<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________________to ______________
Commission file number 012378
CARLETON CORPORATION
--------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1349953
--------- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification Number)
10729 Bren Road East, Minnetonka, Minnesota 55343
-------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 238-4000
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.
Common Stock, $.25 par value 3,343,266
---------------------------- --------------------------------------
Class Shares outstanding on January 29, 1999
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Operations - Three and Nine Months
Ended December 27, 1998 and December 28, 1997................... 3
Consolidated Balance Sheets - December 27, 1998 and
March 29, 1998................................................... 4
Consolidated Statements of Cash Flows - Nine Months Ended
December 27, 1998 and December 28, 1997......................... 5
Notes to Financial Statements.................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources.................................. 8
Results of Operations............................................ 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................... 12
Item 2. Changes in Securities................................... 12
Item 3. Defaults Upon Senior Securities......................... 12
Item 4. Submission of Matters to a Vote of
Security Holders........................................ 12
Item 5. Other Information....................................... 12
Item 6. Exhibits and Reports on Form 8-K........................ 13
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------------
Dec 27, Dec 28, Dec 27, Dec 28,
1998 1997 1998 1997
---------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Licenses $ 475 $ 225 $1,051 $ 372
Professional services 486 293 1,338 770
Maintenance and other 440 252 1,346 443
---------------------------------------------
Total 1,401 770 3,735 1,585
Costs and Expenses
Cost of revenues 682 652 1,979 1,509
Research, development and engineering 936 585 2,839 1,566
Selling, general and administrative 1,335 1,559 4,330 3,467
Other charges 10,379 10,379
---------------------------------------------
Total 2,953 13,175 9,148 16,921
---------------------------------------------
Loss from operations (1,552) (12,405) (5,413) (15,336)
Investment income 80 167 340 403
Interest expense and other (17) (12) (48) (46)
---------------------------------------------
Loss from continuing operations before income taxes (1,489) (12,250) (5,121) (14,979)
Income taxes 0 5 0 10
---------------------------------------------
Net loss from continuing operations (1,489) (12,255) (5,121) (14,989)
Discontinued operations:
Income from operations of discontinued
Internet Solutions Division 0 (622) 0 606
Gain on disposal of Internet Solutions Division 185 4,162 185 4,162
---------------------------------------------
185 3,540 185 4,768
---------------------------------------------
Net Loss ($1,304) ($8,715) ($4,936) ($10,221)
=============================================
Income (Loss) per Share:
Continuing Operations ($0.45) ($3.87) ($1.54) ($5.08)
Discontinued Operations 0.06 1.12 0.06 1.62
---------------------------------------------
Total ($0.39) ($2.75) ($1.48) ($3.47)
=============================================
Weighted Average Shares Outstanding 3,343 3,165 3,336 2,948
=============================================
</TABLE>
See accompanying Notes to Financial Statements.
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<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
December 27, March 29,
1998 1998
------------------------
ASSETS
Current Assets
Cash and cash equivalents $5,489 $11,111
Cash in escrow 64 730
Accounts receivable - net 1,272 1,517
Other 204 76
------------------------
Total current assets 7,029 13,434
Property and equipment 2,669 4,649
Accumulated depreciation (1,758) (3,256)
------------------------
Property and equipment - net 911 1,393
Capitalized software 60 0
------------------------
Total Assets $8,000 $14,827
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 158 $ 319
Accrued compensation and benefits 762 537
Other accrued expenses 684 2,530
Deferred revenue 783 809
Note payable 1,000 1,000
------------------------
Total current liabilities 3,387 5,195
Long-term Notes Payable 464 602
Shareholders' Equity
Common stock - authorized, 6,000,000 shares
at $.25 par value; issued and outstanding at
December 27, 1998 - 3,343,266 shares
March 29, 1998 - 3,305,363 shares 836 826
Additional paid-in capital 62,768 62,723
Retained deficit (59,455) (54,519)
------------------------
Total shareholders' equity 4,149 9,030
------------------------
Total Liabilities and Shareholders' Equity $8,000 $14,827
========================
See accompanying Notes to Financial Statements.
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<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------
Dec 27, Dec 28,
1998 1997
-----------------------
<S> <C> <C>
Operating Activities:
Net loss ($4,936) ($10,221)
Adjustments to reconcile net loss to net cash used in operations:
Gain on disposal of Internet Solutions Division (185) (4,162)
Other charges 0 10,379
Depreciation and amortization 321 1,400
Accounts receivable 245 1,458
Installment receivables 0 170
Inventory 0 (128)
Other assets (128) 7
Accounts payable, accrued compensation and benefits,
other accrued expenses and deferred revenue (1,363) (6,046)
-----------------------
Net cash flows used in operating activities (6,046) (7,143)
Investing Activities:
Purchases of property and equipment (net) (99) (114)
Capitalized software (60) 0
Change in cash held in escrow 666 (8)
Cash from acquired company (net) 0 68
Cash from disposal of Internet Solutions Division (net) 0 10,712
-----------------------
Net cash flows from (used in) investing activities 507 10,658
Financing Activities:
Repayments of debt (138) (2,750)
Stock options/restricted stock activity (net) 55 208
-----------------------
Net cash flows from (used in) financing activities (83) (2,542)
-----------------------
Net decrease in cash and cash equivalents (5,622) 973
Beginning cash and cash equivalents 11,111 13,865
-----------------------
Ending cash and cash equivalents $5,489 $14,838
=======================
Supplemental disclosures of cash flow information:
Cash paid for interest $57 $52
Cash paid for income taxes 94 102
</TABLE>
In the third quarter of the current fiscal year, the Company wrote down net
property and equipment by $260 against a reserve included in accrued expenses
See accompanying Notes to Financial Statements.
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. MANAGEMENT REPRESENTATION AND NAME CHANGE
The accompanying unaudited interim financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The results of operations for any interim
period are not necessarily indicative of results for the year. These statements
should be read in conjunction with the financial statements and related notes
included in the Company's Annual Report on form 10-K for the year ended March
29, 1998.
The Company changed its name from Apertus Technologies Incorporated to Carleton
Corporation effective August 1, 1998 (See Note 4). The Company's common stock
continues to trade on NASDAQ, but the symbol changed from "APTS" to "CARL".
2. REVERSE STOCK SPLIT
The Company conducted a one-for-five reverse stock split effective with the
close of business on September 15, 1998. All prior year comparative information
has been adjusted to give effect to the reverse stock split. The Company's
trading symbol was changed to "CARLD" for 20 trading days after the split. On
October 14, 1998, the symbol reverted back to "CARL".
3. DISCONTINUED OPERATIONS
The operating results of the Internet Solutions Division for the three and nine
months ended December 28, 1997 have been reflected as discontinued operations in
the Consolidated Statement of Operations. The Internet Solutions Division was
sold to Computer Network Technology Corporation in October 1997 as previously
reported by the Company. In the third quarter ended December 28, 1997, the
Company recognized a gain of $4,162 on disposal of the Internet Solutions
Division. In the third quarter ended December 27, 1998, the Company recognized
an additional gain of $185 on disposal of the Internet Solutions Division to
give recognition to revisions to estimates made in the previous year in
recording the original sale.
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<PAGE>
4. PRO FORMA RESULTS
The Company acquired a Massachusetts corporation then also known as "Carleton
Corporation" in October 1997. The transaction was accounted for under the
purchase method of accounting, and the operating results of the former "Carleton
Corporation" have been included with the consolidated results subsequent to the
acquisition.
Pro forma consolidated results of continuing operations for the three and nine
months ended December 27, 1997 as if "Carleton Corporation" had been acquired at
the beginning of fiscal 1997 are:
Three Months Nine Months
------------ -----------
Revenues $ 862 $ 3,389
Net loss (2,372) (6,430)
Net loss per share (.72) (1.96)
5. NET LOSS PER SHARE
Net loss per share was computed using the weighted average number of common
stock shares outstanding during the applicable period. There was no impact on
the calculation of the net loss per share resulting from adoption of Financial
Accounting Standards Board Statement No. 128, "Earnings Per Share."
6. ACCOUNTING POLICY ADOPTION
The Company adopted the provisions of Statement of Position 97-2, "Software
Revenue Recognition," in its current fiscal year beginning March 30, 1998.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements involve risks and uncertainties that may cause the
Company's actual results to differ materially from the results discussed in the
forward-looking statements. Factors that might cause such differences include,
but are not limited to, the following: market acceptance risk and decreased
demand for the Company's products; heightened competition; risk of technological
obsolescence of the Company's products; failure to obtain new customers or
retain existing customers; problems with software programs; risks associated
with the Company's dependence on proprietary technology, including those related
to adequacy of copyright, trademark and trade secret protection; inability to
resolve Year 2000 issues; integration of operations concerns; inability to
attract and retain key personnel resources; risks associated with single sources
of supply for certain components used in the Company's products; longer sales
cycles; inability to manage cost structure; inability to carry out sales and
marketing plans and changes in interest rates. The forward-looking statements
herein are qualified in their entirety by the cautions and risk factors set
forth under "Cautionary Statement" filed as Exhibit 99 to this Quarterly Report
on Form 10-Q.
Liquidity and Capital Resources
At December 27, 1998, the Company had net working capital of $3,642 and cash and
cash equivalents of $5,489. The Company currently anticipates minimal capital
expenditures in the near future. These expenditures will be primarily for the
purchase of computers for any new hires. The Company believes the cash position
will be adequate to support its anticipated short-term operating losses, make
capital investments and fund working capital needs into early fiscal 1999-2000.
The Company currently does not have any outside credit arrangements other than a
$1 million note that is secured by investments. The Credit Agreement for the
note has a maturity date of October 31, 1999. The Company will need to achieve
profitability and generate positive cash flow in fiscal 1999-2000 and beyond to
meet its expected future operating and capital cash needs. The Company has also
begun to investigate possible additional debt and/or equity financing
alternatives and to consider possible restructuring.
Results of Operations
The consolidated statements of operations reflect discontinued operations (see
Note 3 to the financial statements) by showing the operating results of the
Internet Solutions Division as a single line item.
The consolidated statements of operations for the three and nine months ended
December 27, 1998 include the results of the former "Carleton Corporation" which
was acquired by the Company in October 1997 (see Note 4 to the financial
statements).
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<PAGE>
Three Months Ended December 27, 1998
Revenues for the three months ended December 27, 1998 were $1,401, which was
$631 higher than the $770 of historical revenues for the same period in the
prior year. The higher revenues included increases of $250 in license revenues,
$193 in professional services revenues and $188 in maintenance and other
revenues. Although the revenues were significantly higher than the historical
revenues, expenses exceeded revenues and resulted in an operating loss that
reflects the early stage investment mode of the Company. The Company will need
to continue to grow its base of license revenues in the future to achieve its
license revenue goals and to increase the customer base for its professional
services. The Company expects its revenues to continue to increase in the
upcoming quarters so that the net losses become smaller until the Company
achieves profitability. There can be no assurance, however, that the Company
will achieve profitability. See the Cautionary Statement filed as Exhibit 99 to
this Quarterly Report on Form 10-Q.
The total costs and expenses for the three months ended December 27, 1998 were
$2,953, which was $157 higher than the historical costs and expenses for the
same period in the prior year if the other charges of $10,379 are excluded. The
$30 net increase in cost of revenues includes a $172 reduction in software
amortization costs, a $40 increase in royalties due to third parties, and a $162
increase primarily related to the costs of professional services. The increased
costs of professional services included the added costs from the "Carleton
Corporation" professional services group (including an allocation of the
facilities costs of the Billerica location) of approximately $127 and an
increase of $35 related to the costs of the professional services group in
Minnetonka. The $351 increase in research, development and engineering expenses
was due to the added costs of the "Carleton Corporation" research, development
and engineering group (including an allocation of the facilities costs of the
Billerica location) of approximately $356, including some outside contracting
work, and an increase of $55 in the costs of the similar group in Minnetonka.
These increased costs were offset somewhat by $60 of capitalized software
relating to the Pure Extract product. The $224 decrease in selling, general and
administrative expenses was primarily due to lower general and administrative
expenses and a lower facilities allocation, which more than offset increased
marketing and business development costs.
The Company plans to continue its development and engineering efforts to make
product enhancements to increase functionality and product integration and to
address ease of use issues. The Company will also focus efforts on expanding
business partner relationships, implementing targeted marketing programs and
increasing market image and awareness of the Company's Pure View suite of
products.
During the three months ended December 27, 1998 the Company continued to make
progress. The Company accomplished the following: expanded its direct customer
and business partner base, continued to provide quality implementation services
on significant projects for its customers, released its new Pure Extract
product, introduced its new OEM Pure Dimension product, launched its new Pure
View product suite, established reference accounts, and increased its marketing
promotion and clarified its market position. The focus going forward will be to
continue to improve the Company's products, build sales momentum through its
sales force, broaden business partner alliance programs and continue to refine
its marketing message. The Company has also recently announced its distribution
agreement with Carleton Corporation, Pty. Ltd., an established data warehousing
products and services organization headquartered in Sydney, Australia. This
agreement is the first step in expanding outside the North American market.
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<PAGE>
Nine Months Ended December 27, 1998
Revenues for the nine months ended December 27, 1998 were $3,735, which was
$2,150 higher than the $1,585 of historical revenues for the same period in the
prior year. The higher revenues included increases of $679 in license revenues,
$568 in professional services revenues and $903 in maintenance and other
revenues. Although the revenues were significantly higher than the historical
revenues, they were below the Company's expectations (due primarily to lower
license and professional services revenues), and the shortfall contributed to an
operating loss that was higher than planned for the nine months ended December
27, 1998. The Company needs to grow its base of license customers and increase
the customer base for its professional services in order to achieve the revenue
goals needed to support the Company's costs and expenses.
The total costs and expenses for the nine months ended December 27, 1998 were
$9,148, which was $2,606 higher than the historical costs and expenses for the
same period in the prior year. The $470 increase in the cost of revenues
includes a $515 reduction in software amortization costs, a $40 increase in
royalties due third parties, and a $945 increase primarily related to the costs
of professional services. The increased costs of professional services included
the added costs from the "Carleton Corporation" professional services group
(including an allocation of the facilities costs of the Billerica location) of
approximately $737 and an increase of $208 related to the costs of the
professional services group in Minnetonka. The $1,273 increase in research,
development and engineering expenses was primarily due to the added costs of the
"Carleton Corporation" research, development and engineering group (including an
allocation of the facilities costs of the Billerica location) of approximately
$1,566, including some outside contracting work, which was partially offset by
lower costs of the similar group in Minnetonka and $60 of capitalized software
relating to the Pure Extract product. The $863 increase in selling, general and
administrative expenses was primarily due to the added costs of the "Carleton
Corporation" sales group of approximately $380 and increased marketing and
business development costs of $800 which was partially offset by lower general
and administrative expenses and facilities charges.
The Company needs to continue its development and engineering efforts in order
to continue to make product enhancements that will increase functionality,
improve product integration and address ease of use issues. There can be no
assurance that the Company will be able to grow the revenues quickly enough to
cover the costs and expenses being incurred.
For the nine months ended December 27, 1998, the Company used $5,622 of cash and
cash equivalents primarily to fund its operating loss and to pay down its
liabilities. Although the Company has $5,489 in cash and cash equivalents at
December 27, 1998, the Company has begun to investigate possible additional debt
and/or equity financing alternatives and to consider possible restructuring
alternatives.
Year 2000
Many currently installed computer systems and software are coded to accept only
two-digit entries in the date code fields. These date code fields will need to
accept four-digit entries to distinguish 21st century dates from 20th century
dates. This problem could result in system failures or miscalculations causing
disruptions of business operations. The various software packages that the
Company uses for internal processing and to support its operations are obtained
from outside vendors. These software packages are Year 2000 compliant or
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<PAGE>
are expected to be Year 2000 compliant in the near future and made available to
the Company under maintenance contracts. The Company is also assessing Year 2000
compliance issues with companies with which it has third party outsourcing
relationships, such as banks, insurance companies, payroll processors and
telecommunications providers. The Company's assessment of its Year 2000 risks
includes not only its information technology systems but also any
non-information technology systems whether they be internally developed or
provided by an external party.
The Company has, and continues to, take significant actions to ensure Year 2000
compliance with customers' use of the Carleton family of data integration tools.
The Company has developed a comprehensive suite of Year 2000 tests and has
performed those tests against its products. The testing of Enterprise/Integrator
4.0, Passport 5.1 for the Mainframe, Passport 5.7 and Pure Dimension has been
completed. The products meet Carleton's Year 2000 compliance requirements except
for minor issues on Passport 5.1 release CAL215 (for which a patch is available)
and Passport 5.7.00. Passport 5.1 release CAL216 and Passport 5.7.02 that fix
all identified Year 2000 compliance issues will be available in February 1999.
Although the Company believes its testing has been extensive and rigorous, in
the event that unforeseen compliance issues arise, they will be corrected and
delivered to customers as part of the support received by virtue of the
customer's paid maintenance. Any releases newer than the above releases and any
new products will also be Year 2000 compliant. Customers on older generation
products will be upgraded.
Based on its assessments and current knowledge, the Company believes it will
not, as a result of the Year 2000 issue, experience any material disruptions in
internal processes, information processing or services from outside
relationships. However, if certain third-party providers, such as providers of
electricity, water or telephone service, experience difficulties resulting in
disruption of service to the Company, the Company could experience a shutdown at
its facilities. The Company is developing a contingency plan to provide for
continued operations if such a disruption of service occurs. This contingency
plan will also take into account the outcome of the Company's Year 2000
compliance testing and the results of surveying its major vendors. Assuming no
major disruption in service from utility companies or other critical third-party
providers, the Company believes that it will be able to manage its Year 2000
transition without any material effect on the Company's results of operations or
financial condition.
The most reasonable likely worst case scenario of failure by the Company or its
suppliers or customers to resolve Year 2000 problems could potentially be a
temporary slowdown or cessation of operations at the Company's facilities and a
temporary inability on the part of the Company to provide timely service to its
customers. Delays in providing service could potentially affect billings to and
payments from customers and could result in other liabilities. Customers' Year
2000 problems could result in delays in a willingness to purchase the Company's
products that could significantly impact the Company's ability to generate
revenues.
The total estimated cost for resolving the Company's Year 2000 issues is not
expected to exceed $110,000, of which approximately $85,000 has been spent
through December 27, 1998. This includes the cost of testing the Company's
products for Year 2000 compliance and any costs relating to internal processing
systems or vendor provided systems that may be incurred in getting such systems
compliant. Estimates of Year 2000 costs are based on numerous assumptions, and
there can be no assurance that the estimates are correct or that actual costs
will not be materially greater than anticipated.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company continues in its previously reported litigation in the
United States and Belgium against Carleton Europe, NV and Case
Associates, NV. The United States cases are Case Associates, NV v.
Apertus Technologies, Inc., et al., Civ. Act. No. 97-66621, pending in
the federal district court in Boston, Massachusetts, and Case
Associates, NV et al. v. Carleton Software, Inc., et al., Civ. Act. No.
98-11026, pending in Middlesex County state court in Massachusetts. The
Company continues to deny all liability, to defend itself vigorously
against the claims made against it and to pursue its counterclaims. At
present, those litigations are in the discovery phase. The previously
reported proceeding in Belgium is also continuing. In this proceeding,
captioned Carleton Corporation v. Case Associates, NV and Carleton
Europe, NV, Petitions Registry No. 98/8073/B, which is pending in
Brussels, the Company's seizure description order preventing Carleton
Europe and Case Associates from marketing products incorporating the
Company's PASSPORT software has been suspended pending a full hearing
to be held on February 16, 1999 in Brussels. In addition, Carleton
Europe, NV and Case Associates, NV have filed a separate proceeding
against the Company in Belgium seeking a declaration challenging
Carleton's copyright in its PASSPORT software or the graphical user
interface the Company uses with its PASSPORT software, and seeking
damages of up to $3 million. The Company denies these contentions and
intends to defend itself vigorously against these claims. Costs
incurred to date have been offset against the notes payable to the
former Carleton shareholders. See additional information in the
Form 10-Qs for the quarters ended June 28, 1998 and September 27, 1998.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
The Board of Directors, at its meeting in November 1998, canceled all
outstanding options that had been issued under the Company's 1990 Long
Term Incentive Plan and were held by current employees or directors.
The Board also approved the granting of new options to replace those
that were canceled. The new options have vesting periods of two to four
years. The cancellation of existing options and the granting of new
options were effective at the end of the business day on December 7,
1998. Outstanding options held by former employees and directors were
not affected nor were those options that had been rolled over in
conjunction with the acquisition of the former Carleton Corporation.
-12-
<PAGE>
The Company also recently accepted the resignation of Steven Thimjon as
Vice President, Chief Financial Officer and Corporate Secretary. Mr.
Thimjon submitted his resignation in December 1998 and left the Company
at the end of January 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 99 Cautionary Statement
(b) No reports on Form 8-K have been filed during this quarter.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARLETON CORPORATION
Date: February 8, 1999 By /s/ Robert Gordon
------------------------
Robert Gordon
President and Chief Executive Officer
By /s/ Scott Bruflodt
------------------------
Scott Bruflodt
Controller
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-28-1999 MAR-28-1999
<PERIOD-START> SEP-28-1998 MAR-30-1998
<PERIOD-END> DEC-27-1998 DEC-27-1998
<CASH> 5,553 0
<SECURITIES> 0 0
<RECEIVABLES> 1,322 0
<ALLOWANCES> 50 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,029 0
<PP&E> 2,669 0
<DEPRECIATION> 1,758 0
<TOTAL-ASSETS> 8,000 0
<CURRENT-LIABILITIES> 3,387 0
<BONDS> 464 0
0 0
0 0
<COMMON> 836 0
<OTHER-SE> 3,313 0
<TOTAL-LIABILITY-AND-EQUITY> 8,000 0
<SALES> 961 2,389
<TOTAL-REVENUES> 1,401 3,735
<CGS> 682 1,979
<TOTAL-COSTS> 682 1,979
<OTHER-EXPENSES> 2,271 7,169
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 17 48
<INCOME-PRETAX> (1,489) (5,121)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,489) (5,121)
<DISCONTINUED> 185 185
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,304) (4,936)
<EPS-PRIMARY> (.39) (1.48)
<EPS-DILUTED> (.39) (1.48)
</TABLE>
<PAGE>
Exhibit 99
CAUTIONARY STATEMENT
Carleton Corporation (the "Company" or "we"), or persons acting on behalf of the
Company, or outside reviewers retained by the Company making statements on
behalf of the Company, or underwriters, from time to time, may make, in writing
or orally, "forward-looking statements" as defined under the Private Securities
Litigation Reform Act of 1995 (the "Act"). This Cautionary Statement is for the
purpose of qualifying for the "safe harbor" provisions of the Act and is
intended to be a readily available written document that contains factors which
could cause results to differ materially from those projected in such
forward-looking statements. These factors are in addition to any other
cautionary statements, written or oral, which may be made or referred to in
connection with any such forward-looking statement.
The following matters, among others, may have a material adverse effect on the
business, financial condition, liquidity, results of operations or prospects,
financial or otherwise, of the Company. Reference to this Cautionary Statement
in the context of a forward-looking statement shall be deemed to be a statement
that any one or more of the following factors may cause actual results to differ
materially from those which might be projected, forecast, estimated or budgeted
by the Company in such forward-looking statement or statements:
SIGNIFICANT OPERATING LOSSES
WE HAVE RECENTLY EXPERIENCED SIGNIFICANT OPERATING LOSSES. We acquired
Carleton Corporation, a provider of advanced data warehousing solutions, in
October 1997, and began refocusing our business. We have experienced substantial
operating losses since that time. During the quarter and nine months ended
December 27, 1998, we had losses of $1,304,000 and $4,936,000, respectively.
During these periods, our revenues were $1,401,000 and $3,730,000, respectively.
We expect to continue to incur net operating losses at least through the end of
the fiscal year ending March 28, 1999. In order to achieve profitability, we
must significantly increase our product sales. We cannot assure you that we will
be able to increase revenues or achieve profitability.
MARKET ACCEPTANCE OF PRODUCTS
WE NEED TO ACHIEVE GREATER MARKET AWARENESS AND ACCEPTANCE FOR OUR
PRODUCTS. Our products are relatively new and not widely known. We must improve
product functionality and features, build sales momentum, broaden business
partner alliances and continue to increase marketing promotion. Although we have
made progress in these areas, our products have not been widely accepted in the
marketplace. We cannot assure you that our products will achieve widespread
market acceptance.
<PAGE>
WE DEPEND ON A LIMITED NUMBER OF PRODUCTS FOR MOST OF OUR REVENUES.
Because we depend on a limited number of products, our revenues may decrease if:
o Our products are incompatible with our customers' hardware systems
or software applications.
o Our products become obsolete.
o Our products receive negative publicity or evaluations.
o We are unable to keep up with our competitors in the development
and marketing of improved versions of our products.
WORKING CAPITAL
OUR WORKING CAPITAL HAS BEEN DECLINING SIGNIFICANTLY. As a result of
operating losses, our working capital declined from $8,239,000 on March 29, 1998
to $3,642,000 on December 27, 1998. We believe that our current cash position
will be adequate to fund our anticipated future operating losses, working
capital needs and required capital expenditures through the fiscal year ending
March 28, 1999. If we do not achieve profitability and generate positive cash
flow during the following fiscal year, we will not have adequate working capital
to fund our operations.
INTENSE COMPETITION IN THE SOFTWARE INDUSTRY
WE FACE SUBSTANTIAL COMPETITION. Competition in the software industry
is intense, rapidly changing and affected by a continual stream of new product
offerings. A number of other companies offer products similar to ours, and
additional new competitors may emerge in the near future. Many of our existing
competitors have substantially greater capital resources, technical expertise,
marketing experience, research and development staffs, established customers and
facilities than we do. As a result, there is a risk that our competitors will
successfully develop similar technologies and products that will be more
appealing to our customers than our existing or future products.
COMPETITION COULD AFFECT OUR PRICES AND MARKET SHARE. We expect
competition in our industry to increase as new companies emerge and as customers
try to meet their needs using internal resources. As a result, we may need to
decrease our prices, and our market share may not increase or may even decline.
These factors could adversely affect our financial performance.
CONSOLIDATION IN THE INDUSTRY MAY AFFECT OUR BUSINESS. Our principal
markets are highly fragmented and consist of a few large multinational
competitors and many small, regional competitors. We expect that the software
industry will experience additional consolidation as management information
systems become more complex and sophisticated. These developments may force
smaller companies either to specialize or merge with their competitors. As a
result, we believe that we must become a larger company to compete successfully
in this market. We cannot assure you that we will be able to grow and compete
effectively.
<PAGE>
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
WE MUST CONTINUE TO DEVELOP NEW PRODUCTS. In our industry, technology
advances rapidly and industry standards change frequently. To remain competitive
and achieve profitability, we must:
o Continually enhance our current products to prevent them from
becoming obsolete and unmarketable.
o Develop and introduce new products to meet the changing demands of
our customers.
o Anticipate technological trends and develop products to respond to
these trends.
In addition, our future performance will suffer if we experience delays that
prevent us from developing and marketing our products, particularly if such
delays prevent us from recovering the development expenses that we incur.
DEPENDENCE ON KEY CUSTOMERS
WE RELY ON A SMALL GROUP OF KEY CUSTOMERS. Since we began refocusing
our business in October 1997, we have sold our products to a relatively small
number of customers. During the nine months ended December 27, 1998, each of
several customers accounted for more than 10% of our total revenues. Reductions
in orders from these or future key customers would adversely affect our
business. In addition, the timing of orders from major customers could cause
substantial fluctuations in our future results.
SOFTWARE ERRORS
PROBLEMS WITH OUR SOFTWARE PROGRAMS MAY AFFECT OUR SALES. Our products
contain complex software programs. We cannot be sure that the tests that we run
on our products will reveal all errors or "bugs" that these programs may
contain. Any failure to detect "bugs" in current or future versions of these
programs before we release them to customers would decrease our sales and
adversely affect our future business prospects. We may also encounter
unanticipated technical problems relating to the development and servicing of
our products. Some of these problems may be beyond our financial and technical
capacity to solve. The failure to adequately address any such problems could
have a material adverse effect on our business and prospects.
PRODUCT LIABILITY
WE COULD BE SUBJECT TO PRODUCT LIABILITY LAWSUITS. We may be found
liable if someone claims that our products are defective, provided poor service
or damaged a customer. So far we have not had any product liability claims
brought against us, but we cannot guarantee that we will be protected from
claims in the future or that the limitations on liability that we include in our
contracts or insurance policies will protect us. Our business could be adversely
affected if someone brings a product liability claim against us.
<PAGE>
DEPENDENCE ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
WE RELY ON OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS TO PROTECT
OUR PRODUCTS. It is important in our industry that intellectual property,
including new products, technologies and processes, be protected. We protect the
ownership rights in our proprietary software through a combination of U.S. and
foreign copyright, trademark and trade secret laws, as well as employee
non-disclosure and third party confidentiality agreements. Our success will
depend, in part, on whether we can obtain, use and enforce these protections and
whether we can keep our trade secrets confidential.
OTHERS MAY INFRINGE ON OUR INTELLECTUAL PROPERTY RIGHTS. We cannot
assure you that our efforts to protect our intellectual property in the future
will be successful. For example, third parties may try to copy or
reverse-engineer our products. Similarly, our customers may take inadequate
precautions to protect our source code and other proprietary information. In
addition, many foreign countries' laws may not protect us from improper use of
our proprietary technology overseas. We may not have adequate remedies if our
intellectual property rights are breached or our trade secrets are disclosed.
FUTURE MARKET CONDITIONS COULD RESULT IN HIGHER INTELLECTUAL PROPERTY
PROTECTION COSTS. As the number of competing products in the market increases
and many products begin to perform the same tasks, the following could occur:
o The number of lawsuits alleging violations of proprietary rights
could increase.
o We could incur high costs to defend against claims alleging that
we have infringed someone's intellectual property rights.
o We may be required to sign royalty, licensing or other agreements
to use other products.
o We may be prevented from or delayed in developing, manufacturing
or marketing one or more of our products.
YEAR 2000
THE YEAR 2000 PROBLEM MAY AFFECT OUR INFORMATION TECHNOLOGY SYSTEMS
AND OPERATIONS. Many currently installed computer systems and software are coded
to accept only two-digit entries in the date code fields. These date code fields
will need to accept four-digit entries to distinguish 21st century dates from
20th century dates. This problem could result in system failures or
miscalculations causing disruptions of business operations (including, among
other things, a temporary inability to process transactions, send invoices or
engage in other similar business activities). The various software packages that
we use for internal processing and to support our operations are obtained from
outside vendors. These software packages are Year 2000 compliant or are expected
to be Year 2000 compliant in the near future and made available to us under
maintenance contracts. We are also assessing Year 2000 compliance issues with
companies with which we have third party outsourcing relationships, such as
banks, insurance companies, payroll processors and telecommunications providers.
If Year 2000 compliance is not achieved with respect to our internal systems or
by our vendors, our operations could be adversely affected.
<PAGE>
OUR CURRENT PRODUCTS MAY HAVE UNFORESEEN YEAR 2000 COMPLIANCE ISSUES.
We have, and continue to, take significant actions to ensure compliance with
customers' use of the Carleton family of data integration tools. We have
developed a comprehensive suite of Year 2000 tests and have performed those
tests against our products. The testing of Enterprise/Integrator 4.0, Passport
5.1 for the Mainframe, Passport 5.7 and Pure Dimension has been completed. The
products meet Carleton's Year 2000 compliance requirements except for minor
issues on Passport 5.1 release CAL215 (for which a patch is available) and
Passport 5.7.00. We believe that Passport 5.1 release CAL216 and Passport 5.7.02
should fix all identified Year 2000 compliance issues, and that these releases
should be available in February 1999. Although we believe our testing has been
extensive and rigorous, unforeseen compliance issues could arise. We would
certainly address any such issues but no assurances can be given that all issues
could be resolved or be resolved at a reasonable cost. Any unresolved Year 2000
issues could adversely affect the business.
BUSINESS DISRUPTIONS RESULTING FROM THE YEAR 2000 PROBLEM COULD OCCUR.
Based on our assessments and current knowledge, we do not believe that, as a
result of the Year 2000 problem, we will experience any material disruptions in
our internal processes, information processing or services from outside
relationships. However, if certain critical third-party providers, such as
providers of electricity, water or telephone service, experience difficulties
resulting in disruption of service to us, we could experience a shutdown of our
facilities. We plan to develop a contingency plan to provide for continued
operations if such a disruption of service occurs. Assuming no major disruption
in service from critical third-party providers, we believe that we will be able
to manage our total Year 2000 transition without any material effect on our
business or results of operations.
INTEGRATION OF OPERATIONS FOLLOWING MERGER
OUR MERGER WITH CARLETON CORPORATION MAY AFFECT OUR OPERATIONS. We
must continue to build on our efforts to integrate Carleton Corporation, which
we acquired in October 1997. The process of integrating management services,
administrative organizations, facilities and management information systems,
while managing a geographically expanded company, will continue to present
challenges to our management. We cannot assure you that the integration process
will ultimately be successful or that the anticipated benefits of the
acquisition will be fully realized. The dedication of management resources to
the integration process may detract attention from our day-to-day business
operations.
DEPENDENCE ON KEY PERSONNEL
WE RELY ON A LIMITED NUMBER OF KEY MANAGEMENT PERSONNEL. Our success
is highly dependent on the efforts and abilities of our senior management. If
Robert D. Gordon, our Chairman of the Board, President and Chief Executive
Officer, or any of our other executive officers or key employees leaves us, our
business could be adversely affected. In addition, we must continue to hire and
retain skilled personnel in order to compete effectively. We compete against
larger and better-financed companies in recruitment. As a result of this
competition, it is possible that we will be unable to successfully attract and
retain skilled personnel in the future.
<PAGE>
DEPENDENCE ON THIRD-PARTY SUPPLIERS
WE DEPEND ON PRODUCTS SUPPLIED BY OTHER COMPANIES. We use software
products provided by other companies. We cannot assure you that these companies
will continue to sell and support the software that we need to design and
manufacture our products. If any of these suppliers ceases to do business with
us or if these software lines become unavailable to us in the future, we may
need to seek other suppliers or change our products. We may experience
production delays or decreased sales volumes as a result of these factors.
ADDITIONAL BUSINESS RISKS
SEVERAL OTHER FACTORS COULD ADVERSELY AFFECT OUR BUSINESS. Other
additional business risks include the following:
o Longer sales cycle.
o Higher administrative and service costs due to increased expenses
in the areas of advertising, marketing, administration or
management information systems.
o Our inability to carry out our marketing and sales plans.
o Changes in investment income due to changes in interest rates.
POTENTIAL NASDAQ DELISTING
WE COULD BE DELISTED. If we no longer meet the requirements to
continue listing on the Nasdaq National Market, our market value and liquidity
of the public float for our Common Stock may decrease. To remain listed on the
Nasdaq National Market, we must satisfy a number of requirements, including the
following:
o Our net tangible assets must be greater than $4,000,000.
o We must have a public float of at least 750,000 shares with a
minimum market value of $200,000.
o We are required to have at least two market makers in our stock.
o We must have at least 400 holders of our stock.
o We must have a minimum bid price of $1.00 per share.
To continue meeting these requirements, we effected a one-for-five reverse stock
split of our Common Stock on September 15, 1998. There can be no assurance that
the Company will be able to continue to comply with the Nasdaq National Market's
listing requirements. If not, our Common Stock in the future may be ineligible
to trade on the Nasdaq National Market and may only be traded on a less liquid
over-the-counter market. As a result, investors in our Common Stock would be
less able to sell stock holdings or receive accurate stock price quotations.
Consequently, the market value of our Common Stock could decrease.
<PAGE>
POSSIBLE VOLATILITY OF STOCK PRICE
LIKE OTHER TECHNOLOGY COMPANIES, OUR STOCK PRICE MAY BE VOLATILE. We
may experience volatility in our stock price due to the following and other
factors:
o Announcements of new product developments.
o Events or disputes relating to intellectual property rights.
o Fluctuations in financial performance from period to period.
These and other factors may adversely affect the market price of our Common
Stock.
