-----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, ATpfauMPBrXQfwhkB8msiDOQMf8FAfO4Yb7QVlDcuJpD6MmaqWn7ZbgMnKzO/faa jVOWhzF8Y08p1rKjMJzntA== 0001047469-98-009832.txt : 19980317 0001047469-98-009832.hdr.sgml : 19980317 ACCESSION NUMBER: 0001047469-98-009832 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980313 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: SEC FILE NUMBER: 001-11807 FILM NUMBER: 98565579 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, 1998 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. 8,347,591 shares of Common Stock, $0.001 par value, as of February 28, 1998 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- UNIFY CORPORATION FORM 10-Q INDEX
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of January 31, 1998 and April 30, 1997............................3 Condensed Consolidated Statements of Operations for the three and nine months ended January 31, 1998 and 1997.......................................................4 Condensed Consolidated Statements of Cash Flows for the nine months ended January 31, 1998 and 1997............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................................................14 Item 6. Exhibits and Reports on Form 8-K.................................14 SIGNATURE...................................................................15
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UNIFY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
January 31, April 30, 1998 1997 ----------- ---------- ASSETS (unaudited) (1) Current assets: Cash and cash equivalents $ 7,089 $ 9,513 Short-term investments 3,143 7,133 Accounts receivable, net 5,340 4,557 Prepaid expenses and other current assets 649 526 -------- -------- Total current assets 16,221 21,729 Property and equipment, net 2,134 2,415 Other assets 89 294 -------- -------- Total assets $ 18,444 $ 24,438 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 63 $ 2,378 Accounts payable 1,081 1,586 Amounts due to minority interest stockholders 800 830 Accrued compensation and related expenses 1,694 1,972 Other accrued liabilities 3,323 3,797 Deferred revenue 3,560 3,531 -------- -------- Total current liabilities 10,521 14,094 Long-term debt, net of current portion 32 58 Minority interest 240 324 Stockholders' equity: Common stock 8 8 Additional paid-in capital 53,472 52,965 Notes receivable from stockholders (214) (207) Cumulative translation adjustments (746) (767) Accumulated deficit (44,869) (42,037) -------- -------- Total stockholders' equity 7,651 9,962 -------- -------- Total liabilities and stockholders' equity $ 18,444 $ 24,438 -------- -------- -------- --------
(1) 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)
Nine Months Ended Three Months Ended Jan. 31, Jan. 31, --------------------------- ------------------------- 1998 1997 1998 1997 -------- -------- --------- ---------- Revenues: Software licenses $ 4,154 $ 2,841 $ 11,017 $ 11,667 Services 2,348 2,502 6,883 7,249 Amnesty license arrangement - (2,812) - - -------- -------- --------- --------- Total revenues 6,502 2,531 17,900 18,916 -------- -------- --------- --------- Cost of revenues: Software licenses 111 287 474 930 Services 1,051 1,123 3,275 3,415 -------- -------- --------- --------- Total cost of revenues 1,162 1,410 3,749 4,345 -------- -------- --------- --------- Gross margin 5,340 1,121 14,151 14,571 -------- -------- --------- --------- Operating expenses: Product development 1,358 2,151 4,332 5,525 Selling, general and administrative 3,926 7,105 12,782 18,572 -------- -------- --------- --------- Total operating expenses 5,284 9,256 17,114 24,097 -------- -------- --------- --------- Income (loss) from operations 56 (8,135) (2,963) (9,526) Other income, net 72 195 273 309 -------- -------- --------- --------- Income (loss) before income taxes 128 (7,940) (2,690) (9,217) Provision for income taxes (52) (34) (142) (146) -------- -------- --------- --------- Net income (loss) $ 76 $ (7,974) $ (2,832) $ (9,363) -------- -------- --------- --------- -------- -------- --------- --------- Net income (loss) per share, basic and diluted $ 0.01 $ (1.01) $ (0.35) $ (1.39) -------- -------- --------- --------- -------- -------- --------- --------- Shares used in computing net income (loss) per share: Basic 8,282 7,888 8,179 6,721 -------- -------- --------- --------- -------- -------- --------- --------- Diluted 8,418 7,888 8,179 6,721 -------- -------- --------- --------- -------- -------- --------- ---------
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, ----------------------------- 1998 1997 ---------- ---------- Cash flows from operating activities: Net loss $ (2,832) $ (9,363) Reconciliation of net loss to net cash used in operating activities: Depreciation 798 970 Provision for losses on accounts receivable 57 - Loss on disposal of property and equipment - 758 Minority interest (84) (97) Liquidation of Benelux subsidiary 136 - Imputed interest on stockholder line of credit - 194 Changes in operating assets and liabilities: Accounts receivable (867) (416) Prepaid expenses and other current assets (129) 378 Accounts payable (522) (121) Amounts due to minority interest stockholders (26) (379) Accrued compensation and related expenses (276) 574 Other accrued liabilities (473) 992 Deferred revenue 37 (732) --------- --------- Net cash used in operating activities (4,181) (7,242) --------- --------- Cash flows from investing activities: Purchases of available-for-sale securities (5,309) (11,149) Sales of available-for-sale securities 9,300 3,968 Purchases of property and equipment (518) (912) Other assets 234 (75) --------- --------- Net cash provided by (used in) investing activities 3,707 (8,168) --------- --------- Cash flows from financing activities: Principal payments under debt obligations (2,341) (220) Proceeds from issuance of common stock, net 507 23,862 Collection of notes receivable from stockholders, net of interest accrual (7) 61 --------- --------- Net cash (used in) provided by financing activities (1,841) 23,703 --------- --------- Effect of exchange rate changes on cash (109) 128 --------- --------- Net (decrease) increase in cash and cash equivalents (2,424) 8,421 Cash and cash equivalents, beginning of period 9,513 3,028 --------- --------- Cash and cash equivalents, end of period $ 7,089 $ 11,449 --------- --------- --------- --------- Supplemental schedule of noncash investing and financing activities: Conversion of redeemable preferred stock and accrued dividends to common stock $ - $ 26,726 --------- --------- --------- --------- Cash paid during the period for: Interest $ 321 $ 66 --------- --------- --------- --------- Income taxes $ 116 $ 109 --------- --------- --------- ---------
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, 1998 and April 30, 1997, the results of operations for the three and nine months ended January 31, 1998 and 1997, and the cash flows for the nine months ended January 31, 1998 and 1997. 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, 1997 as filed with the SEC. 2. LONG-TERM DEBT At April 30, 1997, the Company had a line of credit provided by certain stockholders. The Company retired the full $2.2 million balance due under this credit facility upon its expiration in July 1997. 3. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, EARNINGS PER SHARE. In accordance with the provisions of this statement, the Company adopted SFAS No. 128 in the third quarter of fiscal 1998 and has restated earnings per share data for prior periods to conform with the provisions of SFAS No. 128. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the periods shown: 6 UNIFY CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three Months Ended Nine Months Ended Jan. 31, Jan. 31, ---------------------- ------------------------ 1998 1997 1998 1997 ------- --------- --------- --------- INCOME (LOSS) (NUMERATOR): Net income (loss), basic and diluted $ 76 $ (7,974) $ (2,832) $ (9,363) ------- --------- --------- --------- ------- --------- --------- --------- SHARES (DENOMINATOR): Weighted average shares of common stock outstanding 8,314 8,038 8,229 6,961 Weighted average common shares subject to repurchase outstanding (32) (150) (50) (240) ------- --------- --------- --------- Average shares outstanding, basic 8,282 7,888 8,179 6,721 --------- --------- --------- --------- --------- --------- Weighted average common shares subject to repurchase outstanding 32 Weighted average common share equiva- lents for stock options outstanding 104 ------- Average shares outstanding, diluted 8,418 ------- ------- PER SHARE AMOUNT: Net income (loss) per share, basic and diluted $ 0.01 $ (1.01) $ (0.35) $ (1.39) ------- --------- --------- --------- ------- --------- --------- ---------
Options to purchase 793,847 shares of common stock at prices ranging from $2.38 to $4.20 per share were outstanding during the three months ended January 31, 1998 but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common shares during that period. The options, which expire on various dates through January 2002, were still outstanding as of January 31, 1998. 4. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued two new SFASs. SFAS No. 130, REPORTING COMPREHENSIVE INCOME, requires that an enterprise report, by major components and as a single total, the change in its net assets from nonowner sources during the period. SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, establishes annual and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas and major customers. Adoption of these statements will not impact the Company's consolidated financial position, results of operations or cash flows. Both statements are effective for fiscal years beginning after December 15, 1997, with earlier application permitted. In October 1997, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 97-2, SOFTWARE REVENUE RECOGNITION. This statement provides guidance on applying generally accepted accounting principles in recognizing revenues on software transactions. SOP 97-2 supercedes SOP 91-1 and is effective for transactions entered into for fiscal years beginning after December 15, 1997. 7 UNIFY CORPORATION SOP 97-2 addresses software revenue recognition matters primarily at a conceptual level. Based on its reading and interpretation of this statement, the Company believes it is currently in compliance with the provisions of SOP 97-2. However, detailed implementation guidelines for this statement have not yet been issued. Once issued, such detailed implementation guidelines could lead to unanticipated changes in the Company's current revenue accounting practices and these changes could be material to the Company's revenues and operating results. 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, 1997 as filed with the SEC. RESULTS OF OPERATIONS REVENUES The Company recognizes software license revenue when a noncancelable 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, with pricing for graphical products generally based upon the number of developers or end users, as applicable. Customer 8 UNIFY CORPORATION 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 the Company believes 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:
Three Months Ended Nine Months Ended Jan. 31, Jan. 31, ----------------------- ----------------------- 1998 1997 1998 1997 -------- -------- -------- -------- License revenues: Graphical $ 2,022 $ 623 $ 5,287 $ 4,566 Character 2,132 2,218 5,730 7,101 -------- -------- -------- -------- Total license revenues 4,154 2,841 11,017 11,667 Services revenues 2,348 2,502 6,883 7,249 Amnesty license arrangement - (2,812) - - -------- -------- -------- -------- Total revenues $ 6,502 $ 2,531 $ 17,900 $ 18,916 -------- -------- -------- -------- -------- -------- -------- --------
Total revenues for the three and nine months ended January 31, 1998 increased 157% and decreased 5%, respectively, over the same periods of the prior year. Graphical license revenues for those periods were 225% and 16% higher, respectively, than the same periods of the prior year. The increase in graphical license revenues for the quarter ended January 31, 1998 was primarily because there were four Unify VISION sales totaling $1.0 million in that quarter, whereas there were no Unify VISION sales of similar size in the same quarter of the prior year. The increase in graphical license revenues for the nine months ended January 31, 1998 was primarily attributable to the strong third quarter fiscal 1998 performance compared to the same period of the prior year. Because of factors such as those described in "Volatility of Stock Price and General Risk Factors Affecting Quarterly Results," especially continuing longer sales cycles associated with enterprise-level sales transactions, there can be no assurance that the Company will be able to maintain the same level of graphical license revenues as recorded for the quarter ended January 31, 1998. Character license revenues for the three and nine months ended January 31, 1998 decreased 4% and 19%, respectively, over the same periods of the prior year, principally because of the general decline in demand for character products and the Company's continued focus on its graphical products. Service revenues for the three and nine months ended January 31, 1998 decreased 6% and 5%, respectively, over the same periods of the prior year primarily because of a 10% decline in the total value of maintenance contracts obtained during the third and fourth quarters of fiscal 1997 which was associated with lower total license revenues in those quarters as compared to the same quarters of the prior year. International revenues increased to 61% of total revenues in the quarter ended January 31, 1998 from 21% of total revenues in the same quarter of the prior year. International revenues for the third quarter of fiscal 1997 were lower primarily due to the reversal of the $2.8 million amnesty license arrangement in that quarter. International revenues decreased to 54% of total 9 UNIFY CORPORATION revenues in the nine months ended January 31, 1998 from 62% of total revenues in the same period of the prior year. U.S. sales were stronger in the fiscal 1998 period due to management focus on this region while a single international sale totaling $1.2 million improved international performance in the fiscal 1997 period. The Company made significant changes in the management and structure of its sales and marketing organizations and released Unify VISION 3.0 and VISION/Web during the second half of fiscal 1997. As a result, the Company began to experience new opportunities to compete for larger, enterprise-level sales transactions which were accompanied by significantly longer sales cycles. 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. COST OF REVENUES Cost of software licenses for the three and nine months ended January 31, 1998 decreased to 3% and 4% of license revenues, respectively, as compared to 10% and 8% of license revenues for the same periods of the prior year. The decreases in cost of software licenses in absolute dollars and as a percentage of license revenues in both of the fiscal 1998 periods were due to continuing efficiencies achieved in the U.S. and Japan. Cost of services for the three and nine months ended January 31, 1998 were comparable in absolute dollars and as a percentage of service revenues compared to the same periods of the prior year, reflecting somewhat lower maintenance revenues offset by slightly lower maintenance costs in the fiscal 1998 periods. As the Company increases its emphasis on providing comprehensive application development solutions in the remainder of fiscal 1998 and in fiscal 1999, it expects that consulting service costs may increase. PRODUCT DEVELOPMENT Product development expenses for the quarter ended January 31, 1998 decreased to $1.4 million, or 21% of total revenues, as compared to $2.2 million, or 40% of total revenues (excluding the amnesty license arrangement), for the same quarter of the prior year. Product development expenses for the nine months ended January 31, 1998 decreased to $4.3 million, or 24% of total revenues, as compared to $5.5 million, or 29% of total revenues, for the same period of the prior year. The declines in product development expenses in absolute dollars were attributable to a decrease in contract staffing in the first nine months of fiscal 1998 from the level of staffing required in the first nine months of fiscal 1997 to complete Unify VISION 3.0 and VISION/Web in a timely manner and to the purchase of third party source code for $0.5 million in the third quarter of fiscal 1997. 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. 10 UNIFY CORPORATION SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative ("SG&A") expenses for the quarter ended January 31, 1998 decreased to $3.9 million, or 60% of total revenues, as compared to $7.1 million, or 133% of total revenues (excluding the amnesty license arrangement), for the same quarter of the prior year. SG&A expenses for the nine months ended January 31, 1998 decreased to $12.8 million, or 71% of total revenues, as compared to $18.6 million, or 98% of total revenues, for the same period of the prior year. Fiscal 1998 SG&A expenses decreased in absolute dollars compared to the same periods of the prior year as the Company continued to manage expenses and realign staff. Third quarter fiscal 1997 SG&A expenses included charges totaling $1.9 million for bad debt, staff realignments and related asset write-offs. The Company expects that total SG&A expenses will fluctuate from quarter to quarter principally because of variability in marketing program spending and sales commission expense. PROVISION FOR INCOME TAXES The Company recorded tax provisions for the three and nine months ended January 31, 1998 and 1997 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 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 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, especially in the sales organization; seasonality; changes in pricing policies by the Company or 11 UNIFY CORPORATION 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; 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 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. In addition, the Company expanded its North American direct sales force early in fiscal 1998 and the rate at which new sales people become productive could also cause material fluctuations in the Company's quarterly operating results. Because of 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 maintenance services, is lengthy and varies substantially from customer to customer. In particular, with the fiscal 1997 release of Unify VISION 3.0 and VISION/Web the Company has experienced 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 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 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 direct 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. In particular, because of the foregoing factors and because of longer sales cycles associated with Unify VISION 3.0 and VISION/Web, the operating results of the Company for the quarter ending April 30, 1998 are subject to significant uncertainty. The Company has incurred net losses in five of the last eight fiscal quarters and in each of the last five fiscal years. Although the Company recorded a small operating profit for the quarter ended January 31, 1998, there can be no assurance regarding the Company's continued profitability. 12 UNIFY CORPORATION LIQUIDITY AND CAPITAL RESOURCES At January 31, 1998, the Company had cash, cash equivalents and short-term investments of $10.2 million, compared to $16.6 million at April 30, 1997. Working capital decreased to $5.7 million at January 31, 1998 from $7.6 million at April 30, 1997. The Company's operating activities used cash of $4.2 million during the nine months ended January 31, 1998, primarily for operating losses and increases in accounts receivable. Investing activities during the period generated cash of $3.7 million, consisting principally of net sales of short term investments of $4.0 million offset by equipment purchases of $0.5 million. Cash used in financing activities during the period was $1.8 million, representing primarily the retirement of the $2.2 million stockholder line of credit which expired in July 1997 offset by proceeds from issuance of common stock of $0.5 million. 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. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued two new SFASs. SFAS No. 130, REPORTING COMPREHENSIVE INCOME, requires that an enterprise report, by major components and as a single total, the change in its net assets from nonowner sources during the period. SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, establishes annual and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas and major customers. Adoption of these statements will not impact the Company's consolidated financial position, results of operations or cash flows. Both statements are effective for fiscal years beginning after December 15, 1997, with earlier application permitted. In October 1997, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 97-2, SOFTWARE REVENUE RECOGNITION. This statement provides guidance on applying generally accepted accounting principles in recognizing revenues on software transactions. SOP 97-2 supercedes SOP 91-1 and is effective for transactions entered into for fiscal years beginning after December 15, 1997. SOP 97-2 addresses software revenue recognition matters primarily at a conceptual level. Based on its reading and interpretation of this statement, the Company believes it is currently in compliance with the provisions of SOP 97-2. However, detailed implementation guidelines for this statement have not yet been issued. Once issued, such detailed implementation guidelines could lead to unanticipated changes in the Company's current revenue accounting practices and these changes could be material to the Company's revenues and operating results. 13 UNIFY CORPORATION PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION Todd Wille, Vice President, Finance and Administration and Chief Financial Officer, resigned his position effective March 31, 1998. 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 January 31, 1998. 14 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 13, 1998 Unify Corporation (REGISTRANT) By: Todd Wille ------------------------------------------- Todd Wille Vice President, Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer) 15 EX-27. 2 EXHIBIT 27
5 This schedule contains summary financial information extracted from the Company's condensed consolidated balance sheet as of January 31, 1998 and condensed consolidated statement of operations for the nine months ended January 31, 1998 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS APR-30-1998 MAY-01-1997 JAN-31-1998 7,089 3,143 5,731 391 0 16,221 6,647 4,513 18,444 10,521 0 0 0 53,480 (45,829) 18,444 17,900 17,900 3,749 20,863 (377) 0 104 (2690) (142) (2832) 0 0 0 (2832) (0.35) (0.35)
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