-----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, AWUpnIgpiTebUZM1ahsMq060jVSvTo65cjXzmxljVC0TzERHZH6lyWeNaDhsLO0y 6NuFmSFzr6/6eNZQ4AK4oQ== 0000912057-99-009526.txt : 19991216 0000912057-99-009526.hdr.sgml : 19991216 ACCESSION NUMBER: 0000912057-99-009526 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 19991215 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: SEC FILE NUMBER: 001-11807 FILM NUMBER: 99775400 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 FORM 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 OCTOBER 31, 1999 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) 100 CENTURY CENTER COURT, SUITE 302 SAN JOSE, CALIFORNIA 95112 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) TELEPHONE: (408) 451-2000 (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. 9,090,452 shares of Common Stock, $0.001 par value, as of November 30, 1999 - ------------------------------------------------------------------------------ UNIFY CORPORATION FORM 10-Q INDEX
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of October 31, 1999 and April 30, 1999............................. 3 Condensed Consolidated Statements of Operations for the three and six months ended October 31, 1999 and 1998........................................................ 4 Condensed Consolidated Statements of Cash Flows for the six months ended October 31, 1999 and 1998.............. 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 4. Submission of Matters to a Vote of Security Holders................. 15 Item 6. Exhibits and Reports on Form 8-K.................................... 15 SIGNATURE ............................................................................... 16
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UNIFY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
October 31, April 30, 1999 1999 ---------- ---------- (unaudited) (1) ASSETS Current assets: Cash and cash equivalents $ 8,666 $ 5,315 Short-term investments 4,713 6,072 Accounts receivable, net 8,957 9,156 Prepaid expenses and other current assets 708 732 ---------- ---------- Total current assets 23,044 21,275 Property and equipment, net 1,240 1,417 Other assets 2,255 242 ---------- ---------- Total assets $ 26,539 $ 22,934 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 916 $ 1,138 Amounts due to minority interest stockholders 576 608 Accrued compensation and related expenses 1,598 1,650 Other accrued liabilities 2,814 2,621 Deferred revenue 2,363 3,326 ---------- ---------- Total current liabilities 8,267 9,343 Minority interest 346 265 Stockholders' equity: Common stock 9 9 Additional paid-in capital 54,852 54,123 Notes receivable from stockholder (77) (125) Cumulative other comprehensive income (688) (653) Accumulated deficit (36,170) (40,028) ---------- ---------- Total stockholders' equity 17,926 13,326 ---------- ---------- Total liabilities and stockholders' equity $ 26,539 $ 22,934 ========== ==========
(1) Derived from the audited consolidated financial statements for the year ended April 30, 1999. 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 Ended Six Months Ended October 31, October 31, --------------------------- --------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Revenues: Software licenses $ 6,411 $ 4,726 $ 12,415 $ 8,968 Services 2,805 2,474 5,509 4,892 --------- --------- --------- --------- Total revenues 9,216 7,200 17,924 13,860 --------- --------- --------- --------- Cost of revenues: Software licenses 210 236 439 462 Services 1,205 1,074 2,348 2,127 --------- --------- --------- --------- Total cost of revenues 1,415 1,310 2,787 2,589 --------- --------- --------- --------- Gross margin 7,801 5,890 15,137 11,271 --------- --------- --------- --------- Operating expenses: Product development 1,594 1,484 3,158 2,933 Selling, general and administrative 4,094 3,606 8,127 7,259 --------- --------- --------- --------- Total operating expenses 5,688 5,090 11,285 10,192 --------- --------- --------- --------- Income from operations 2,113 800 3,852 1,079 Other income, net 112 100 247 123 --------- --------- --------- --------- Income before income taxes 2,225 900 4,099 1,202 Provision for income taxes (113) (44) (241) (88) ---------- --------- --------- --------- Net income $ 2,112 $ 856 $ 3,858 $ 1,114 ========= ========= ========= ========= Net income per share: Basic $ 0.24 $ 0.10 $ 0.43 $ 0.13 ========= ========= ========= ========= Diluted $ 0.22 $ 0.10 $ 0.40 $ 0.13 ========= ========= ========= ========= Shares used in computing net income per share: Basic 8,952 8,435 8,906 8,414 ========= ========= ========= ========= Diluted 9,733 8,547 9,704 8,538 ========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements. 4 UNIFY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED OCTOBER 31, ---------------------------- 1999 1998 ---------- ------- Cash flows from operating activities: Net income $ 3,858 $ 1,114 Reconciliation of net income to net cash provided by (used in) in operating activities: Depreciation 496 554 Minority interest 81 (27) Changes in operating assets and liabilities: Accounts receivable, net (703) 97 Prepaid expenses and other current assets 34 32 Accounts payable (245) 188 Amounts due to minority interest stockholders (109) (198) Accrued compensation and related expenses (73) (239) Other accrued liabilities 184 (359) Deferred revenue (996) (1,288) ---------- --------- Net cash provided by in operating activities 2,527 (126) ---------- --------- Cash flows from investing activities: Purchases of available-for-sale securities (4,713) 1,160 Sales of available-for-sale securities 6,072 - Purchases of property and equipment (313) (344) Other assets (913) 12 ----------- --------- Net cash provided by (used) investing activities 133 828 ---------- --------- Cash flows from financing activities: Principal payments under debt obligations - (22) Proceeds from issuance of common stock, net 729 211 Repurchase of common stock - (91) Collection of notes receivable from stockholders, net of interest receivable 49 (5) ---------- --------- Net cash provided by financing activities 778 93 ---------- --------- Effect of exchange rate changes on cash (87) (25) ---------- --------- Net increase in cash and cash equivalents 3,351 770 Cash and cash equivalents, beginning of period 5,315 5,279 ---------- --------- Cash and cash equivalents, end of period $ 8,666 $ 6,049 ========== ========= Supplemental schedule of noncash investing and financing activities: Cash paid during the period for: Interest $ 27 $ 81 ========== ========= Income taxes $ 254 $ 54 ========== =========
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, such financial statements reflect all adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for a fair presentation. The results for interim periods are not necessarily indicative of the results to be expected for the entire fiscal 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, which are included in the Company's Annual Report on Form 10-K for the year ended April 30, 1999 as filed with the SEC. 2. AMOUNTS DUE TO MINORITY INTEREST STOCKHOLDERS In September 1995, Unify Japan entered into a 100 million yen loan agreement with a bank affiliated with Sumitomo metals Industries, Ltd. ("SMI"). The loan bears interest at the Japanese prime rate (approximately 1% at September 30, 1999), and is secured by the assets of Unify Japan. In September 1999, this loan was extended for an additional year with a guarantee letter from SMI. The balance of the loan was 60 million yen at September 30, 1999. 3. EARNINGS PER SHARE SFAS No. 128, EARNINGS PER SHARE, requires a dual presentation of basic and diluted earnings per share ("EPS"). Basic EPS excludes dilution and is computed by dividing net income attributable to common stockholders by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (e.g. common stock options) were exercised or converted into common stock. 6 UNIFY CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the periods indicated:
Three Months Ended Six Months Ended October 31, October 31, --------------------------- --------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- NET INCOME (NUMERATOR): Net income, basic and diluted $ 2,112 $ 856 $ 3,858 $ 1,114 ========= ========= ========= ========= SHARES (DENOMINATOR): Weighted average shares of common stock outstanding, basic 8,952 8,435 8,906 8,414 Weighted average common equivalent shares outstanding 781 112 798 124 --------- --------- --------- --------- Weighted average shares of common stock outstanding, diluted 9,733 8,547 9,704 8,538 ========= ========= ========= ========= PER SHARE AMOUNT: Net income per share, basic $ 0.24 $ 0.10 $ 0.43 $ 0.13 Reduction in net income per share due due to weighted average common common equivalent shares (0.02) - (0.03) - --------- --------- --------- --------- Net income per share, diluted $ 0.22 $ 0.10 $ 0.40 $ 0.13 ========= ========= ========= ========= ANTIDILUTIVE SHARES: 4 528 4 533 ========= ========= ========= ========= 4. COMPREHENSIVE INCOME The Company's total comprehensive income for the periods shown was as follows: Three Months Ended Six Months Ended October 31, October 31, --------------------------- --------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Net income $ 2,112 $ 856 $ 3,858 $ 1,114 Foreign currency translation (6) (75) (35) (41) --------- --------- --------- --------- Total comprehensive income $ 2,106 $ 781 $ 3,823 $ 1,073 ========= ========= ========= =========
7 UNIFY CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE DISCUSSION IN THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE PURSUANT TO THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS ABOUT THE SOFTWARE INDUSTRY AND CERTAIN ASSUMPTIONS MADE BY THE COMPANY'S MANAGEMENT. WORDS SUCH AS "ANTICIPATES", "EXPECTS", "INTENDS", "PLANS", "BELIEVES", "SEEKS", "ESTIMATES", VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, THOSE SET FORTH HEREIN UNDER "VOLATILITY OF STOCK PRICE AND GENERAL RISK FACTORS AFFECTING QUARTERLY RESULTS" AND IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K UNDER "BUSINESS - RISK FACTORS." UNLESS REQUIRED BY LAW, THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. HOWEVER, READERS SHOULD CAREFULLY REVIEW THE RISK FACTORS SET FORTH IN OTHER REPORTS OR DOCUMENTS THE COMPANY FILES FROM TIME TO TIME WITH THE SEC, PARTICULARLY THE COMPANY'S ANNUAL REPORTS ON FORM 10-K, QUARTERLY REPORTS ON FORM 10-Q AND ANY CURRENT REPORTS ON FORM 8-K. The following discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and Notes thereto in Part I, Item 1 of this Quarterly Report on Form 10-Q and with the audited Consolidated Financial Statements and Notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations, which are included in the Company's Annual Report on Form 10-K for the year ended April 30, 1999 as filed with the SEC. RESULTS OF OPERATIONS REVENUES The Company's strategy is to aggressively market and enhance its e-commerce and Internet products. The Company continues to support its extensive installed base of client/server products, which the Company believes represents a significant source of potential customers for its Internet products. The Company also generates significant revenues from services, including customer maintenance, consulting and training. The following table sets forth revenues from licenses of its Internet and client/server products and from services for the periods indicated: 8 UNIFY CORPORATION
Three Months Ended Six Months Ended October 31, October 31, --------------------------- --------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- License revenues: Internet products $ 4,210 $ 2,719 $ 8,027 $ 4,869 Client/server products 2,201 2,007 4,388 4,099 --------- --------- --------- --------- Total license revenues 6,411 4,726 12,415 8,968 Services revenues 2,805 2,474 5,509 4,892 --------- --------- --------- --------- Total revenues $ 9,216 $ 7,200 $ 17,924 $ 13,860 ========= ========= ========= =========
Total revenues for the three and six months ended October 31, 1999 increased 28% and 29%, respectively, over the same periods of the prior year. License revenues from internet products for the three and six months ended October 31, 1999 were 55% and 65% higher, respectively, than for the same periods of the prior year, reflecting increased customer acceptance of those products. License revenues from client/server products were comparable at $2 million in each of the quarters ended October 31, 1999 and 1998. Client/server license revenues for the six months ended October 31, 1999 increased 7% over the same period of the prior year. Service revenues for the three and six months ended October 31, 1999 increased 13% and 13%, respectively, over the same periods of the prior year principally due to higher consulting revenues which resulted from the company's pursuit of new internet consulting opportunities during fiscal 2000. International revenues decreased to 40% and 38% of total revenues in the three and six months ended October 31, 1999 from 56% and 54% of total revenues in the three and six months ended October 31, 1998, due to increased focus on the domestic internet and e-commerce market. COST OF REVENUES Cost of software licenses represented 3% of software license revenues for the three and 4% of software licenses for the six months ended October 31, 1999 and were comparable to cost of software licenses in the same periods of the prior year. Cost of services for the three and six months ended October 31, 1999 increased 12% and 9% compared to the same periods of the prior year, primarily due to higher consulting costs associated with the company's pursuit of new internet consulting opportunities during fiscal 2000. Cost of services for the three months ended October 31, 1999 reflected no change (at 43%) and for the six months ended October 31, 1999 decreased as a percentage of service revenues to approximately 43% in the same periods of the prior year primarily due to higher service revenues in these fiscal 2000 periods. 9 UNIFY CORPORATION PRODUCT DEVELOPMENT Product development expenses for the quarters ended October 31, 1999 and 1998 were comparable at $1.6 million and $1.5 million, respectively, and represented 17% and 21% of total revenues for those periods. Product development expenses for the six months ended October 31, 1999 and 1998 were also stable at approximately $3.2 million and $2.9 million, respectively and represented 18% and 21% of total revenues for those periods. The decreases in product development expenses as a percentage of total revenues were due to the growth in license revenues during the fiscal 2000 periods as compared to the same periods 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. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative ("SG&A") expenses for the quarter ended October 31, 1999 increased to $4.1 million, or 44% of total revenues, as compared to $3.6 million, or 50% of total revenues, for the same quarter of the prior year. SG&A expenses for the six months ended October 31, 1999 increased to $8.1 million, or 45% of total revenues, as compared to $7.3 million, or 52% of total revenues, for the same period of the prior year. Fiscal 2000 SG&A expenses were higher in absolute dollars compared to the same period of the prior year as the Company executed marketing programs to support the launch of its new eWave family of Internet products and augmented its bad debt reserves. These increases were partially offset by a decrease in sales expense due to open sales positions. The decreases in SG&A expenses as a percentage of total revenues were attributable to the increase in fiscal 2000 license revenues as compared to the same periods of the prior year. The Company expects that total SG&A expenses will fluctuate from quarter to quarter primarily because of variability in marketing program spending and sales commission expense. PROVISION FOR INCOME TAXES The Company recorded tax provisions for the three and six months ended October 31, 1999 and 1998 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 significant federal or state income tax provisions as the Company had substantial net operating loss carryforwards. VOLATILITY OF STOCK PRICE AND GENERAL RISK FACTORS AFFECTING QUARTERLY RESULTS The Company's common stock price has been and is likely to continue to be subject to significant volatility. A variety of factors could cause the price of the Company's common stock to fluctuate, perhaps substantially, including: announcements of developments related to the Company's business; fluctuations in the Company's or its competitors' quarterly operating results and order levels; general conditions in the computer industry or the worldwide economy; announcements of technological innovations; new products or product enhancements by the Company or its 10 UNIFY CORPORATION competitors; changes in financial estimates by securities analysts; developments in patent, copyright or other intellectual property rights; and developments in the Company's relationships with its customers, distributors and suppliers. In addition, in recent years the stock market in general, and the market for shares of equity securities of many high technology companies in particular, has experienced extreme price fluctuations which have often been unrelated to the operating performance of those companies. Such fluctuations may adversely affect the market price of the Company's common stock. The Company's quarterly operating results have varied significantly in the past, and the Company expects that its operating results are likely to vary significantly from time to time in the future. Such variations result from, among other factors, the following: 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 and its competitors; ability of the Company to attract and retain key employees; seasonality; changes in pricing policies by the Company or its competitors; realignment of the Company's organizational structure; changes in the level of the Company's operating expenses; changes in the Company's sales incentive plans; 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 $250,000 to approximately $1 million or more, the timing of such 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 Internet and e-commerce application development software is rapidly evolving, and the Company's sales cycle, from initial evaluation to purchase and the provision of maintenance services, is lengthy and varies substantially from customer to customer. 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 the end of a fiscal 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 as to future revenues and are therefore relatively fixed in the short term, if revenue levels fall below expectations operating results are likely to be disproportionately adversely affected. The Company also expects that its operating results will be affected by seasonal trends. The Company believes that, in general, it is likely it will experience relatively higher revenues in fiscal quarters ending April 30 and relatively lower revenues in fiscal quarters ending July 31 as a result of efforts by its sales force to meet fiscal year-end sales quotas. The Company also anticipates that it may experience relatively weaker demand in fiscal quarters ending July 31 and October 31 as a result of reduced business activity in Europe during the summer months. 11 UNIFY CORPORATION LIQUIDITY AND CAPITAL RESOURCES At October 31, 1999, the Company had cash, cash equivalents and short-term investments of $13.4 million, compared to $11.4 million at April 30, 1999. Working capital increased to $14.7 million at October 31, 1999 from $11.9 million at April 30, 1999. The Company's operating activities generated cash of $2.5 million during the six months ended October 31, 1999, primarily from net income. Investing activities during the period generated cash of $.1 million, consisting principally of net purchases of available-for-sale securities. Cash provided by financing activities during the period was $0.8 million, primarily comprised of proceeds from issuance of common stock under the Company's stock option and stock purchase plans. The Company believes that current cash, cash equivalents 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, that it will be on terms satisfactory to the Company. DISCLOSURES ABOUT MARKET RATE RISK INTEREST RATE RISK. The Company's exposure to market rate risk for changes in interest rates relates primarily to its investment portfolio, which consists of cash equivalents and short-term investments. Cash equivalents are highly liquid investments with original maturities of three months or less and are stated at cost. Cash equivalents are generally maintained in money market accounts which have as their objective preservation of principal and which hold investments with maturity dates of less than 90 days. The Company does not believe its exposure to interest rate risk is material for these balances, which totaled $8.7 million at October 31, 1999. The securities in the Company's short-term investment portfolio are generally classified as available-for-sale and, consequently, are recorded on the consolidated balance sheet at fair value with unrealized gains or losses reported as a separate component of stockholders' equity. Short-term investments totaled $4.7 million at October 31, 1999 and there were no material realized or unrealized gains or losses on short-term investments during the first six months of fiscal 2000. Unify does not use derivative financial instruments in its short-term investment portfolio, places its investments with high quality issuers and, by policy, limits the amount of credit exposure to any one issuer. The Company is averse to principal loss and attempts to ensure the safety of its invested funds by limiting default, market and reinvestment risk. Unify's short-term investments at October 31, 1999 consisted of $4.7 million in high quality corporate bonds maturing within one year, which the Company does not believe carry any material interest rate exposure. If market interest rates were to change immediately and uniformly by ten percent from levels at October 31, 1999, the fair value of the Company's cash equivalents and short-term investments would change by an insignificant amount. 12 UNIFY CORPORATION FOREIGN CURRENCY EXCHANGE RATE RISK. As a global concern, the Company faces exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse impact on the Company's business, operating results and financial position. Historically, the Company's primary exposures have related to local currency denominated sales and expenses in Europe, Japan and Australia. Due to the substantial volatility of currency exchange rates, among other factors, the Company cannot predict the effect of exchange rate fluctuations on its future operating results. The Company also has currency exchange rate exposures on intercompany accounts receivable owed to the Company as a result of local currency sales of software licenses by the Company's international subsidiaries in the United Kingdom, France and Japan. At October 31, 1999, the Company had $1.3 million, $0.3 million and $1.2 million in such receivables denominated in British pounds, French francs and Japanese yen, respectively. The Company encourages prompt payment of these intercompany balances in order to minimize its exposure to currency fluctuations, but it engages in no hedging activities to reduce the risk of such fluctuations. A hypothetical ten percent change in foreign currency rates would have an insignificant impact on the Company's business, operating results and financial position. The Company has not experienced material exchange losses on intercompany balances in the past; however, due to the substantial volatility of currency exchange rates, among other factors, it cannot predict the effect of exchange rate fluctuations on its future business, operating results and financial position. YEAR 2000 COMPLIANCE INTRODUCTION. Many of the world's computer systems currently record years in a two-digit format. Such computer systems will be unable to properly interpret dates beyond the year 1999, which could lead to business disruption (the "Year 2000" issue). STATE OF READINESS. The Company believes that its current products are fully Year 2000 compliant. All current Unify products use four-digit years for all internal manipulations and representations. The Company has informed its customers that it will be phasing out support for certain older versions of Unify products that are not Year 2000 compliant by December 15, 1999. However, the Company's products are generally integrated with other systems involving sophisticated computer hardware and software products that the Company cannot adequately evaluate for Year 2000 compliance. There can be no assurance that the Company's products will function properly with other potentially non-compliant products, including third party software and hardware. Additionally, there can be no assurance that the Company's products contain or will contain all features and functionality considered necessary by customers and partners to be Year 2000 compliant. If Unify's products cannot manage and manipulate data related to the Year 2000, the result could be a material adverse effect on the Company's business. The Company may face claims based on Year 2000 problems in other companies' products or issues arising from the integration of multiple products within an overall system. 13 UNIFY CORPORATION Although the Company has not been a party to any litigation or arbitration proceeding involving its products or services related to Year 2000 compliance issues, the Company may in the future be required to defend its products or services in such proceedings or to negotiate resolutions of claims based on Year 2000 issues. The costs of defending and resolving Year 2000 issues, regardless of the merits of such disputes, and any liability the Company may have for such Year 2000 related damages, could materially adversely affect the Company's business, operating results, and financial condition. The Company sought to identify all significant internal applications and business processes that would require modification to ensure Year 2000 compliance during fiscal 1996 and believes that, with the exception of its accounting systems and certain older equipment and software, all appropriate modification and testing of those applications and processes were completed by the end of fiscal 1997. With regard to its accounting systems, the reprogramming and testing necessary for Year 2000 compliance was complete by the end of the second quarter of fiscal 2000. With regard to the older equipment and software, primarily personal computers and related software, the installation and testing of upgrades and replacements was complete by the end of the second quarter of fiscal 2000. However, no assurance can be given that the Company will not experience unanticipated material costs caused by undetected errors or defects in its internal systems. An assessment of the readiness of significant suppliers and service providers with which the Company electronically interacts is ongoing. To date, the Company is not aware of any significant supplier or service provider with a Year 2000 issue that would materially impact the Company's business, operating results or financial condition. However, the Company has no means of ensuring that suppliers and service providers will be Year 2000 compliant. The inability of suppliers and service providers to complete their Year 2000 resolution process in a timely fashion could materially and adversely impact the Company. COSTS. The costs incurred in addressing the Year 2000 issue are being expensed as incurred in compliance with generally accepted accounting principles. The total cost to date of these Year 2000 compliance activities was approximately $950,000 and no significant costs remain. Funding of these costs have come from existing cash resources. RISKS. See STATE OF READINESS. Also, the Company believes that the purchasing patterns of customers and potential customers may be affected by the Year 2000 issue in a variety of ways. Many companies are expending significant resources to correct their current software systems for Year 2000 compliance. These expenditures may result in reduced funds available to purchase e-commerce and Internet application software products such as those offered by the Company. The impact of the foregoing on the Company's business, operating results and financial condition is not determinable. CONTINGENCY PLANS. The Company currently expects that the Year 2000 issue will not pose significant internal operational problems. However, a delay in implementing new information 14 UNIFY CORPORATION systems, or a failure to fully identify all Year 2000 dependencies in Unify's internal systems or in the systems of the Company's suppliers and service providers could have material adverse consequences, including delays in the delivery of products. Therefore, the Company has developed contingency plans for continuing operations should these types of problems arise. PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the annual meeting of the Company's stockholders held on October 8, 1999, the following matters were voted upon: 1. The election of each of the nominees for director were approved with the following votes:
IN FAVOR WITHHELD -------- -------- Reza Mikailli 8,246,655 189,320 Kurt M. Garbe 8,247,963 188,012 Steven D. Whiteman 8,249,813 186,162
2. The amendment of the Company's 1991 Stock Option Plan to increase the maximum aggregate number of shares of the Company's Common Stock authorized for issuance from 2,700,000 shares to 3,100,000. Of the total shares voting on the foregoing amendment, 6,663,486 voted in favor, 1,752,134 voted against, and 20,355 abstained. 3. The appointment of Deloitte & Touche LLP as the Company's independent accountants for the fiscal year ending April 30, 2000. Of the total shares voting on the foregoing resolution, 8,361,935 voted in favor, 60,005 voted against, and 14,035 abstained. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K The Company filed no reports on Form 8-K during the quarter ended October 31, 1999. 15 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: December XX, 1999 Unify Corporation (REGISTRANT) By: Gary Pado -------------------------------- Gary Pado Vice President, Finance, and Chief Financial Officer (Principal Financial and Accounting Officer) 16 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED BALANCE SHEET AS OF OCTOBER 31, 1999 AND CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED OCTOBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS APR-30-2000 MAY-01-1999 OCT-31-1999 8,666 4,713 11,132 2,175 0 23,044 6,764 5,524 26,539 8,267 0 0 0 54,861 (36,935) 26,539 17,924 17,924 2,787 14,072 (335) 0 27 4,099 241 3,858 0 0 0 3,858 0.43 0.40
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