-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BJ8Q+F6bh1RrEB3UH+tDg+80oKKh/KTZ9jBnSGJ1CbeV1uOShjoy9qXE+AD6saNI 9tOji1v7lKv+hKg+ONioLg== 0000912057-97-008829.txt : 19970317 0000912057-97-008829.hdr.sgml : 19970317 ACCESSION NUMBER: 0000912057-97-008829 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970131 FILED AS OF DATE: 19970314 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIFY CORP CENTRAL INDEX KEY: 0000880562 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770427069 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11807 FILM NUMBER: 97556657 BUSINESS ADDRESS: STREET 1: 181 METRO DR STREET 2: 3RD FL CITY: SAN JOSE STATE: CA ZIP: 95110 BUSINESS PHONE: 4084674500 MAIL ADDRESS: STREET 1: 181 METRO DRIVE CITY: SAN JOSE STATE: CA ZIP: 95110 10-Q 1 10-Q - ----------------------------------------------------------------------------- UNITED STATES 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 JANUARY 31, 1997 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 COMMISSION FILE NUMBER: 001-11807 ___________________________ UNIFY CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-2710559 - -------------------------------- -------------------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION INCORPORATION OR ORGANIZATION) NUMBER) 181 METRO DRIVE, THIRD FLOOR SAN JOSE, CALIFORNIA 95110 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) TELEPHONE: (408) 467-4500 (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. 8,078,253 shares of Common Stock, $.001 par value, as of February 28, 1997 - ----------------------------------------------------------------------------- UNIFY CORPORATION FORM 10-Q INDEX PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of January 31, 1997 and April 30, 1996............. 3 Condensed Consolidated Statements of Operations for the three and nine months ended January 31, 1997 and 1996 ....................................... 4 Condensed Consolidated Statements of Cash Flows for the nine months ended January 31, 1997 and 1996............................................ 5 Notes to Condensed Consolidated Financial Statements...................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations... 8 PART II. OTHER INFORMATION Item 5. Other Information ................................. 16 Item 6. Exhibits and Reports on Form 8-K................... 16 SIGNATURE.......................................................... 17 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UNIFY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
January 31, April 30, 1997 1996 ----------- -------- ASSETS (unaudited) * Current assets: Cash and cash equivalents $ 11,449 $ 3,028 Short-term investments 7,181 -- Accounts receivable, net 5,475 5,270 Prepaid expenses and other current assets 462 1,012 -------- ------- Total current assets 24,567 9,310 Property and equipment, net 2,556 3,358 Other assets 239 329 -------- ------- Total assets $ 27,362 $ 12,997 -------- ------- -------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Notes payable $ 2,217 $ -- Current portion of long-term debt 203 255 Accounts payable 1,726 1,866 Amounts due to minority interest shareholders 1,079 1,392 Accrued compensation and related expenses 2,207 1,655 Other accrued liabilities 3,483 2,675 Deferred revenue 3,611 4,650 -------- ------- Total current liabilities 14,526 12,493 Long-term debt, net of current portion 90 2,456 Minority interest 398 495 Redeemable preferred stock -- 26,726 Shareholders' equity (deficit): Common stock 8 2 Additional paid-in capital 52,964 2,188 Notes receivable from shareholders (204) (265) Cumulative translation adjustments (775) (816) Accumulated deficit (39,645) (30,282) -------- -------- Total shareholders' equity (deficit) 12,348 (29,173) -------- -------- Total liabilities and shareholders' equity (deficit)$ 27,362 $ 12,997 -------- -------- -------- --------
* Derived from audited financial statements. See accompanying notes to condensed consolidated financial statements. 3 UNIFY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Nine Months Ended Jan. 31, Ended Jan. 31, ------------------ ------------------- 1997 1996 1997 1996 ------- ------ ------ ----- Revenues: Software licenses $ 2,841 $ 5,749 $ 11,667 $ 14,144 Services 2,502 2,333 7,249 7,311 Amnesty license arrangement (2,812) -- -- -- ------- ------ ------ ----- Total revenues 2,531 8,082 18,916 21,455 ------- ------ ------ ----- Cost of revenues: Software licenses 287 456 930 1,514 Services 1,123 1,148 3,415 3,177 ------- ------ ------ ----- Total cost of revenues 1,410 1,604 4,345 4,691 ------- ------ ------ ----- Gross margin 1,121 6,478 14,571 16,764 ------- ------ ------ ----- Operating expenses: Product development 2,151 1,464 5,525 4,397 Selling, general and administrative 5,185 4,984 16,652 13,806 Bad debt, staff realignments and related asset write-offs 1,920 -- 1,920 -- ------- ------ ------ ----- Total operating expenses 9,256 6,448 24,097 18,203 ------- ------ ------ ----- Income (loss) from operations (8,135) 30 (9,526) (1,439) Other income (expense), net 195 (2) 309 235 ------- ------ ------ ----- Income (loss) before income taxes (7,940) 28 (9,217) (1,204) Provision for income taxes (34) (14) (146) (123) ------- ------ ------ ----- Net income (loss) $ (7,974) $ 14 $ (9,363) $ (1,327) ------- ------ ------ ----- ------- ------ ------ ----- Net income (loss) per share $ (0.99) $ 0.00 $ (1.24) $ (0.23) ------- ------ ------ ----- ------- ------ ------ ----- Shares used in per share computations 8,038 6,238 7,555 5,692 ------- ------ ------ ----- ------- ------ ------ -----
See accompanying notes to condensed consolidated financial statements. 4 UNIFY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Nine Months Ended January 31, ----------------------------- 1997 1996 ------------ ------------ Cash flows from operating activities: Net loss $ (9,363) $ (1,327) Reconciliation of net loss to net cash used for operating activities: Depreciation 970 722 Loss on disposal of property and equipment 758 -- Amortization of capitalized software -- 521 Minority interest (97) (351) Imputed interest on shareholder line of credit 194 -- Changes in assets and liabilities: Accounts receivable (416) (1,543) Prepaid expenses and other current assets 378 (52) Accounts payable (121) 304 Amounts due to minority interest shareholders (379) (379) Accrued compensation and related expenses 574 382 Other accrued liabilities 992 68 Deferred revenue (732) (979) --------- --------- Net cash used for operating activities (7,242) (2,634) --------- --------- Cash flows from investing activities: Purchases of available-for-sale securities (11,149) -- Sales of available-for-sale securities 3,968 -- Purchases of property and equipment (912) (821) Other assets (75) (57) --------- --------- Net cash used for investing activities (8,168) (878) --------- --------- Cash flows from financing activities: Borrowings under shareholder line of credit -- 1,000 Principal payments under debt obligations (220) (219) Proceeds from issuance of common stock, net 23,862 30 Collection of notes receivable from shareholders, net of interest accrual 61 -- Additional investment in subsidiary by minority interest shareholders -- 591 --------- --------- Net cash provided by financing activities 23,703 1,402 --------- --------- Effect of exchange rate changes on cash 128 (170) --------- --------- Net increase (decrease) in cash and cash equivalents 8,421 (2,280) --------- --------- Cash and cash equivalents at beginning of period 3,028 3,776 --------- --------- Cash and cash equivalents at end of period $ 11,449 $ 1,496 --------- --------- --------- --------- Supplemental schedule of noncash financing activities: Conversion of redeemable preferred stock to common stock $ 26,726 $ - --------- --------- --------- --------- Cancellation of common stock and shareholder's receivable $ - $ (432) --------- --------- --------- --------- Cash paid during the period for: Interest $ 66 $ 52 --------- --------- --------- --------- Income taxes $ 109 $ 184 --------- --------- --------- ---------
See accompanying notes to condensed consolidated financial statements. 5 UNIFY CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The condensed consolidated financial statements have been prepared by Unify Corporation (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). While the interim financial information contained in this filing is unaudited, the financial statements presented reflect all adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for a fair presentation of the financial position as of January 31, 1997 and April 30, 1996, the results of operations for the three and nine months ended January 31, 1997 and 1996, and the cash flows for the nine months ended January 31, 1997 and 1996. The results for interim periods are not necessarily indicative of the results to be expected for the entire year. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, included in the Company's Final Prospectus (the "Final Prospectus") dated June 14, 1996 as filed with the SEC pursuant to Rule 424(b). 2. PER SHARE INFORMATION Net income per share is computed using the weighted average number of common shares outstanding, dilutive common equivalent shares from stock options and warrants (using the treasury stock method) and redeemable preferred stock (using the as if converted method, even if antidilutive). Net loss per share computations exclude common equivalent shares from stock options and warrants. Pursuant to certain SEC Staff Accounting Bulletins, common and common equivalent shares issued at prices below the initial public offering ("IPO") price during the 12 month period prior to the offering have been included in the calculation, even if antidilutive, as if they were outstanding for all periods presented using the treasury stock method and the IPO price. 3. SHORT-TERM INVESTMENTS The Company's investments are classified as available-for-sale under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The investments are carried at cost, which approximates fair value. Material unrealized gains or losses are reported as a separate component of shareholders' equity. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included in net interest income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in net interest income. The investments included in the Company's current assets under the caption "Short-Term Investments" at January 31, 1997 consist entirely of corporate debt securities and there were no material realized or unrealized gains or losses for the three and nine months ended January 31, 1997. All short-term investments held at January 31, 1997 mature within one year. 6 UNIFY CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4. AMNESTY LICENSE ARRANGEMENT REVENUES AND OTHER OPERATING EXPENSES The Company determined in the third quarter of fiscal 1997 that it would be unable to collect payments pursuant to an amnesty license arrangement with a customer in the People's Republic of China ("China"), for which revenues were recorded in the first quarter of fiscal 1997. Amnesty license arrangement revenues of $2.8 million were consequently reversed in the third quarter of fiscal 1997. In the third quarter of fiscal 1997, the Company recorded bad debt and other operating expenses of $1.9 million. Of this amount, $1.1 million represented bad debt expense for the write-off of a receivable from a separate customer based in China, on which payment was in default. The Company also recorded charges totaling $0.8 million for staff realignments and related asset retirements, including expenses for closing down the operations of its Benelux subsidiary. 5. INITIAL PUBLIC OFFERING OF COMMON STOCK In June 1996, the Company completed an initial public offering of 2,187,000 shares of common stock at $12.00 per share with net proceeds to the Company of $23.3 million. In connection with the IPO, all of the outstanding preferred stock and accrued dividends automatically converted into 2,876,136 and 690,161 shares of common stock, respectively, and warrants to purchase 183,790 out of a total of 190,459 shares of common stock were exercised. 6. RECENTLY ISSUED ACCOUNTING STANDARD In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation." The new standard defines a fair value method of accounting for stock options and other equity instruments, such as stock purchase plans. Under this method, compensation cost is measured based on the fair value of the stock-based award when granted and is recognized as an expense over the service period, which is usually the vesting period. This standard will be effective for the Company beginning in fiscal 1997 and requires measurement of the awards made beginning in fiscal 1996. The new standard permits companies to continue to account for equity transactions with employees under existing accounting rules, but requires disclosure in a note to the financial statements of the pro forma net income (loss) and net income (loss) per share as if the company had applied the new method of accounting. The Company intends to implement these disclosure requirements for its employee stock-based plans beginning in fiscal 1997. Based on the Company's current use of equity instruments, adoption of the new standard will not impact reported net income (loss) or net income (loss) per share, and will have no effect on the Company's cash flows. 7 UNIFY CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL RISK FACTORS AFFECTING QUARTERLY RESULTS The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part 1, Item 1 of this Quarterly Report and with the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations contained in the Final Prospectus. The Company's common stock price has been and is likely to continue to be subject to significant volatility. For any given quarter, a shortfall in the Company's announced revenues or earnings from the levels expected by securities analysts could have an immediate and adverse effect on the trading price of the Company's common stock. The Company may not learn of, nor be able to confirm, revenue or earnings shortfalls until late in the quarter or following quarter end. The Company participates in a very dynamic high technology industry, which can result in significant fluctuations in the Company's common stock price at any time. The Company's operating results are subject to quarterly and other fluctuations due to a variety of factors, including the size and timing of significant orders and their fulfillment, demand for the Company's products, the number, timing and significance of product enhancements and new product announcements by the Company or its competitors, seasonality, changes in pricing policies by the Company or its competitors, realignments of the Company's organizational structure, changes in the level of the Company's operating expenses, changes in the Company's sales incentive plans, ability of the Company to retain key employees, budgeting cycles of the Company's customers, customer order deferrals in anticipation of enhancements or new products offered by the Company or its competitors, product life cycles, product defects and other product quality problems, the results of international expansion, currency fluctuations, and general domestic and international economic and political conditions. Because a significant portion of the Company's revenues have been, and the Company believes will continue to be, derived from orders ranging in size from several hundred thousand dollars to approximately $1 million, the timing of such large orders and their fulfillment has caused and is expected to continue to cause material fluctuations in the Company's operating results, particularly on a quarterly basis. Due to the foregoing factors, quarterly revenues and operating results are difficult to forecast. Revenues are also difficult to forecast because the market for client/server application development software is rapidly evolving, and the Company's sales cycle, from initial evaluation to purchase and the provision of support services, is lengthy and varies substantially from customer to customer. The recent release of a new version of Unify VISION and the initial release of VISION/Web have created new opportunities to compete for larger, enterprise-level sales transactions. These transactions have even longer sales cycles than the Company has experienced in the past. Because the Company normally ships products within a short time after it receives an order, it typically does not have any material backlog. As a result, to achieve its quarterly revenue objectives, the Company is dependent upon obtaining orders in any given quarter for shipment in that quarter. Furthermore, because many customers place orders toward 8 UNIFY CORPORATION the end of a quarter, the Company generally recognizes a substantial portion of its revenues at the end of a quarter. As the Company's expense levels are based in significant part on the Company's expectations regarding future revenues and are therefore relatively fixed in the short term, if revenue levels fall below expectations, net income is likely to be disproportionately adversely affected. The Company currently expects a significant net loss for the quarter ending April 30, 1997 due to the foregoing factors. There can be no assurance that the Company will be able to achieve or maintain profitability on a quarterly or annual basis in the future. Due to the foregoing factors, it is possible that in some future quarter the Company's operating results will be below the expectations of public market analysts and investors. In such event, the price of the Company's common stock would likely be materially adversely affected. This report contains forward looking statements regarding, among other matters, the Company's future strategy, projected financial results, product development plans, and sales and marketing strategy. The forward looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements address matters which are subject to a number of risks and uncertainties. In addition to the general risks associated with the development of complex technology, as noted above, future results of the Company will depend on a variety of factors. Reference is made to the Final Prospectus and the Company's filings with the SEC for further discussion of risks and uncertainties regarding the Company's business. RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED JANUARY 31, 1997 AND 1996 REVENUES The Company recognizes software license revenue when a non-cancelable license agreement has been executed, the product has been shipped, all significant contractual obligations have been satisfied and collection of the resulting receivable is deemed probable by management. Software licenses include both development and deployment licenses. Customer maintenance revenues are recognized ratably over the maintenance period. Payments for maintenance fees are generally received in advance and are nonrefundable. Revenues from consulting and training services are recognized as the services are performed. The Company's strategy is to aggressively market and enhance its graphical products, Unify VISION and VISION/Web. The Company continues to support its extensive installed base of Unify ACCELL and DataServer character products, which represents a significant source of potential customers for Unify VISION and VISION/Web. The Company also generates significant revenues from services, including customer maintenance, consulting and training. The following table sets forth revenues from licenses of its graphical and character products and from services for the periods indicated: 9 UNIFY CORPORATION
Three Months Ended Jan. 31, Nine Months Ended Jan. 31, --------------------------- ---------------------------- 1997 1996 1997 1996 ----------- ------------ ------------ ---------- License revenues: Graphical $ 623 $ 1,426 $ 4,566 $ 2,978 Character 2,218 4,323 7,101 11,166 -------- -------- -------- --------- Total license revenues 2,841 5,749 11,667 14,144 Services revenues 2,502 2,333 7,249 7,311 Amnesty license arrangement (2,812) -- -- -- -------- -------- -------- --------- Total revenues $ 2,531 $ 8,082 $ 18,916 $ 21,455 -------- -------- -------- --------- -------- -------- -------- ---------
Total revenues for the quarter ended January 31, 1997 decreased 69% over the same quarter of the prior year to $2.5 million. Graphical license revenues decreased 56% over the same quarter of the prior year to $623,000 and were primarily from existing customers. Character license revenues decreased 49% over the same quarter of the prior year to $2.2 million, in part because of the absence of any single large order in the quarter. Service revenues remained relatively constant at $2.5 million and $2.3 million in the third quarters of fiscal 1997 and 1996, respectively. The Company determined in the third quarter of fiscal 1997 that it would be unable to collect payments due pursuant to an amnesty license arrangement for the use of unauthorized copies of Unify ACCELL and Dataserver products with a customer based in the People's Republic of China ("China"), for which revenues were recorded in the first quarter of fiscal 1997. Collection was deemed probable at the time revenue was recorded, in part based on the favorable discussions regarding protections against unauthorized copying of software which were occurring between the United States and China. The Company believes that the subsequent deterioration of these discussions contributed to its inability to collect payments due pursuant to this arrangement. The amnesty license arrangement revenues of $2.8 million were reversed in the third quarter of fiscal 1997. Excluding reversal of the amnesty license arrangement, international revenues increased to 63% of total revenues in the quarter ended January 31, 1997 from 56% in the same quarter of the prior year. Total revenues as compared to the same quarter of the prior year declined in nearly every geographic region but most significantly in North America, which operated without a senior sales executive during the quarter ended January 31, 1997. The Company hired an experienced senior sales executive for North America in February 1997. Unify VISION 3.0 began shipping to commercial customers in September 1996 and general availability of its companion product, VISION/Web, occurred in January 1997. While the announcement and release of these graphical products have created new opportunities to compete for larger, enterprise-level sales transactions, the Company is experiencing lengthening sales cycles as a result. The Company expects that it will continue to experience extended customer evaluation and decision-making processes for large, complex Unify VISION and VISION/Web sales transactions over the next several quarters. The Company also expects that in the near term it is likely that a significant portion of Unify VISION and VISION/Web sales to new customers may be for pilot programs and therefore modest in size. 10 UNIFY CORPORATION COST OF REVENUES Cost of software licenses consists primarily of product documentation, packaging and production costs in the U.S. and Japan, costs related to funded development contracts, and royalties paid for licensed technology costs. Cost of software licenses for the quarter ended January 31, 1997 decreased to $0.3 million, or 10% of license revenues (excluding reversal of the amnesty license arrangement), as compared to $0.5 million, or 8% of license revenues, for the same quarter of the prior year. There was no amortization of capitalized software development costs for the quarter ended January 31, 1997, as compared to $0.1 million for the same quarter of the prior year. Cost of software licenses increased as a percentage of license revenues despite the decrease in absolute dollars due to the significant decline in third quarter 1997 license revenues as compared to the same period of the prior year. Cost of services consists primarily of employee, facilities and travel costs incurred in providing customer support under software maintenance contracts and consulting and training services. Cost of services remained constant at $1.1 million in the third quarters of fiscal 1997 and 1996, with higher costs in consulting services because of increased fiscal 1997 staffing levels offset by lower costs in support services related to efficiencies achieved in Japan. Cost of services decreased to 45% of service revenues for the third quarter of fiscal 1997 from 49% of service revenues in the same quarter of the prior year because of the slight increase in service revenues in the fiscal 1997 period. PRODUCT DEVELOPMENT Product development expenses consist primarily of employee and facilities costs incurred in the development and testing of new products and in the porting of new and existing products to additional hardware platforms and operating systems. Product development expenses for the quarter ended January 31, 1997 increased to $2.2 million, or 40% of total revenues (excluding reversal of the amnesty license arrangement), as compared to $1.5 million, or 18% of total revenues, for the same quarter of the prior year. The increase in product development expenses in absolute dollars was because of the purchase of third party source code for $0.5 million and increased staffing required to complete VISION / Web during the fiscal 1997 quarter. The increase in product development expenses as a percentage of total revenues was because of the significant decline in third quarter 1997 license revenues as compared to the same period of the prior year. The Company believes that substantial investment in product development is critical to maintaining technological leadership and therefore intends to continue to devote significant resources to product development. The level of product development expenditures may vary over the next several quarters as the Company reevaluates operating expense levels. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative ("SG&A") expenses consist primarily of salaries, bonuses and commissions, promotional and travel expenses, professional services and facilities. SG&A for the quarter ended January 31, 1997 increased to $5.2 million, or 97% of total revenues (excluding reversal of the amnesty license arrangement), as compared to $5.0 million, or 62% of total revenues, for the same quarter of the prior year. The increase in SG&A expenses 11 UNIFY CORPORATION in absolute dollars was primarily because of the recruitment of several key sales employees and additional professional services costs incurred as a result of becoming a publicly traded company, partially offset by lower sales commission expense relating to the significant decline in third quarter license revenues as compared to the same period of the prior year. The increase in SG&A expenses as a percentage of total revenues was because of the significant decline in third quarter 1997 license revenues as compared to the same period of the prior year. The level of SG&A expenditures may vary over the next several quarters as the Company reevaluates operating expense levels. BAD DEBT, STAFF REALIGNMENTS AND RELATED ASSET WRITE-OFFS See Note 4 of Notes to Condensed Consolidated Financial Statements for a description of these charges. INCOME (LOSS) FROM OPERATIONS The Company's management is currently in the process of realigning its organizational structure with the objective of improving sales and marketing effectiveness and reviewing operating expense levels in light of near term revenue expectations. The Company expects to incur additional charges related to these realignments and to record a significant operating loss in the fourth quarter of fiscal 1997. OTHER INCOME, NET Other income, net, consists of the minority interest in the Company's Japanese joint venture, interest income earned by the Company on its cash, cash equivalents and short-term investments offset by interest expense, and exchange gains and losses. Other income was $195,000 for the quarter ended January 31, 1997 and $2,000 for the same quarter of the prior year, with the fiscal 1997 increase due primarily to interest income on net proceeds from the Company's IPO. PROVISION FOR INCOME TAXES The Company recorded tax provisions for the quarters ended January 31, 1997 and 1996 which related primarily to foreign income tax withholding on software license royalties paid to the Company by certain foreign licensees. For the same periods, the Company recorded no federal or state income tax provisions as the Company had available federal net operating loss carryforwards of approximately $10.7 million as of April 30, 1996. COMPARISON OF NINE MONTHS ENDED JANUARY 31, 1997 AND 1996 REVENUES Total revenues for the nine months ended January 31, 1997 decreased 12% over the same period of the prior year to $18.9 million. Total license revenues decreased 18% over the same period of the prior year to $11.7 million. Graphical license revenues increased 53% over the 12 UNIFY CORPORATION same period of the prior year to $4.6 million, reflecting stable demand for Unify VISION from the Company's installed base of customers and a single $1.2 million order from a customer based in China which was subsequently written off (see Note 4 of Notes to Condensed Consolidated Financial Statements). Character license revenues decreased 36% to $7.1 million, in part because of the absence of any single large order during that period. In addition, the Company operated without a senior sales executive in North America during the quarter ended January 31, 1997, which negatively impacted both graphical and character license revenues. The Company hired an experienced senior sales executive for North America in February 1997. Service revenues remained constant at approximately $7.3 million in both periods. International revenues increased to 62% of total revenues in the nine months ended January 31, 1997 from 59% in the same period of the prior year. Total revenues declined in every geographic region except the Pacific Rim, but a 17% decline in North American revenues combined with $1.2 million in first quarter revenues from China increased international revenues as a percentage of total revenues in the first nine months of fiscal 1997 as compared to the same period of the prior year. COST OF REVENUES Cost of software licenses for the nine months ended January 31, 1997 decreased to $0.9 million, or 8% of license revenues, as compared to $1.5 million, or 11% of license revenues, for the same period of the prior year. There was no amortization of capitalized software development costs for the nine months ended January 31, 1997, as compared to $0.5 million for the same period of the prior year. Cost of services for the nine month period increased to $3.4 million, or 47% of service revenues, as compared to $3.2 million, or 43% of service revenues, for the same period of the prior year. Since service revenues were constant during these periods, the fiscal 1997 increases in absolute dollars and percentage of service revenues resulted from higher costs in consulting services because of increased staffing levels which were partially offset by lower costs in support services related to efficiencies achieved in Japan. PRODUCT DEVELOPMENT Product development expenses for the nine months ended January 31, 1997 increased to $5.5 million, or 29% of total revenues, as compared to $4.4 million, or 20% of total revenues, for the same period of the prior year. The increase in product development expenses in absolute dollars was primarily because of increased staffing required to complete Unify VISION 3.0 and VISION/Web and the purchase of third party source code for $0.5 million during the nine months ended January 31, 1997. The increase in product development expenses as a percentage of total revenues was the result of lower license revenues and higher product development expenses in the first nine months of fiscal 1997 as compared to the same period of the prior year. SELLING, GENERAL AND ADMINISTRATIVE SG&A expenses for the nine months ended January 31, 1997 increased to $16.7 million, or 88% of total revenues, as compared to $13.8 million, or 64% of total revenues, for the same 13 UNIFY CORPORATION period of the prior year. The increase in SG&A expenses was primarily because of the recruitment of several key sales and marketing employees during the first half of fiscal 1996 and additional professional services costs incurred as a result of becoming a publicly traded company, partially offset by lower sales commission expense relating to the decline in license revenues compared to the same period of the prior year. The increase in SG&A as a percentage of total revenues is attributable to the fiscal 1997 increase in SG&A expenses in absolute dollars combined with the decline in license revenues compared to the same period of the prior year. BAD DEBT, STAFF REALIGNMENTS AND RELATED ASSET WRITE-OFFS See Note 4 of Notes to Condensed Consolidated Financial Statements for a description of these charges. OTHER INCOME, NET Other income was $0.3 million for the nine months ended January 31, 1997 and $0.2 million for the same period of the prior year, with the increase consisting principally of interest income on net proceeds from the Company's IPO. PROVISION FOR INCOME TAXES The Company recorded tax provisions for the nine months ended January 31, 1997 and 1996 which related primarily to foreign income tax withholding on software license royalties paid to the Company by certain foreign licensees. For the same periods, the Company recorded no federal or state income tax provisions as the Company had available federal net operating loss carryforwards of approximately $10.7 million as of April 30, 1996. LIQUIDITY AND CAPITAL RESOURCES In June 1996, the Company completed an initial public offering of 2,187,000 shares of common stock at $12.00 per share with net proceeds to the Company of $23.3 million. As of January 31, 1997, the Company had cash, cash equivalents and short-term investments of $18.6 million, compared to $3.0 million as of April 30, 1996. Working capital increased to $10.0 million at January 31, 1997 from a deficit of $3.2 million at April 30, 1996. The Company's operating activities used cash of $7.2 million during the nine months ended January 31, 1997, primarily for operating losses. Investing activities during the period used cash of $8.2 million, consisting principally of net purchases of short term investments of $7.2 million and equipment purchases of $0.9 million. Cash provided by financing activities during the period was $23.7 million, representing primarily net proceeds from the Company's IPO. The Company has a $2.2 million line of credit provided by certain shareholders of the Company, with the full amount outstanding as of January 31, 1997. This facility expires in July 1997 and bears interest at 3.75% per annum. 14 UNIFY CORPORATION The Company believes that current cash balances and short-term investments will be sufficient to meet its cash requirements during the next 12 months. Thereafter, depending on its operating results, the Company may require additional equity or debt financing to meet its working capital or capital equipment requirements. There can be no assurance that additional financing will be available when required or, if available, with terms satisfactory to the Company. 15 PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION Richard Medeiros joined the Company as Vice President, Americas Sales, in February 1997. Carla Schneiderman joined the Company as Vice President, Worldwide Marketing and Business Development, in February 1997. Roel Pieper, Chief Executive Officer and President of Tandem Computers, joined the Company's Board of Directors in February 1997. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 11.01 Statement Regarding Computation of Net Income (Loss) Per Share Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K The Company filed no reports on Form 8-K during the quarter ended January 31, 1997. 16 UNIFY CORPORATION SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: March 14, 1997 Unify Corporation (REGISTRANT) By: Susan Salvesen ------------------------------------------ Susan Salvesen Vice President, Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer) 17 EX-11.01 2 EXHIBIT 11.01 EXHIBIT 11.01 UNIFY CORPORATION STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Ended Jan. 31, Nine Months Ended Jan. 31, --------------------------- -------------------------- 1997 1996 1997 1996 ----------- ------------- ------------ ---------- Net income (loss) $ (7,974) $ 14 $ (9,363) $ (1,327) ---------- ------- ---------- --------- ---------- ------- ---------- --------- Weighted average common shares out- standing during the period 8,038 1,114 3,989 1,169 Weighted average preferred shares and dividends outstanding on an as if converted basis - 3,480 3,566 3,423 Common share equivalents for stock options and warrants outstanding using the treasury stock method - 544 - - Common share equivalents for stock options and warrants issued at prices below the IPO price during the twelve month period prior to the offering - 1,100 - 1,100 ---------- ------- ---------- --------- Total shares used in per share computation 8,038 6,238 7,555 5,692 ---------- ------- ---------- --------- ---------- ------- ---------- --------- Net income (loss) per share $ (0.99) $ 0.00 $ (1.24) $ (0.23) ---------- ------- ---------- --------- ---------- ------- ---------- ---------
EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JANUARY 31, 1997 AND THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED JANUARY 31, 1997 FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS APR-30-1997 MAY-01-1996 JAN-31-1997 11449 7181 6181 706 0 24567 8455 5899 27362 14526 0 0 0 52972 (40624) 27362 18916 18916 4345 28442 (683) 1920 374 (9217) 146 (9363) 0 0 0 (9363) (1.24) (1.24)
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