-----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, CgnkKut3sRtzLxQusM4j0dGEYFOBHcp/L0kgYgxDg3hrT0u6Z3wqxohbpad2SW0+ ePi6eefp7+w5ZLc8bVYQTw== 0001047469-98-043963.txt : 19981216 0001047469-98-043963.hdr.sgml : 19981216 ACCESSION NUMBER: 0001047469-98-043963 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981215 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: 98769335 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 OCTOBER 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) 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. 8,469,336 shares of Common Stock, $0.001 par value, as of November 30, 1998 UNIFY CORPORATION FORM 10-Q INDEX
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of October 31, 1998 and April 30, 1998. . . . . . . . . . . . . 3 Condensed Consolidated Statements of Operations for the three and six months ended October 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Condensed Consolidated Statements of Cash Flows for the six months ended October 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 4. Submission of Matters to a Vote of Security Holders. . . . . . . 14 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . 14 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, 1998 1998 ----------- --------- ASSETS (unaudited) (audited) Current assets: Cash and cash equivalents $ 6,049 $ 5,279 Short-term investments 4,300 5,460 Accounts receivable, net 5,679 5,568 Prepaid expenses and other current assets 759 779 -------- -------- Total current assets 16,787 17,086 Property and equipment, net 1,723 1,925 Other assets 78 88 -------- -------- Total assets $ 18,588 $ 19,099 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ - $ 18 Accounts payable 1,268 1,041 Amounts due to minority interest stockholders 615 756 Accrued compensation and related expenses 1,682 1,889 Other accrued liabilities 2,750 3,076 Deferred revenue 2,542 3,745 -------- -------- Total current liabilities 8,857 10,525 Long-term debt, net of current portion - 4 Minority interest 248 275 Stockholders' equity: Common stock 8 8 Additional paid-in capital 53,594 53,474 Notes receivable from stockholders (221) (216) Cumulative translation adjustments (562) (521) Accumulated deficit (43,336) (44,450) -------- -------- Total stockholders' equity 9,483 8,295 -------- -------- Total liabilities and stockholders' equity $ 18,588 $ 19,099 -------- -------- -------- --------
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, ---------------------- ---------------------- 1998 1997 1998 1997 ------- ------- ------- ------- Revenues: Software licenses $ 4,726 $ 3,994 $ 8,968 $ 6,863 Services 2,474 2,270 4,892 4,535 ------- ------- ------- ------- Total revenues 7,200 6,264 13,860 11,398 ------- ------- ------- ------- Cost of revenues: Software licenses 236 130 462 363 Services 1,074 1,143 2,127 2,224 ------- ------- ------- ------- Total cost of revenues 1,310 1,273 2,589 2,587 ------- ------- ------- ------- Gross margin 5,890 4,991 11,271 8,811 ------- ------- ------- ------- Operating expenses: Product development 1,484 1,526 2,933 2,974 Selling, general and administrative 3,606 4,296 7,259 8,856 ------- ------- ------- ------- Total operating expenses 5,090 5,822 10,192 11,830 ------- ------- ------- ------- Income (loss) from operations 800 (831) 1,079 (3,019) Other income, net 100 141 123 201 ------- ------- ------- ------- Income (loss) before income taxes 900 (690) 1,202 (2,818) Provision for income taxes (44) (43) (88) (90) ------- ------- ------- ------- Net income (loss) $ 856 $ (733) $ 1,114 $(2,908) ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) per share, basic and diluted $ 0.10 $ (0.09) $ 0.13 $ (0.35) ------- ------- ------- ------- ------- ------- ------- ------- Shares used in computing net income (loss) per share: Basic 8,435 8,252 8,414 8,201 ------- ------- ------- ------- ------- ------- ------- ------- Diluted 8,547 8,252 8,538 8,201 ------- ------- ------- ------- ------- ------- ------- -------
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, ---------------------------- 1998 1997 ---------- ------- Cash flows from operating activities: Net income (loss) $ 1,114 $(2,908) Reconciliation of net income (loss) to net cash used in operating activities: Depreciation 554 530 Provision for losses on accounts receivable 181 80 Minority interest (27) (37) Liquidation of Benelux subsidiary - 136 Changes in operating assets and liabilities: Accounts receivable (84) 388 Prepaid expenses and other current assets 32 117 Accounts payable 188 (457) Amounts due to minority interest stockholders (198) (19) Accrued compensation and related expenses (239) (34) Other accrued liabilities (359) (790) Deferred revenue (1,288) (293) ---------- ------- Net cash used in operating activities (126) (3,287) ---------- ------- Cash flows from investing activities: Net sales of available-for-sale securities 1,160 1,689 Purchases of property and equipment (344) (430) Other assets 12 168 ---------- ------- Net cash provided by investing activities 828 1,427 ---------- ------- Cash flows from financing activities: Principal payments under debt obligations (22) (2,298) Proceeds from issuance of common stock, net 211 331 Repurchase of common stock (91) - Accrual of interest on notes receivable from stockholders (5) (5) ---------- ------- Net cash provided by (used in) financing activities 93 (1,972) ---------- ------- Effect of exchange rate changes on cash (25) (62) ---------- ------- Net increase (decrease) in cash and cash equivalents 770 (3,894) Cash and cash equivalents, beginning of period 5,279 9,513 ---------- ------- Cash and cash equivalents, end of period $6,049 $5,619 ---------- ------- ---------- ------- Supplemental schedule of noncash investing and financing activities: Cash paid during the period for: Interest $ 81 $ 274 ---------- ------- ---------- ------- Income taxes $ 54 $ 80 ---------- ------- ---------- -------
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, 1998 as filed with the SEC. 2. EARNINGS PER SHARE 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, --------------------------------------------------- 1998 1997 1998 1997 ------ ------- ------ ------- NET INCOME (LOSS) (NUMERATOR): Net income (loss), basic and diluted $ 856 $ (733) $1,114 $(2,908) ------ ------- ------ ------- ------ ------- ------ ------- SHARES (DENOMINATOR): Weighted average shares of common stock outstanding, basic 8,435 8,252 8,414 8,201 Weighted average common equivalent shares outstanding 112 - 124 - ------ ------- ------ ------- Weighted average shares of common stock outstanding, diluted 8,547 8,252 8,538 8,201 ------ ------- ------ ------- ------ ------- ------ ------- PER SHARE AMOUNT: Net income (loss) per share, basic and diluted $ 0.10 $ (0.09) $ 0.13 $ (0.35) ------ ------- ------ ------- ------ ------- ------ ------- ANTIDILUTIVE SHARES: 528 544 533 694 ------ ------- ------ ------- ------ ------- ------ -------
6 UNIFY CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3. COMPREHENSIVE INCOME Effective May 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This statement requires that all items recognized under accounting standards as components of comprehensive income be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. This statement also requires that an entity classify items of other comprehensive income by their nature in an annual financial statement. For example, other comprehensive income includes foreign currency translation adjustments. Annual financial statements for prior periods will be reclassified, as required. The Company's total comprehensive income (loss) was as follows:
Three Months Ended Six Months Ended October 31, October 31, ------------------- --------------------- 1998 1997 1998 1997 ---- ----- ------ ------- Net income (loss) $856 $(733) $1,114 $(2,908) Other comprehensive income (loss), net of tax (75) (8) (41) 63 ---- ----- ------ ------- Total comprehensive income (loss) $781 $(741) $1,073 $(2,845) ---- ----- ------ ------- ---- ----- ------ -------
4. STOCK REPURCHASE PROGRAM In September 1998, the Company announced that its Board of Directors had authorized the repurchase of up to 500,000 of its outstanding common shares. During the second quarter of fiscal 1999, 32,500 common shares were reacquired under this program at an average price of $2.80. 5. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments and hedging activities. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company has not yet determined the impact of SFAS No. 133 on the Company's financial statements. 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, 1998 as filed with the SEC. RESULTS OF OPERATIONS REVENUES The Company's strategy focuses on the marketing and enhancement of its graphical product, Unify VISION. The Company continues to support its installed base of character products, which the Company believes represents a significant source of potential customers for Unify VISION. The Company also generates a significant portion of its 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: 8 UNIFY CORPORATION
Three Months Ended Six Months Ended October 31, October 31, --------------------- ---------------------- 1998 1997 1998 1997 ------- ------- ------- ------- License revenues: Graphical $2,719 $2,008 $ 4,869 $ 3,265 Character 2,007 1,986 4,099 3,598 ------- ------- ------- ------- Total license revenues 4,726 3,994 8,968 6,863 Services revenues 2,474 2,270 4,892 4,535 ------- ------- ------- ------- Total revenues $7,200 $6,264 $13,860 $11,398 ------- ------- ------- ------- ------- ------- ------- -------
Total revenues for the three and six months ended October 31, 1998 increased 15% and 22%, respectively, over the same periods of the prior year. License revenues from graphical products for the three and six months ended October 31, 1998 were 35% and 49% higher, respectively, than for the same periods of the prior year, reflecting increased customer acceptance of those products. Because of factors such as those described in "Volatility of Stock Price and General Risk Factors Affecting Quarterly Results," there can be no assurance that the Company will be able to maintain the same level of graphical product license revenues as recorded for the quarter ended October 31, 1998. License revenues from character products were comparable at $2 million in each of the quarters ended October 31, 1998 and 1997. Character license revenues for the six months ended October 31, 1998 increased 14% over the same period of the prior year due to the timing of certain larger orders. Service revenues for the three and six months ended October 31, 1998 increased 9% and 8%, respectively, over the same periods of the prior year due to an increase in customer maintenance contracts associated with higher license revenues in the fiscal 1999 periods. International revenues increased to 56% and 54% of total revenues in the three and six months ended October 31, 1998 from 47% and 49% of total revenues in the three and six months ended October 31, 1997. European revenues were unusually strong during the fiscal 1999 periods, primarily due to improved penetration of Unify VISION into VAR accounts as a result of a renewed focus on those accounts which began in the fourth quarter of fiscal 1998. COST OF REVENUES Cost of software licenses represented 5% of software license revenues for the three and six months ended October 31, 1998 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, 1998 decreased 6% and 4% compared to the same periods of the prior year, primarily due to temporarily lower headcount in the U.S. customer maintenance organization during the first half of fiscal 1999. Cost of services for the three and six months ended October 31, 1998 decreased as a percentage of service revenues to 43% from approximately 50% in the same periods of the prior year primarily due to higher service revenues and lower service costs in the fiscal 1999 periods. Within total services, the mix of customer maintenance and consulting and training revenues and expenses were relatively stable in the second quarter and first six months of fiscal 1999 as compared with the same periods of the prior year. 9 UNIFY CORPORATION PRODUCT DEVELOPMENT Product development expenses for the quarters ended October 31, 1998 and 1997 were comparable at $1.5 million and represented 21% and 24% of total revenues for those periods. Product development expenses for the six months ended October 31, 1998 and 1997 were also stable at approximately $3.0 million and represented 21% and 26% 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 1999 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, 1998 decreased to $3.6 million, or 50% of total revenues, as compared to $4.3 million, or 69% of total revenues, for the same quarter of the prior year. SG&A expenses for the six months ended October 31, 1998 decreased to $7.3 million, or 52% of total revenues, as compared to $8.9 million, or 78% of total revenues, for the same period of the prior year. Fiscal 1999 SG&A expenses decreased in absolute dollars compared to the same periods of the prior year primarily due to a cost control program which began in the second quarter of fiscal 1998 and included lower headcount and a flattening of the management structure in sales, marketing and finance. The decreases in SG&A expenses as a percentage of total revenues were attributable to the decreases in absolute dollars as well as to the increase in fiscal 1999 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, 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. 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). 10 UNIFY CORPORATION 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, 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, distributors, resellers and system integrators 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 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 necessary for Year 2000 compliance has been identified and is underway; the Company expects that reprogramming and testing of these systems will be complete by the end of fiscal 1999. With regard to the older equipment and software, primarily personal computers and related software, upgrades and replacements have been identified and are in the process of being ordered and installed. The Company expects that installation and testing of new equipment and software will be complete by the end of fiscal 1999. 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 is approximately $400,000 and the cost of future Year 2000 compliance activities is estimated to be $500,000. Funding of these costs will come from existing cash resources and future operating cash flows. RISKS 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 11 UNIFY CORPORATION significant resources to correct their current software systems for Year 2000 compliance. These expenditures may result in reduced funds available to purchase enterprise 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 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 is developing contingency plans for continuing operations should these types of problems arise. The Company believes that its contingency plans will be complete and tested by the end of fiscal 1999. 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 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; 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; 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 12 UNIFY CORPORATION 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. 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 and Internet 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 as well as the May 1998 release of VISION 4.0, 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, 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 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, due to the foregoing factors and due to longer sales cycles associated with Unify VISION 4.0, the operating results of the Company for the quarter ending January 31, 1999 are subject to significant uncertainty. The Company has incurred net losses in four of the last eight fiscal quarters and in each of the last five fiscal years. Although the Company recorded small operating profits in each of the four quarters ended October 31, 1998, there can be no assurance regarding the Company's continued profitability. LIQUIDITY AND CAPITAL RESOURCES At October 31, 1998, the Company had cash, cash equivalents and short-term investments of $10.3 million, compared to $10.7 million at April 30, 1998. Working capital increased to $7.9 million at October 31, 1998 from $6.6 million at April 30, 1998. The Company's operating activities used cash of $0.1 million during the six months ended October 31, 1998. Investing activities during the period generated cash of $0.8 million, consisting principally of net sales of short term investments of $1.2 million offset by equipment 13 UNIFY CORPORATION purchases of $0.3 million. Cash provided by financing activities during the period was $0.1 million, representing primarily proceeds of $0.2 million from the issuance of common stock offset by the acquisition of $0.1 million in common stock under the Company's stock repurchase program. 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. 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 2, 1998, 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 7,255,192 16,110 Arthur C. Patterson 7,252,516 16,786 Roel Pieper 7,256,009 15,293 Steven D. Whiteman 7,256,009 15,293 2. The appointment of Deloitte & Touche LLP as the Company's independent accountants for the fiscal year ending April 30, 1999. Of the total shares voting on the foregoing resolution, 7,262,021 voted in favor, 2,100 voted against, and 7,181 abstained. ITEM 5. OTHER INFORMATION Gary Pado, Corporate Controller, was named Vice President, Finance, and Chief Financial Officer effective November 16, 1998. 14 UNIFY CORPORATION Jeremy Jackson, Managing Director, Europe and International Sales, was named Vice President, Europe and International Operations effective November 16, 1998. Roel Pieper, Director, resigned his position effective November 17, 1998 due to a change in employment which resulted in his relocation to Europe. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 10.1 Employment Agreement by and between Reza Mikailli and the Registrant dated May 1, 1998 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, 1998. 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 15, 1998 Unify Corporation (REGISTRANT) By: Gary Pado ------------------------------------------- Gary Pado Vice President, Finance, and Chief Financial Officer (Principal Financial and Accounting Officer) 16 EX-10.1 2 EX-10.1 UNIFY CORPORATION 181 METRO DRIVE, 3RD FLOOR SAN JOSE, CA 95110 Reza Mikailli c/o Unify Corporation 181 Metro Drive, 3rd Floor San Jose, CA 95110 Re: EMPLOYMENT ARRANGEMENTS Dear Reza: This letter restates the terms and conditions of your employment with the Company. Effective as of May 1, 1998, this letter supersedes that certain Employment Letter between you and the Company dated March 31, 1995. 1. POSITION/TITLE. You will continue to be employed as President and Chief Executive Officer. In such position, you shall report directly to the Board of Directors. You shall devote your efforts and attention on a full time basis solely to the business of the Company. You will not engage in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage without prior written approval of the Board of Directors of the Company. 2. SALARY. You will be paid a fixed salary in bi-weekly or semi- monthly installments at the rate of $22,917 per month in accordance with Company policies from time to time in effect. 3. BONUS. You shall be eligible to participate in the executive bonus plan approved from time to time by the Board. In general terms, consideration of bonuses will be based upon the Company's achievement of its business plan. You shall be eligible for a bonus of up to $160,000 per year. Subject to the terms of any bonus plan which may be adopted from time to time by the Board, the terms and conditions of such plans, the criteria for granting bonuses, as well as the amount of bonuses, if any, will be at all times in the sole discretion of the Board of Directors. 4. OPTIONS. The Company has granted you an option for an additional 485,000 shares of Common Stock with an exercise price of $2.156 per share. The new option will vest monthly over a four year period from the date of grant. Notwithstanding the above, in the event of (i) the merger of the Company with or into another corporation as a result of which the holders of the Company's equity securities prior to such transaction control less than 50% of the equity securities of the surviving entity following such transaction (a "Merger"), or (ii) a sale by the Company of all or substantially all of its assets (an "Asset Sale"), then you shall, effective with the closing of such transaction, have the right to exercise your stock options for the number of shares which have vested as of such date plus one-half of the number of shares which have not yet vested. The remaining unvested portion of the option will vest at a proportionately lower rate over the remaining period of the original four year vesting term. If your employment is terminated by the Company or your compensation and benefits are materially reduced within twelve months following a Merger or an Asset Sale, then you shall have the right to exercise your stock options for all of the shares subject to the options. If your full time employment is terminated by the Company at any other time, your options shall be accelerated such that you shall have the benefit of one additional year of vesting of the unvested portion of your options. 5. OTHER BENEFITS. You shall also be entitled to such other benefits and to participate in such other plans as may be offered from time to time by the Company to employees generally, in accordance with the terms and conditions of such plans. Without limiting the generality of the foregoing, you shall be provided a monthly automobile allowance of $500. 6. BENEFITS ON SALE OF THE COMPANY. It is understood and acknowledged that the terms and conditions of that certain letter dated October 30, 1997 regarding special bonus arrangements upon any Sale of the Company (as defined therein) have terminated as provided in such letter and are no longer in force or effect. 7. LOAN. So long as you remain employed by the Company, at the end of each quarter, commencing with the quarter ending July 31, 1998, the Company will forgive $25,000 of the amounts owed by you pursuant to that certain promissory note made by you in favor of the Company in the approximate amount of $200,000. You shall be responsible for all taxes which arise in connection with such forgiveness, including, to the extent required, payment of withholding taxes. 8. SEVERANCE. If the Company terminates your employment you shall be entitled to severance benefits including salary, bonus (based upon the actual bonus for the prior year) plus medical and dental benefits in accordance with the terms of this paragraph. An amount equal to six months salary and bonus shall be payable upon any such termination. In addition, for a period ending six months after termination or when you commence new employment, whichever first occurs, you shall continue to receive your salary, bonus and benefits. If your new employment involves only part-time work or a salary and bonus rate below the salary and bonus paid to you by the Company, the Company shall continue to pay you the difference in salary until the expiration of the six month period. It is expressly understood that the loan forgiveness amounts referred to in paragraph 7 hereof shall not be included for the purposes of determining your salary and bonus. 9. TERM AND TERMINATION. You acknowledge that your employment with the Company is on a "AT WILL" basis and shall terminate upon the earlier of (i) your resignation, death or permanent disability or (ii) the Company's election to terminate your employment with or without cause or notice. In the event of any such termination, you shall be entitled only to such benefits as shall have accrued as of the date of termination as specified herein, and no further compensation. You acknowledge that the terms specified herein include substantial benefits to offset any risks of your employment being terminated at any time, with or without cause. You further acknowledge that this provision cannot be modified except by written agreement approved by a majority of the disinterested members of the Board of Directors. Without limiting the generality of the foregoing, it shall be a condition precedent to your receipt of, and the Company's obligation to pay you, any of the benefits provided for in this agreement on your termination (including all severance payments and acceleration of options) that you execute a full release of the Company and its officers, directors, employees, agents and affiliates of any claims relating to your employment, compensation and the termination of your employment, such release to be substantially in the form attached as Exhibit A hereto. Failure to execute such release shall not affect the enforceability of Sections 9, 10, 11, 12 or 13 of this agreement, but shall only affect the Company's obligation to provide you the post-termination benefits described in Sections 4, 6 and 8 hereof. 10. OTHER AGREEMENTS. You represent and warrant that you are not subject to or bound by any agreement which forbids employment by the Company or limits in any way your ability to perform your duties and responsibilities as President and Chief Executive Officer of the Company. You further agree to execute and deliver all other agreements reasonably required by the Company, including, but not limited to, the Company's standard employee confidentiality agreement. 11. CONFIDENTIALITY AGREEMENTS. You represent, warrant and agree that you will comply with all of the Company's confidentiality and proprietary rights policies from time to time in effect during the term of your employment. 12. ARBITRATION. You agree that in the event of any dispute regarding your employment, including, but not limited to, any dispute regarding the negotiation of the terms of employment, any termination or employment or the interpretation or performance of the terms and conditions hereof, such dispute shall be subject to binding arbitration in accordance with the rules of the American Arbitration Association. 13. ENTIRE AGREEMENT. You recognize and agree that this letter sets forth all of the material terms of the Company's agreement with you and that you are not relying upon any oral or written representation with respect to your employment except as specifically contained herein. To the extent of any inconsistency between this letter and other documents, including but not limited to, documents or agreements related to stock option exercises, prior employment offer letters, company bonus plans, etc., the terms and conditions of this letter shall prevail. 13. SEVERABILITY. While the provisions contained in this letter are considered by you and the Company reasonable in all circumstances, it is recognized that certain of the provisions may fail for technical reasons. Accordingly, it is hereby agreed that if any one or more provisions of paragraph 9 of this letter which are restrictions or limitations on you shall, either by itself or themselves or taken with others, be adjudged to be invalid as exceeding what is reasonable, but would be valid if any such particular restriction or provisions were deleted or, restricted or limited in a particular manner, then the said provisions shall apply with such deletion, restriction, limitation, reduction, curtailment, or modification as may be necessary to make them valid and effective. If the foregoing accurately reflects your understanding of our agreement, kindly execute the enclosed copy of this letter in the space provided and return it to me. Very truly yours, UNIFY CORPORATION By ------------------------------- Arthur Patterson, on behalf of the Board of Directors The foregoing is agreed and accepted. ------------------------------ Reza Mikailli Date Exhibit A Form of Release CONFIDENTIAL AGREEMENT AND GENERAL RELEASE This Confidential Agreement and General Release is entered into on this ___th day of __________, 19___, by and between ____________________ ("Employee") and Unify Corporation, a California corporation (the "Company") and sets forth the terms upon which Employee and the Company have agreed to terminate the employment of Employee with the Company and each has agreed to release the other from any liability arising from the employment relationship and the termination of that relationship. The parties agree as follows: 1. The parties have agreed that is mutually in their best interests to terminate their full time employment relationship as of __________________ (the "Effective Date"). Upon the signing of this Agreement, Employee hereby resigns from all positions as an officer, director, trustee, and other offices he may hold or may have held with the Company and all subsidiaries and affiliates of the Company (collectively the "Affiliates") with effect from the date hereof and agrees that his employment with the Company shall have ceased at the close of business on that date. 2. As compensation for entering into this Agreement, Employee shall receive the benefits described in that certain Letter Agreement between the Company and Employee dated as of March 31, 1995 as restated effective as of May 1, 1998. The payment of such benefits shall be conditioned upon Employee's not having revoked this Agreement within eight (8) days following the date hereof. 3. Employee acknowledges that he has had access to proprietary information, trade secrets, and confidential material of the Company, including but not limited to customer lists, pricing and cost information, and sales strategy, and he agrees, without limitation in time or until such information shall become public other than by Employee's unauthorized disclosure, to maintain the confidentiality of that information and refrain from divulging, disclosing, or otherwise using said confidential information to the detriment of the Company or for any other purpose. 4. Employee hereby fully and finally releases, acquits, and forever discharges the Company, the Affiliates, and any and all officers, directors, agents, employees, successors, or assigns of said persons or entities (the "Released Parties") from any and all claims, demands, liabilities, damages, causes of action, costs, expenses and compensation of any kind or nature whatsoever, whether or not now known or unknown, suspected or claimed, matured or unmatured, fixed or contingent, which Employee ever had, now has, or may claim to have from the beginning of time, against the Released Parties (whether directly or indirectly), or any of them, by reason of any act, event, or omission concerning any matter, cause or thing, including those which arise out of, or result from, or occurred in connection with Employee's employment with the Company and/or its Affiliates, and the termination of that employment. The Company hereby fully and finally releases, acquits, and forever discharges Employee, and any and all agents, successors, or assigns of said persons or entities (the "Employee Released Parties") from any and all claims, demands, liabilities, damages, causes of action, costs, expenses and compensation of any kind or nature whatsoever, whether or not now known or unknown, suspected or claimed, matured or unmatured, fixed or contingent, which the Company ever had, now has, or may claim to have from the beginning of time, against the Employee Released Parties (whether directly or indirectly), or any of them, by reason of any act, event, or omission concerning any matter, cause or thing, including those which arise out of, or result from, or occurred in connection with Employee's employment with the Company and/or its Affiliates, and the termination of that employment. 5. It is expressly understood and agreed that there are no claims or provisions or liabilities not expressed in this Agreement and that the payment of the sums as hereinabove set forth is not, and shall not be construed to be, an admission of liability of any person, firm, or corporation; but that the parties are settling and compromising their employer-employee relationship as to which all of the parties deny any liability. With respect to the said settlement, each party covenants and agrees that he shall forever refrain from initiating, prosecuting, maintaining or pressing any action, suit or claim in any jurisdiction, against the parties released herein, based on the termination of Employee's employment or holding of any office with the Company and the Affiliates. 6. The parties hereto each acknowledge that they may hereafter discover facts different from or in addition to those they now know or believe to be true with respect to the claims, demands, causes of action, obligations, damages, and liabilities of any nature, whatsoever, that are the subject of the releases set forth in this Agreement, and they each expressly agree to assume the risk of the possible discovery of additional or different facts, and agree that this Agreement shall be and remain effective in all respects regardless of such additional or different facts. The parties further agree that this Agreement and all the terms and conditions hereof shall be binding upon and inure to the benefit of their respective heirs, legal representatives, successors, and assigns. 7. The parties acknowledge that there is a risk that, subsequent to the execution of this Agreement, they may discover, incur or suffer from claims which were unknown or unanticipated at the time this Agreement is executed, including, without limitation, unknown or unanticipated claims which arose from, are based upon, or are related to the termination of Employee's employment with the Company and the Affiliates which, if known by them on the date this Agreement is being executed, may have materially affected their decision to execute this Agreement. Each party acknowledges that it is assuming the risk of such unknown and unanticipated claims and agrees that this Agreement applies thereto. Each party expressly waives the benefits of Section 1542 of the Civil Code of the State of California, which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." 8. In accordance with the Older Workers Benefit Protection Act of 1990, Employee represents and acknowledges that he has been made aware of the following: (1) he has the right to consult with an attorney before signing this Agreement; (2) he has seven (7) days after signing this Agreement to revoke this Agreement, and this Agreement shall not be effective until that revocation period has expired. 9. Nothing in this Agreement shall be deemed to waive or affect the parties' rights and obligations under California Labor Code Section 2802, which reads in pertinent part: "AN EMPLOYER SHALL INDEMNIFY HIS EMPLOYEE FOR ALL THAT THE EMPLOYEE NECESSARILY EXPENDS OR LOSES IN DIRECT CONSEQUENCE OF THE DISCHARGE OF HIS DUTIES, AS SUCH, OR OF HIS OBEDIENCE TO THE DIRECTIONS OF THE EMPLOYER, EVEN THOUGH UNLAWFUL, UNLESS THE EMPLOYEE, AT THE TIME OF OBEYING SUCH DIRECTIONS, BELIEVED THEM TO BE UNLAWFUL." 10. The Company and Employee each represent and warrant that there has been no assignment or other transfer of any interest in any claim they may have against any of the parties released herein, or any of them, and each agrees to indemnify and hold harmless the released parties, and each of them, from any liability, claims, demands, damages, costs, expenses, and attorneys' fees incurred by the released parties, or any of them, as a result of any such assignment or transfer. 11. Each of the parties hereto agrees that if he or it hereafter commences, joins in, or in any manner seeks relief through any suit arising out of, based upon, or relating to any of the claims released hereunder, or in any manner asserts against the released parties, or any of them, any of the claims released hereunder, then he shall pay to the released parties, and each of them, in addition to any other damages caused to them thereby, all attorneys' fees incurred by the released parties in defending or otherwise responding to said suit or claim. 12. Each of the parties hereto represents that this Agreement has been carefully read by him or it and that he or it knows and understands the contents hereof. Each of the parties has received independent legal advice from attorneys of his or its choice with respect to the preparation, review and advisability of executing this Agreement. Each of the parties further represents and acknowledges that he or it has freely and voluntarily executed this Agreement after independent investigation and without fraud, duress, or undue influence. 13. While the provisions contained in this Agreement are considered by the parties to be reasonable in all circumstances, it is recognized that provisions of the nature in question may fail for technical reasons and accordingly, it is hereby agreed and declared that if any one or more of such provisions shall, either by itself or themselves or taken with others, be adjudged to be invalid as exceeding what is reasonable in all circumstances for the protection of the interests of the Company, but would be valid if any particular restriction or provisions were deleted or, restricted or limited in a particular manner or if the period or area thereof were reduced or curtailed, then the said provisions shall apply with such deletion, restriction, limitation, reduction, curtailment, or modification as may be necessary to make them valid and effective. 14. This Agreement constitutes the entire agreement relating to the matters set forth herein between the parties who have executed it and supersedes any and all other agreements, understandings, negotiations, or discussions, either oral or in writing, express or implied, between the parties to this Agreement. The parties to this Agreement each acknowledge that no representations, inducements, promises, agreements or warranties, oral or otherwise, have been made by them, or anyone acting on their behalf, which are not embodied in this Agreement, that they have not executed this Agreement in reliance on any such representation, inducement, promise, agreement or warranty, and that no representation, inducement, promise, agreement or warranty not contained in this Agreement including, but not limited to, any purported supplements, modifications, waivers or terminations of this Agreement shall be valid or binding, unless executed in writing by all of the parties to this Agreement. 15. Each of the parties covenants and agrees that neither he or it nor his or its attorneys or representatives shall reveal to anyone, except accountants for income tax purposes, any of the terms of this Agreement, except as may be mutually agreed upon in writing or otherwise required by law or court order. 16. The parties acknowledge that this Agreement was jointly prepared by them, by and through their respective legal counsel, and any uncertainty or ambiguity existing herein shall not be interpreted against any of the parties, but otherwise according to the application of the rules on interpretation of contracts. IN WITNESS WHEREOF, the parties have set their hand as of the first date written above. UNIFY CORPORATION EMPLOYEE By -------------------------------- -------------------------------- EX-27 3 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF OCTOBER 31, 1998 AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED OCTOBER 31, 1998. 1,000 6-MOS APR-30-1999 MAY-01-1998 OCT-31-1998 6,049 4,300 6,337 658 0 16,787 6,528 4,805 18,588 8,857 0 0 0 53,602 (44,119) 18,588 13,860 13,860 2,589 12,781 (204) 0 81 1,202 (88) 1,114 0 0 0 1,114 0.13 0.13
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