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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 DECEMBER 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-23043
PERVASIVE SOFTWARE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2693793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8834 CAPITAL OF TEXAS HIGHWAY, SUITE 300
AUSTIN, TEXAS 78759
(Address of principal executive offices)
-------------------
(512) 794-1719
(Registrant's telephone number, including area code)
-------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
(1) Yes X No
----- -----
(2) Yes X No
----- -----
As of February 12, 1998 there were 13,223,631 shares of the Registrant's
common stock outstanding.
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PERVASIVE SOFTWARE INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements.......................................... 3
Condensed Consolidated Balance Sheets at December 31, 1997
and June 30, 1997............................................. 3
Condensed Consolidated Statements of Operations for the three
and six months ended December 31, 1997 and 1996............... 4
Condensed Consolidated Statements of Cash Flows for the
six months ended December 31, 1997 and 1996 .................. 5
Notes to Condensed Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 8
PART II. OTHER INFORMATION.............................................24
Item 5. Other Information.............................................24
Item 6. Exhibits and Reports on Form 8-K..............................24
SIGNATURES .................................................................26
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Pervasive Software Inc.
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,497 $ 4,058
Trade accounts receivable, net 3,949 2,803
Prepaid expenses and other current assets 1,221 817
-------------- --------------
Total current assets 25,667 7,678
Property and equipment, net 3,189 2,664
Other assets 120 103
-------------- --------------
Total assets $ 28,976 $ 10,445
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable $ 946 $ 1,052
Accrued payroll and payroll related costs 884 517
Other accrued expenses 2,513 2,273
Deferred revenues 1,305 1,267
Income taxes payable 334 301
Deferred royalty payable--Novell 501 708
-------------- --------------
Total current liabilities 6,483 6,118
Minority interest in subsidiary 642 695
Redeemable convertible preferred stock -- 4,026
Stockholders' equity (deficit):
Convertible preferred stock -- 3,915
Common stock 25,692 205
Retained deficit (3,841) (4,514)
-------------- --------------
Total stockholders' equity (deficit) 21,851 (394)
-------------- --------------
Total liabilities and stockholders' equity
(deficit) $ 28,976 $ 10,445
============== ==============
</TABLE>
See accompanying notes.
3
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Pervasive Software Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ ------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 8,470 $ 5,676 $ 16,141 $ 10,766
Costs and expenses:
Cost of revenues and technical support 1,230 744 2,394 1,478
Sales and marketing 3,520 2,481 6,632 4,386
Research and development 2,292 1,204 4,543 2,324
General and administrative 791 715 1,421 1,424
-------------- -------------- -------------- --------------
Total costs and expenses 7,833 5,144 14,990 9,612
-------------- -------------- -------------- --------------
Operating income 637 532 1,151 1,154
Interest and other income, net 218 25 199 42
-------------- -------------- -------------- --------------
Income before income taxes and minority interest 855 557 1,350 1,196
Provision for income taxes (258) (144) (404) (308)
Minority interest in earnings of subsidiary,
net of tax (22) (23) (41) (40)
-------------- -------------- -------------- --------------
Net income $ 575 $ 390 $ 905 $ 848
============== ============== ============== ==============
Basic earnings per share $ 0.04 $ 0.48 $ 0.12 $ 1.64
============== ============== ============== ==============
Diluted earnings per share $ 0.04 $ 0.03 $ 0.06 $ 0.06
============== ============== ============== ==============
</TABLE>
See accompanying notes.
4
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Pervasive Software Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
----------------------
1997 1996
---------- ----------
CASH FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 905 $ 848
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 631 291
Other non cash items 127 219
Change in current assets and liabilities:
Increase in trade accounts receivable (1,349) (342)
Increase in prepaid expenses and other current assets (365) (22)
Increase in accounts payable and accrued liabilities 543 1,098
Increase in deferred revenue 48 323
Increase in income taxes payable 64 308
---------- ----------
Net cash provided by operating activities 604 2,723
CASH FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,162) (690)
Increase in other assets (31) --
---------- ----------
Net cash used in investing activities (1,193) (690)
CASH FROM FINANCING ACTIVITIES
Payment of royalty to Novell (224) (265)
Proceeds from issuance of stock, net of issuance costs 17,545 112
---------- ----------
Net cash provided by (used in) financing activities 17,321 (153)
Effect of exchange rate on cash and cash equivalents (293) (37)
---------- ----------
Increase in cash and cash equivalents 16,439 1,843
Cash and cash equivalents at beginning of period 4,058 2,739
---------- ----------
Cash and cash equivalents at end of period $ 20,497 $ 4,582
========== ==========
</TABLE>
See accompanying notes.
5
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PERVASIVE SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. GENERAL AND BASIS OF FINANCIAL STATEMENTS
The unaudited interim condensed consolidated financial statements include
the accounts of Pervasive Software Inc. and its majority-owned subsidiaries
(collectively, the "Company" or "Pervasive"). All material intercompany accounts
and transactions have been eliminated in consolidation.
The financial statements included herein reflect all adjustments,
consisting only of normal recurring adjustments, which in the opinion of
management are necessary to fairly state the Company's financial position,
results of operations and cash flows for the periods presented.
These financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto for the year ended June 30,
1997, which are contained in the Company's Registration Statement on Form S-1
(File No. 333-32199). The results of operations for the three month and six
month periods ended December 31, 1997 and 1996 are not necessarily indicative of
results that may be expected for any other interim period or for the full fiscal
year.
2. INITIAL PUBLIC OFFERING
On September 25, 1997 the Company completed an initial public offering in
which the Company sold 2,000,000 shares of common stock for net proceeds to the
Company of $17.5 million, after deducting expenses of the offering. In addition,
stockholders of the Company sold 2,000,000 shares in the offering plus 500,000
shares upon subsequent exercise of an option granted to the underwriters for
over-allotments. The shares sold by the Company and selling stockholders
represented approximately 35% of the outstanding shares of the Company. The net
offering proceeds were received from the underwriters on October 1, 1997.
3. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND UNAUDITED STOCKHOLDER'S EQUITY
Upon closing of the initial public offering, each outstanding share of the
Company's Series A, B and C Convertible Preferred Stock and Redeemable
Convertible Preferred Stock was automatically converted into one share of common
stock of the Company resulting in the issuance of 9,713,132 shares of common
stock.
6
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
CONTINUED
4. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share. Statement 128
replaced "primary" and "fully diluted" earnings per share with "basic" and
"diluted" earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. In February of 1998, the SEC issued Staff Accounting Bulletin 98
("SAB 98"), which, among other things, addresses earnings per share computations
in an initial public offering. All weighted average share and earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to the Statement 128 and SAB 98 requirements.
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------- --------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 575 $ 390 $ 905 $ 848
========== ========== ========== ==========
Denominator:
Denominator for basic earnings per share - weighted
average shares 13,236 817 7,681 518
Effect of dilutive securities:
Convertible preferred shares -- 9,713 4,593 9,713
Employee stock options 1,947 2,556 2,039 2,813
---------- ---------- ---------- ----------
Potentially dilutive common shares 1,947 12,269 6,632 12,526
---------- ---------- ---------- ----------
Denominator for diluted earnings per share -
adjusted weighted average shares and assumed conversions 15,183 13,086 14,313 13,044
========== ========== ========== ==========
Basic earnings per share $ 0.04 $ 0.48 $ 0.12 $ 1.64
========== ========== ========== ==========
Diluted earnings per share $ 0.04 $ 0.03 $ 0.06 $ 0.06
========== ========== ========== ==========
</TABLE>
5. RECENT ACCOUNTING PRONOUNCEMENTS
In October 1997, the AICPA issued Statement of Position ("SOP") 97-2,
Software Revenue Recognition, which changes the requirements for revenue
recognition effective for transactions that the Company will enter into
beginning July 1, 1998. The Company has not yet assessed what the impact of the
SOP will be on its fiscal 1999 financial statements.
7
<PAGE>
PERVASIVE SOFTWARE INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The statements contained in this filing which are not purely historical
statements are forward looking statements within the meaning of Section 21E of
the Securities and Exchange Act of 1934, including statements regarding the
Company's expectations, beliefs, hopes, intentions or strategies regarding the
future. Forward looking statements include statements regarding projected
product demand and product shipment dates, anticipated or expected financial
trends such as fluctuations in revenues, costs and expenses, strategies with
respect to international expansion, projected hiring needs, market opportunities
and competition. All forward looking statements included in this document are
based upon information available to the Company as of the date hereof, and the
Company assumes no obligation to update any such forward looking statements.
Actual results could differ materially from the Company's current expectations.
Factors and risks that could cause or contribute to such differences include,
but are not limited to, those discussed in "Risk Factors that May Affect Future
Results," and the factors and risks discussed in the Company's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission and
effective as of September 25, 1997 (File No. 333-32199) and other reports filed
from time to time with the Securities and Exchange Commission.
OVERVIEW
Pervasive is a leading provider of embedded database software designed to
enable the cost-effective development, deployment and support of low-
maintenance, packaged client/server applications. The Company markets and sells
its products through indirect channels by targeting both independent software
vendors ("ISVs") who build packaged client/server applications and value added
resellers ("VARs") who recommend and sell applications to end users.
The Company derives its revenues primarily from shrink wrap licenses
through ISVs, VARs and distributors and from OEM license agreements with ISVs.
Additionally, the Company generates revenues from user count upgrades as well as
from upgrades to client/server environments from single workstation or
peer-to-peer environments. Shrink wrap license fees depend on both the user
count of the license and whether the license is for the Company's client- or
server-based products. The Company's OEM licensing program offers ISVs volume
discounts and specialized technical support, training and consulting in exchange
for embedding the Company's products in packaged applications and paying to the
Company a royalty based on sales of the applications.
Revenues are generally recognized from the license of software upon the
later of shipment or when all significant vendor obligations have been
satisfied. Revenues related to agreements involving nonrefundable fixed minimum
license fees are generally recognized upon delivery of the product master or
first copy if no significant vendor obligations remain. Per copy royalties in
excess of a fixed minimum amount are recognized as revenues when such amounts
are reported to the Company. The Company operates with virtually no order
backlog because its
8
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software products are shipped shortly after orders are received, which makes
product revenues in any quarter substantially dependent on orders booked and
shipped throughout that quarter. The Company enters into agreements with
certain distributors that provide for certain stock rotation and price
protection rights. These rights allow the distributor to return products in a
non-cash exchange for other products or for credits against future purchases.
The Company reserves for the cost of estimated sales returns, stock rotation and
price protection rights, as well as for uncollectable accounts based on
experience.
On February 9, 1998, the Company announced the introduction of
Pervasive.SQL(TM), an enhanced database software product that enables packaged
client/server applications to simultaneously access a single database engine
with both high volume transactional processing and industry-standard SQL
capabilities. Pervasive.SQL delivers increased performance, simplified
installation and maintenance, low cost of ownership and compatibility with
existing Btrieve(R) and Scalable SQL(TM)-based applications. Initial shipments
of Pervasive.SQL are anticipated during the quarter ended March 31, 1998.
Prior to the release of Pervasive.SQL, the Company derived substantially
all of its revenues from the license of its Btrieve and Scalable SQL products.
The Company expects that its future operating results will become increasingly
dependent upon market acceptance of its recently announced Pervasive.SQL product
and anticipates that revenues from the license of Btrieve and Scalable SQL will
decrease accordingly. The pace and timing of market acceptance of Pervasive.SQL
is largely dependent upon factors such as the product development cycles of ISVs
and VARs who embed the Company's products into third party packaged software
applications. As a result, the Company expects to continue to derive the
majority of its revenues from the license of Btrieve and Scalable SQL in the
near term and there can be no assurance as to whether or when Pervasive.SQL will
achieve market acceptance. A low demand for, or low or delayed market acceptance
of the Company's Pervasive.SQL product as a result of competition, technological
change or other factors, would have a material adverse effect on the Company's
business, operating results and financial condition. See "Risk Factors that May
Affect Future Results."
9
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
revenues represented by certain lines in the Company's consolidated statements
of operations:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
--------------- ---------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues ......................................... 100% 100% 100% 100%
Costs and expenses:
Cost of revenues and technical support .... 15 13 15 14
Sales and marketing ....................... 42 44 41 41
Research and development .................. 27 21 28 21
General and administrative ................ 9 13 9 13
------ ------ ------ ------
Total costs and expenses ......................... 93 91 93 89
------ ------ ------ ------
Operating income ................................. 7 9 7 11
Interest and other income, net ............ 3 -- 1 --
------ ------ ------ ------
Income before income taxes and minority interest.. 10 9 8 11
Provision for income taxes ................ (3) (2) (2) (3)
Minority interest in earnings of subsidiary -- -- -- --
====== ====== ====== ======
Net income ....................................... 7% 7% 6% 8%
====== ====== ====== ======
</TABLE>
Revenues
The Company's revenues increased to $8.5 million in the three months ended
December 31, 1997, an increase of 49% over the $5.7 million reported for the
comparable period in the prior fiscal year. Revenues in the six months ended
December 31, 1997 were $16.1 million, representing a 50% increase over the $10.8
million reported for the comparable period in the prior fiscal year. The
increase in the Company's revenues was attributable primarily to increased
market acceptance of the Company's products, principally licenses of the
Company's software operating on Windows NT, and expansion of its world-wide
sales organization. Although the Company's revenues have increased in recent
periods, there can be no assurance that revenues will grow in future periods,
that they will grow at past rates or that the Company will remain profitable on
a quarterly or annual basis in the future.
Licenses of the Company's software operating on Windows NT or other
Microsoft operating systems increased to approximately 46% of the Company's
revenues in the three months ended December 31, 1997 from approximately 35% in
the comparable period in the prior year. These same licenses represented 43% of
the Company's revenues in the six months ended December 31, 1997 compared to 32%
in the comparable period in the prior year. Licenses of the Company's software
operating on NetWare represented approximately 49% and 57% of the
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Company's revenues in the three months ended December 31, 1997 and 1996,
respectively. In the six months ended December 31, 1997, NetWare licenses
represented 52% of the Company's revenues compared to 61% in the comparable
period in the prior year. The Company believes that the increase in the
percentage of revenues attributable to licenses of the Company's products
operating on Windows NT and other Microsoft operating systems is due both to
increased market acceptance of the Company's products operating on Microsoft
platforms and to the increased market penetration of Microsoft platforms
relative to other operating systems. The Company expects that the percentages of
its revenues attributable to licenses of its software operating on particular
platforms will continue to change from time to time and there can be no
assurance that the Company's revenues attributable to licenses of its software
operating on Windows NT, or any other operating system platform, will grow in
the future, or at all.
International revenues, consisting of all revenues from customers located
outside of North America, were $3.3 million and $2.1 million in the three months
ended December 31, 1997 and 1996, representing 38% and 37% of total revenues,
respectively. International revenues were $6.5 million and $3.7 million in the
six months ended December 31, 1997 and 1996, representing 40% and 34% of total
revenues, respectively. The increase in dollar amount was primarily attributable
to expansion of the Company's international sales organization, particularly in
Europe. The Company believes that revenues from international markets represent
a significant opportunity and expects that international revenues may account
for an increasing portion of its revenues in the future as the Company expands
internationally, primarily in Europe and Japan, but also in other areas of the
world. See "Risk Factors That May Affect Future Results - Risks Associated with
International Sales and Operations."
Effective January 1, 1998, the Company combined its Inside Sales and
Strategic Sales organizations in order to consolidate its worldwide sales
efforts. Gordon A. (Casey) Leaman, formerly Vice President, International Sales,
was named Vice President, Worldwide Sales and will assume responsibility over
the Company's domestic and international sales organizations. Robert J. Adams,
Jr., who has served as Vice President, Marketing and Inside Sales, was named
Vice President, Worldwide Marketing and will assume responsibility over the
Company's domestic and international marketing organization.
Costs and Expenses
Cost of Revenues and Technical Support. Cost of revenues and technical
support consists primarily of the cost to manufacture and fulfill orders for the
Company's shrink wrap software products and the cost to provide technical
support, primarily telephone support, which is typically provided within 30 days
of purchase. Cost of revenues and technical support was $1.2 million and
$744,000 in the three months ended December 31, 1997 and 1996, representing 15%
and 13% of revenues, respectively. Cost of revenues and technical support was
$2.4 million and $1.5 million in the six months ended December 31, 1997 and 1996
representing 15% and 14% of revenues, respectively. The increase in cost of
revenues and technical support was attributable to increased sales volume and
increased technical support personnel in the U.S. and in Europe. The Company
anticipates that cost of revenues and technical support will continue to
increase in
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dollar amount as the Company incurs higher support costs with the
expansion of international operations and that such costs could vary as a
percentage of revenues relative to fiscal 1997.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
foreign sales office expenses, travel and entertainment and promotional
expenses. Sales and marketing expenses were $3.5 million and $2.5 million in the
three months ended December 31, 1997 and 1996, representing 42% and 44% of
revenues, respectively. Sales and marketing expenses were $6.6 million and $4.4
million in the six months ended December 31, 1997 and 1996, representing 41% of
revenues in both periods. The increase in dollar amounts was primarily
attributable to increased costs associated with hiring additional sales and
marketing personnel and increased infrastructure costs associated with foreign
sales office expansion. The Company expects that sales and marketing expenses
will continue to increase in dollar amount as the Company begins to promote
Pervasive.SQL, continues to hire additional sales and marketing personnel,
increase lead generation activities and expand its international operations.
Sales and marketing expenses are likely to continue to fluctuate as a percentage
of revenues due to the timing of costs associated with new product releases and
international expansion.
Research and Development. Research and development expenses consist
primarily of personnel and related costs. Research and development expenses were
$2.3 million and $1.2 million in the three months ended December 31, 1997 and
1996, representing 27% and 21% of revenues, respectively. Research and
development expenses were $4.5 million and $2.3 million in the six months ended
December 31, 1997 and 1996, representing 28% and 21% of revenues, respectively.
The increases, both in dollar amount and as a percentage of revenues are
primarily due to the increased hiring of, and contracting with, additional
research and development personnel. The Company anticipates that it will
continue to devote substantial resources to research and development and that
such expenses will continue to increase in dollar amount.
Software development costs that were eligible for capitalization in
accordance with Statement of Financial Accounting Standards No. 86 were
insignificant during these periods, and, accordingly, the Company charged all
software development costs to research and development expenses.
General and Administrative. General and administrative expenses consist
primarily of the personnel and other costs of the Company's finance, human
resources, information systems and administrative departments. General and
administrative expenses were $791,000 and $715,000 in the three months ended
December 31, 1997 and 1996, representing 9% and 13% of revenues, respectively.
General and administrative expenses were $1.4 million and $1.4 million in the
six months ended December 31, 1997 and 1996, representing 9% and 13% of
revenues, respectively. General and administrative expenses decreased as a
percentage of revenue primarily because of significant revenue growth that
outpaced general and administrative expenditures. The Company believes that its
general and administrative expenses will increase in dollar amount in fiscal
1998 as the Company's administrative staff expands to support its growing
world-wide operations and as a result of an increase in expense associated with
being a public company.
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Provision for Income Taxes. The estimated effective tax rates for both the
three and six month periods ended December 31, 1997 and 1996 were 30% and 26%,
respectively. The tax provision for fiscal 1997 consisted of federal, state and
foreign taxes on current income and foreign withholding, offset by the benefit
from partial release of the Company's valuation allowance recorded against its
net deferred tax asset. The increase in the estimated effective tax rate for
fiscal 1998 is primarily due to increased foreign taxes associated with the
Company's increased operations overseas. The Company expects its effective tax
rate to increase after fiscal 1998 once the Company's deferred tax asset is
fully realized.
LIQUIDITY AND CAPITAL RESOURCES
On September 25, 1997 the Company completed an initial public offering in
which the Company sold 2,000,000 shares of common stock for net proceeds to the
Company of $17.5 million, after deducting expenses of the offering. The offering
proceeds were received from the underwriters on October 1, 1997.
Cash provided by operations was $604,000 for the six months ended December
31, 1997 as compared with $2.7 million for the comparable period in the prior
fiscal year. The decrease in cash generated by operations resulted primarily
from increases in accounts receivable consistent with the increased sales volume
during the six months ended December 31, 1997.
To date, the Company's investing activities have consisted primarily of
capital expenditures totaling approximately $1.2 million and $690,000 in the six
months ended December 31, 1997 and 1996, respectively, to acquire equipment,
mainly computer hardware and software, for the Company's growing employee base.
The Company expects that its capital expenditures will increase as the Company's
employee base grows. At December 31, 1997, the Company did not have any material
commitments for capital expenditures.
At December 31, 1997, the Company had $20.5 million in cash and cash
equivalents and $19.2 million in working capital. The Company has a $2.0 million
revolving line of credit, but has at no time borrowed under such line. The
Company has granted a first priority security interest in substantially all of
its tangible assets as security for its obligations under its credit line.
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RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to other information in this Report on Form 10-Q, the following
risk factors should be considered in evaluating the Company and its business.
LIMITED OPERATING HISTORY; MARGINAL PROFITABILITY; FUTURE OPERATING RESULTS
UNCERTAIN
The Company was founded in January 1994. Accordingly, the Company's
prospects must be considered in light of the risks and difficulties frequently
encountered by companies in the early stage of development, particularly
companies in new and rapidly evolving markets. To address these risks, the
Company must, among other things, respond to competitive developments, continue
to attract, retain and motivate qualified personnel and continue to improve its
products. Although the Company has been profitable for the seven most recent
fiscal quarters, this profitability has been marginal and, except for the
quarters ended September 30, 1994 and December 31, 1994, the Company incurred
net losses in each quarter from inception through the quarter ended March 31,
1996 and as of December 31, 1997, the Company had an accumulated deficit of
approximately $3.8 million. The Company's operating losses and marginal
profitability have been due in part to the commitment of significant resources
to the Company's technical support, research and development and sales and
marketing organizations. The Company expects to continue to devote substantial
resources to these areas and as a result will need to recognize significant
quarterly revenues to maintain profitability. In particular, the Company intends
to hire a significant number of sales and research and development personnel in
fiscal 1998 and beyond, which the Company believes is required if the Company is
to achieve significant revenue growth in the future. Although the Company's
revenues have increased in recent periods, there can be no assurance that the
Company's revenues will grow in future periods, that they will grow at past
rates or that the Company will remain profitable on a quarterly or annual basis
in the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DEPENDENCE ON NEW PRODUCT RELEASE; PRODUCT CONCENTRATION
Prior to the release of Pervasive.SQL, the Company derived substantially
all of its revenues from the license of its Btrieve and Scalable SQL products.
The Company expects that its future operating results will become increasingly
dependent upon market acceptance of its recently announced Pervasive.SQL
product and anticipates that revenues from
14
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the license of Btrieve and Scalable SQL will decrease accordingly. The pace and
timing of market acceptance of Pervasive.SQL is largely dependent upon factors
such as the product development cycles of ISVs and VARs who embed the Company's
products into third party packaged software applications. As a result, the
Company expects to continue to derive the majority of its revenues from the
license of Btrieve and Scalable SQL in the near term and there can be no
assurance as to whether or when Pervasive.SQL will achieve market acceptance. A
low demand for, or low or delayed market acceptance of the Company's
Pervasive.SQL product as a result of competition, technological change or other
factors, would have a material adverse effect on the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Overview."
OPERATING RESULTS SUBJECT TO SIGNIFICANT FLUCTUATIONS; SEASONALITY
The Company's quarterly revenues, expenses and operating results have
varied significantly in the past and are likely to vary significantly in the
future due to a variety of factors, such as demand for the Company's products,
the size and timing of significant orders and their fulfillment, the number,
timing and significance of product enhancements and new product announcements by
the Company and its competitors, changes in pricing policies by the Company or
its competitors, customer order deferrals in anticipation of enhancements or new
products offered by the Company or its competitors, the ability of the Company
to develop, introduce and market new and enhanced versions of its products on a
timely basis, changes in the Company's level of operating expenses, budgeting
cycles of its customers, product life cycles, software defects and other product
quality problems, the Company's ability to attract and retain qualified
personnel, changes in the Company's sales incentive plans, changes in the mix of
domestic and international revenues, the level of international expansion,
foreign currency exchange rate fluctuations, performance of indirect channel
partners, changes in the mix of indirect channels through which the Company's
products are offered, the impact of acquisitions of competitors and indirect
channel partners, the Company's ability to control costs and general domestic
and international economic and political conditions. The Company operates with
virtually no order backlog because its software products are shipped shortly
after orders are received, which makes product revenues in any quarter
substantially dependent on orders booked and shipped throughout that quarter. As
a result, if orders in the first month or two of a quarter fall short of
expectations, it is unlikely that the Company will be able to meet its revenue
targets for that quarter. In addition, the Company is substantially reliant upon
indirect sales channels over which the Company has little or no control.
Moreover, the Company's expense levels are based to a significant extent on the
Company's expectations of future revenues and therefore are relatively fixed in
the short term. If revenue levels are below expectations, operating results are
likely to be adversely and disproportionately affected because only a small
portion of the Company's expenses vary with its revenues.
The Company's business has experienced and is expected to continue to
experience seasonal customer buying patterns. In recent years, the Company has
had relatively stronger demand for its products during the quarters ending
December 31 and June 30 and demand has been relatively weaker in the quarters
ending March 31 and September 30. The Company believes that this pattern may
continue. To the extent international operations constitute a greater
15
<PAGE>
percentage of the Company's revenues in future periods, the Company anticipates
the effect of seasonal buying patterns on the Company's business could be more
pronounced in subsequent periods as a result of reduced sales activity in Europe
and Japan during the summer months.
Based upon all of the factors described above, the Company believes that
its quarterly revenues, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of its operating
results are not necessarily meaningful and that, in any event, such comparisons
should not be relied upon as indications of future performance. The Company has
limited ability to forecast future revenues, and it is likely that in some
future quarter the Company's operating results will be below the expectations of
public securities analysts and investors. In the event that operating results
are below expectations, or in the event that adverse conditions prevail or are
perceived to prevail generally or with respect to the Company's business, the
price of the Company's Common Stock would likely be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON INDIRECT SALES CHANNEL; DISTRIBUTOR CONCENTRATION
The Company derives substantially all of its revenues from its indirect
sales channel, consisting of ISVs, VARs, system integrators, consultants and
distributors. The Company has invested, and intends to continue to invest,
significant resources to develop this channel, which could adversely affect the
Company's operating margins. There can be no assurance that the Company will be
able to attract additional indirect channel partners that will be able to market
and support the Company's products. In addition, many of the Company's indirect
channel partners offer competing product lines. Therefore, there can be no
assurance that any of the Company's current indirect channel partners will
continue to represent or recommend the Company's products. Further, the
inability to recruit new indirect channel partners, or the loss of, or a
significant reduction in revenues from, any particular indirect channel partner
could materially adversely affect the Company's business, operating results and
financial condition.
Some of the Company's ISVs, VARs and end users place their orders through
distributors. A relatively small number of distributors have accounted for a
significant percentage of the Company's revenues. In the six months ended
December 31, 1997 and 1996, two distributors accounted for a combined 22% and
28% of revenues, respectively. The Company expects that it will continue to be
dependent upon a limited number of distributors for a significant portion of its
revenues in future periods and such distributors are expected to vary from
period to period. The loss of a major distributor or any reduction in orders by
such distributor, including reductions due to market or competitive conditions,
combined with the inability to replace the distributor on a timely basis could
have a material adverse effect on the Company's business, operating results and
financial condition. The Company's operating results may in the future be
subject to substantial period-to-period fluctuations as a consequence of such
distributor concentration.
16
<PAGE>
SIGNIFICANT COMPETITION
The market for the Company's products is intensely competitive and subject
to rapid change. The Company primarily encounters competition from large, public
companies, including Microsoft Corporation ("Microsoft"), Oracle Corporation
("Oracle"), Informix Corporation ("Informix"), Sybase, Inc. ("Sybase") and
International Business Machines Corporation ("IBM"). Each of these companies
offers database products competitive with the Company's products. In particular,
Sybase offers a small memory footprint database software product, SQL Anywhere,
which directly competes with the Company's Pervasive.SQL and Scalable SQL
products. In addition, because there are relatively low barriers to entry in the
software market, the Company may encounter additional competition from other
established and emerging companies. Most of the Company's competitors have
longer operating histories, significantly greater financial, technical,
marketing and other resources than the Company, significantly greater name
recognition and a large installed base of customers. As a result, the Company's
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
development, promotion and sale of competitive products, than can the Company.
There is also a substantial risk that announcements of competing products by
large competitors could result in the cancellation of customer orders in
anticipation of the introduction of such new products. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address customer needs and which may limit the Company's
ability to sell its products through particular distribution partners.
Accordingly, new competitors or alliances among current and new competitors may
emerge and rapidly gain significant market share. The Company also expects that
competition will increase as a result of software industry consolidation.
Increased competition is likely to result in price reductions, fewer customer
orders, reduced margins and loss of market share, any of which could materially
adversely affect the Company. There can be no assurance that the Company will be
able to compete successfully against current and future competitors or that the
competitive pressures faced by the Company will not materially adversely affect
its business, operating results and financial condition.
RELIANCE ON INSTALLED BASE
In connection with the acquisition of certain software and related
technology from Novell in April 1994, the Company entered into a license
agreement permitting, among other things, the then-current version of Btrieve to
be reproduced and distributed on a royalty-free basis as part of or together
with current and future versions of any Novell products, including Novell's
NetWare operating system ("NetWare"). The Company derives significant revenues
from upgrade sales into the NetWare installed base and sales of the Company's
software operating on NetWare represented approximately 52% of the Company's
revenues in the six months ended December 31, 1997. As a result, sales of the
Company's products have been and will continue to be influenced by the market
acceptance of NetWare. NetWare faces substantial competition from other
operating systems, including Microsoft's Windows NT, which the Company believes
has a large and growing share of the worldwide market for client/server
operating systems. If sales of
17
<PAGE>
NetWare decrease, Novell discontinues NetWare or discontinues bundling Btrieve
with NetWare or if ISVs, VARs or their end users migrate to competing
client/server operating system platforms, and the Company is not able to
substantially increase sales of its products that run on competing client/server
operating systems, the Company's business, operating results and financial
condition would be materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON CONTINUED GROWTH OF THE MARKET FOR CLIENT/SERVER APPLICATIONS AND
EMBEDDED DATABASES
Although demand for client/server applications and embedded databases has
grown in recent years, this market is still emerging and there can be no
assurance that it will continue to grow or that, even if the market does grow,
organizations will continue to adopt the Company's products. The Company has
spent, and intends to continue to spend, considerable resources educating
potential customers about the Company's embedded database products and the
packaged client/server applications market generally. However, there can be no
assurance that such expenditures will enable the Company's products to achieve
any additional degree of market acceptance. The rate at which organizations have
adopted the Company's products has varied significantly by market and by product
within each market, and the Company expects to continue to experience such
variations with respect to its target markets and products in the future. There
can be no assurance that the market for the Company's products will continue to
develop or that the Company's existing, newly introduced or future products will
be widely accepted. Additionally, there can be no assurance that the market for
client/server and other applications in which the Company's products are
embedded will continue to grow. If the markets for the Company's products or the
applications in which they are embedded fail to develop, or develop more slowly
than the Company currently anticipates, the Company's business, operating
results and financial condition would be materially adversely affected.
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The market for the Company's products is characterized by rapid
technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changes in customer demands and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
unmarketable. The Company's future success will depend upon its ability to
continue to enhance its current products and to develop and introduce new
products on a timely basis that keep pace with technological developments and
satisfy increasingly sophisticated customer requirements. As a result of the
complexities inherent in client/server computing environments and the
performance demanded by customers for embedded databases, new products and
product enhancements can require long development and testing periods. As a
result, significant delays in the general availability of such new releases or
significant problems in the installation or implementation of such new releases
could have a material adverse effect on the Company's business, operating
results and financial condition. The Company has experienced delays in the past
in the release of new products and new product enhancements. There can be no
assurance that the Company will be successful in developing and marketing, on a
timely and cost
18
<PAGE>
effective basis, new products or new product enhancements that
respond to technological change, evolving industry standards or customer
requirements, that the Company will not experience difficulties that could delay
or prevent the successful development, introduction or marketing of these
products or that the Company's new products and product enhancements will
achieve market acceptance.
RISK OF SOFTWARE DEFECTS
Software products as complex as those offered by the Company may contain
errors or defects, particularly when first introduced or when new versions or
enhancements are released. The Company has in the past discovered software
errors in certain of its new products after their introduction. There can be no
assurance that, despite testing by the Company, defects and errors will not be
found in current versions, new versions or enhancements of its products after
commencement of commercial shipments, resulting in loss of revenues or delay in
market acceptance, which could have a material adverse effect on the Company's
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish twenty-first century dates from twentieth century dates. As a
result, in less than two years, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists in the software industry concerning the potential
effects associated with such compliance.
Although the latest versions of Btrieve, Scalable SQL and Pervasive.SQL are
designed to be Year 2000 compliant, an earlier release of Scalable SQL was not
Year 2000 compliant. There can be no assurance that the Company's software
products that are designed to be Year 2000 compliant contain all necessary date
code changes. In addition, third party packaged client/server applications in
which the Company's products are embedded, or for which the Company's products
are separately licensed may not be Year 2000 compliant which may have an adverse
impact on demand for the Company's products. As a result, the Company may incur
increased expenses in migration issues for such customers.
The Company believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues in a variety of ways.
Many companies are expending significant resources to correct or patch their
current software systems for Year 2000 compliance. These expenditures may result
in reduced funds available to purchase software products such as those offered
by the Company. Potential customers may also choose to defer purchasing Year
2000 compliant products until they believe it is absolutely necessary, thus
resulting in potentially stalled market sales within the industry. Conversely,
Year 2000 issues may cause other companies to accelerate purchases, thereby
causing an increase in short-term demand and a
19
<PAGE>
consequent decrease in long-term demand for software products. Additionally,
Year 2000 issues could cause a significant number of companies, including
current Company customers, to reevaluate their current software needs, and as a
result switch to other systems or suppliers. Any of the foregoing could result
in a material adverse effect on the Company's business, operating results and
financial condition.
The Company has performed an initial evaluation if its internal information
systems, including hardware and software purchased from third parties, for Year
2000 compliance. Although this initial evaluation did not reveal material
operational issues or costs associated with preparing its internal systems for
the year 2000, there can be no assurances that the Company will not experience
serious unanticipated negative consequences and/or material costs caused by
undetected errors or defects in the technology used in its internal systems.
PRODUCT LIABILITY
Although the Company's license agreements with its customers typically
contain provisions designed to limit the Company's exposure to potential product
liability claims, it is possible that such limitation of liability provisions
may not be effective as a result of existing or future laws or unfavorable
judicial decisions. The Company has not experienced any material product
liability claims to date; however, the sale and support of the Company's
products may entail the risks of such claims, which may be substantial in light
of the use of the Company's products in business-critical applications. A
successful product liability claim brought against the Company could have a
material adverse effect on the Company's business, operating results and
financial condition.
MANAGEMENT OF CHANGING BUSINESS
The Company has recently experienced a period of significant revenue growth
and an expansion in the number of its employees, the scope of its operating and
financial systems and geographic area of its operations. In particular, the
Company had a total of 189 employees at December 31, 1997, as compared to 124 at
December 31, 1996. This growth has resulted in new and increased
responsibilities for management and has placed a strain upon the Company's
financial and other resources. The Company expects that planned expansion of
international operations will lead to increased financial and administrative
demands, such as increased operational complexity associated with expanded
facilities, administrative burdens associated with managing an increasing number
of relationships with foreign partners and expanded treasury functions to manage
foreign currency risks. The Company's future operating results will also depend
on its ability to expand its sales and marketing organizations, further develop
its sales channels to penetrate different and broader markets and expand its
support organization to accommodate growth in the Company's installed base. The
failure of the Company to manage its expansion effectively could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
20
<PAGE>
Risks Associated with International Sales and Operations
The Company anticipates that for the foreseeable future a significant
portion of its revenues will be derived from sources outside North America and
the Company intends to continue expanding its sales and support operations
internationally. In order to successfully expand international sales, the
Company must establish additional foreign operations, expand its international
sales channel management and support organizations, hire additional personnel,
customize its products for local markets, recruit additional international
resellers and increase the productivity of existing international resellers. To
the extent that the Company is unable to do so in a timely and cost-effective
manner, the Company's sales growth internationally, if any, will be limited, and
the Company's business, operating results and financial condition could be
materially adversely affected. Even if the Company is able to successfully
expand its international operations there can be no assurance that the Company
will be able to maintain or increase international market demand for its
products.
The Company's international operations are generally subject to a number of
risks, including costs of customizing products for foreign countries,
protectionist laws and business practices favoring local competition, dependence
on local vendors, compliance with multiple, conflicting and changing government
laws and regulations, longer sales cycles, greater difficulty or delay in
accounts receivable collection, import and export restrictions and tariffs,
difficulties in staffing and managing foreign operations, foreign currency
exchange rate fluctuations and the associated effects on product demand,
multiple and conflicting tax laws and regulations and political and economic
instability. To date, a majority of the Company's revenues and costs have been
denominated in U.S. dollars. However, the Company believes that in the future,
an increasing portion of the Company's revenues and costs will be denominated in
foreign currencies. Although the Company may from time to time undertake foreign
exchange hedging transactions to reduce its foreign currency transaction
exposure, the Company does not currently attempt to eliminate all foreign
currency transaction exposure. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the efforts of
Ron R. Harris, the Company's President and Chief Executive Officer, and other
key management, sales and marketing, technical support and research and
development personnel, none of whom are bound by an employment contract. The
loss of key management or technical personnel could adversely affect the
Company. The Company believes that its future success will depend in large part
upon its continuing ability to attract and retain highly skilled managerial,
sales and marketing, technical support and research and development personnel.
Like other software companies, the Company faces intense competition for such
personnel, and the Company has at times experienced and continues to experience
difficulty in recruiting qualified personnel. There can be no assurance that the
Company will be successful in attracting, assimilating and retaining additional
qualified personnel in the future. The loss of the services of one or more of
the Company's key individuals, or the failure to attract and retain additional
qualified personnel,
21
<PAGE>
could have a material adverse effect on the Company's business, operating
results and financial condition.
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT; USE OF
LICENSED TECHNOLOGY
The Company relies primarily on a combination of copyright, trademark and
trade secret laws, confidentiality procedures and contractual provisions to
protect its proprietary rights. The Company licenses its database software
products primarily under "shrink wrap" licenses (i.e., licenses included as part
of the product packaging). Shrink wrap licenses are not negotiated with or
signed by individual licensees, and purport to take effect upon the opening of
the product package. However, the Company believes that such measures afford
only limited protection. There can be no assurance that others will not develop
technologies that are similar or superior to the Company's technology or design
around the copyrights and trade secrets owned by the Company. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Policing unauthorized use
of the Company's products is difficult, and although the Company is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem. Embedded software products,
like those offered by the Company, can be especially susceptible to software
piracy. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights as fully as do the laws of the U.S.
The Company is not aware that it is infringing any proprietary rights of
third parties. There can be no assurance, however, that third parties will not
claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers increasingly will be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of product infringement against the Company and
failure or inability of the Company to either license the infringed or similar
technology or develop alternative technology on a timely basis, the Company's
business, operating results and financial condition could be materially
adversely affected.
The Company relies upon certain software that it licenses from third
parties, including software that is integrated with the Company's internally
developed software and used in its products to perform key functions. There can
be no assurance that these third-party software licenses will continue to be
available to the Company on commercially reasonable terms. The loss of or
inability to maintain any such software licenses could result in shipment delays
or reductions until equivalent software could be developed, identified, licensed
and integrated which could materially adversely affect the Company's business,
operating results and financial condition.
22
<PAGE>
VOLATILITY OF STOCK PRICE
The market price of the Common Stock is highly volatile and may be
significantly affected by factors such as actual or anticipated fluctuations in
the Company's revenues and operating results, announcements of technological
innovations, new or enhanced products by the Company or its competitors,
developments with respect to copyrights or proprietary rights, conditions and
trends in the software and other technology industries, adoption of new
accounting standards affecting the software industry, changes in financial
estimates by securities analysts, general market conditions and other factors.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have particularly affected the market prices
for the securities of technology companies. In the past, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation has often been brought against the company. There can be
no assurance that such litigation will not occur in the future with respect to
the Company. Such litigation could result in substantial costs and a diversion
of management's attention and resources, which could have a material adverse
effect upon the Company's business, operating results and financial condition.
CONTROL OF COMPANY BY OFFICERS, DIRECTORS AND FIVE PERCENT STOCKHOLDERS
As of February 12, 1998 the executive officers, directors, five percent or
greater stockholders and their affiliates in the aggregate beneficially owned
approximately 64.1% of the Common Stock. As a result, acting together these
stockholders will be able to exercise effective control over all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions. Such concentration of ownership may have
the effect of delaying or preventing a change in control of the Company.
ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
The Company's Restated Certificate of Incorporation and Bylaws contain
certain provisions that may have the effect of discouraging, delaying or
preventing a change in control of the Company or unsolicited acquisition
proposals that a stockholder might consider favorable, including provisions:
authorizing the issuance of "blank check" preferred stock; establishing advance
notice requirements for stockholder nominations for elections to the Board of
Directors or for proposing matters that can be acted upon at stockholders'
meetings; eliminating the ability of stockholders to act by written consent;
requiring super-majority voting to approve certain amendments to the Restated
Certificate of Incorporation; limiting the persons who may call special meetings
of stockholders; and providing for a Board of Directors with staggered,
three-year terms. In addition, certain provisions of Delaware law and the
Company's 1997 Stock Incentive Plan (the "1997 Plan") may also have the effect
of discouraging, delaying or preventing a change in control of the Company or
unsolicited acquisition proposals.
23
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Effective January 1, 1998, the Company combined its Inside Sales and
Strategic Sales organizations in order to consolidate its worldwide
sales efforts. Gordon A. (Casey) Leaman, formerly Vice President,
International Sales, was named Vice President, Worldwide Sales and
will assume responsibility over the Company's domestic and
international sales organizations. Robert J. Adams, Jr., who has
served as Vice President, Marketing and Inside Sales, was named Vice
President, Worldwide Marketing and will assume responsibility over the
Company's domestic and international marketing organization.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits under Item 601 of Regulation S-K
3.1* Restated Certificate of Incorporation
3.2* Bylaws of the Company
4.1* Reference is made to Exhibits 3.1, 3.2 and 4.3
4.2* Specimen Common Stock certificate
4.3* Investors' Rights Agreement dated April 19, 1995, between
the Company and the investors named therein
10.1* Form of Indemnification Agreement
10.2* 1997 Stock Incentive Plan
10.3* Employee Stock Purchase Plan
10.4* First Amended and Restated 1994 Incentive Plan
10.5* Amendment and Restatement of Credit Agreement dated March
31, 1997 between the Company
and Texas Commerce Bank National Association
10.6* Lease Agreement dated October 5, 1994 between the Company
and Colina West Limited
24
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
10.7* First Amendment to Lease Agreement dated September 8, 1995
between the Company and Colina West Limited
10.8* Sublease Agreement dated December 10, 1996 between the
Company and Reynolds, Loeffler & Dowling, P.C.
10.9* Joint Venture Agreement dated March 26, 1995
between the Company and Novell Japan, Ltd., AG Tech
Corporation and Empower Ltd.
27.1 Financial Data Schedule
*Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-32199).
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended December
31, 1997.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 17, 1998 PERVASIVE SOFTWARE INC.
(Registrant)
By: /s/ JAMES R. OFFERDAHL
-------------------------------------
James R. Offerdahl
Vice President of Finance and
Administration and Chief Financial
Officer (Duly Authorized Officer
and Principal Financial Officer)
26
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
3.1* Restated Certificate of Incorporation
3.2* Bylaws of the Company
4.1* Reference is made to Exhibits 3.1, 3.2 and 4.3
4.2* Specimen Common Stock certificate
4.3* Investors' Rights Agreement dated April 19, 1995, between the
Company and the investors named therein
10.1* Form of Indemnification Agreement
10.2* 1997 Stock Incentive Plan
10.3* Employee Stock Purchase Plan
10.4* First Amended and Restated 1994 Incentive Plan
10.5* Amendment and Restatement of Credit Agreement dated March 31,
1997 between the Company and Texas Commerce Bank National
Association
10.6* Lease Agreement dated October 5, 1994 between the
Company and Colina West Limited 10.7* First Amendment to Lease
Agreement dated September 8, 1995 between the Company and
Colina West Limited
10.8* Sublease Agreement dated December 10, 1996 between the Company
and Reynolds, Loeffler & Dowling, P.C.
10.9* Joint Venture Agreement dated March 26, 1995
between the Company and Novell Japan, Ltd.,
AG Tech Corporation and Empower Ltd.
27.1 Financial Data Schedule
*Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-32199).
27
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