (No. 333-06917) filed with the
Securities and Exchange Commission (the "Commission") on June 26, 1996.
(2) Included as Appendix A to, and incorporated herein by reference to, the
Company's Joint Proxy Statement/Prospectus for its Special Meeting of
Stockholders filed with the Commission on July 1, 1996.
ii