<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 AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DEC. 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-9189
CHEYENNE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3175893
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 EXPRESSWAY PLAZA
ROSLYN HEIGHTS, NEW YORK, 11577
(Registrant's principal address, including zip code)
(516) 484-5110
(Registrant's telephone number, including area code)
55 BRYANT AVENUE
ROSLYN, NEW YORK, 11576
(Former Address)
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 Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Number of Shares of Registrant's Common Stock outstanding as of January 20,
1995 was 38,975,174.
<PAGE>
INDEX
CHEYENNE SOFTWARE, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
- - - - ------------------------------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--
Dec. 31, 1994 and June 30, 1994. . . . . . . . . . . . . . . . 3
Consolidated Statements of Earnings--
Three and Six Months ended Dec. 31, 1994 and 1993. . . . . . 4
Consolidated Statements of Cash Flows--
Six Months Ended Dec. 31, 1994 and 1993. . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 1-6 Other Information . . . . . . . . . . . . . . . . . . . . . . . .13
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CHEYENNE SOFTWARE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
Dec. 31 June 30
ASSETS 1994 1994
---- ----
(unaudited)
(In Thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,725 $ 11,629
Short term investments 19,190 12,451
Accounts receivable, less allowance for
doubtful accounts of $1,138,000 and
$611,000, respectively 27,293 23,881
Prepaid expenses and other current assets 5,395 3,983
-------- --------
Total current assets 67,603 51,944
Long term investments 45,577 45,351
Investment in Gates/FA -- 9,019
Investment in Arrow Electronics, Inc. 23,462 --
Fixed assets, net 11,061 8,567
Other assets 1,853 1,156
-------- --------
Total assets $149,556 $116,037
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 3,573 3,679
Accrued expenses 7,955 3,634
Income taxes payable 1,424 2,604
-------- --------
Total current liabilities 12,952 9,917
Deferred income taxes 10,685 1,030
-------- --------
Total liabilities 23,637 10,947
-------- --------
Minority interest in subsidiary 19 19
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized; none issued -- --
Common stock, par value $.01 per share;
75,000,000 shares authorized; 38,972,955
and 38,785,915 shares issued and
outstanding 390 388
Additional paid-in capital 50,595 50,085
Net unrealized losses on investments (1,316) --
Retained earnings 76,093 54,542
Foreign currency translation adjustment 138 56
-------- --------
Total shareholders' equity 125,900 105,071
-------- --------
Total liabilities and
shareholders' equity $149,556 $116,037
-------- --------
-------- --------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
CHEYENNE SOFTWARE, INC.
Consolidated Statements of Earnings
Three and Six Months Ended December 31, 1994 and 1993**
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Dec. 31 Dec. 31
------- -------
1994 1993 1994 1993
---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $29,611 $24,196 $51,263 $44,239
Cost of Sales 2,895 2,330 5,032 4,033
----- ----- ----- -----
Gross Profit 26,716 21,866 46,231 40,206
------ ------ ------ ------
Operating Expenses:
Research and development and technical support 5,059 2,632 9,497 4,710
Selling and marketing 9,253 4,533 17,488 8,810
General and administrative 2,272 2,220 4,052 4,256
Charge for purchased research and development 547 0 547 0
------ ----- ------ ------
Total operating expenses 17,131 9,385 31,584 17,776
------ ----- ------ ------
Operating income 9,585 12,481 14,647 22,430
Interest income 813 392 1,480 726
------ ------ ------ ------
Operating and interest income 10,398 12,873 16,127 23,156
Equity in earnings of Gates/FA 0 240 85 623
------ ------ ------ ------
Income before gains and income taxes 10,398 13,113 16,212 23,779
Other gains (losses) (379) 90 20,853 90
------ ------ ------ ------
Income before income taxes 10,019 13,203 37,065 23,869
Provision for income taxes 3,406 4,502 15,514 8,107
------ ------ ------ ------
Net income $6,613 $8,701 $21,551 $15,762
------ ------ ------- -------
------ ------ ------- -------
Per share data*
Net income $0.17 $0.22 $0.54 $0.40
----- ----- ----- -----
----- ----- ----- -----
Weighted average number of common shares and equivalents
outstanding 39,879 39,961 39,783 39,902
------ ------ ------ ------
------ ------ ------ ------
<FN>
*All per share data have been restated for all periods presented to reflect the
payment on March 29, 1994 of a three-for-two stock split.
**Due to the Bit Software, Inc. acquisition on May 19, 1994 accounted for as a
pooling of interests, all periods presented include Bit's results.
</TABLE>
4
<PAGE>
CHEYENNE SOFTWARE, INC.
Consolidated Statements of Cash Flows
Six Months Ended Dec. 31, 1994 and 1993
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
------- -------
(In Thousands)
<S> <C> <C>
Operating activities:
Net Income $21,551 $15,762
Adjustments to reconcile net income to net cash
provided by operating activities:
Tax benefit from exercise of stock options 300 200
Equity in earnings of Gates/FA (85) (623)
Depreciation and amortization 1,512 864
Gain on exchange of Gates/FA common stock for Arrow Electronics common stock (21,232) --
Loss on sale of Arrow Electronics common stock 379 --
Charge for purchased research and development 547 --
Changes in operating assets and liabilities, excluding effects from acquisition:
Accounts receivable (3,164) (6,945)
Prepaid expenses and other current assets (1,365) (3,718)
Other assets (410) 41
Accounts payable, accrued expenses and income taxes payable 2,668 7,902
Deferred income taxes 9,181 146
----- ---
Net cash provided by operating activities 9,882 13,629
----- ------
Investing activities:
Purchases of fixed assets (3,403) (2,620)
Purchases of short term investments (5,643) (1,614)
Purchases of long term investments (6,255) (12,647)
Proceeds from redemptions and maturities of short term investments 2,853 3,315
Proceeds from redemptions and maturities of long term investments 1,984 1,490
Net proceeds from sale of Arrow Electronics common stock 5,059 --
Payment for acquisition of NETstor (1,150) --
------ ------
Net cash used in investing activities (6,555) (12,076)
------ -------
Financing activities:
Net proceeds from exercise of stock options 687 101
--- ---
Net cash provided by financing activities 687 101
--- ---
Effect of exchange rate changes on cash 82 (7)
----- -----
Increase in cash and cash equivalents 4,096 1,647
Cash and cash equivalents at beginning of period 11,629 12,895
------ ------
------ ------
Cash and cash equivalents at end of period $15,725 $14,542
------ ------
------ ------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CHEYENNE SOFTWARE, INC.
Notes to Consolidated Financial Statements
December 31, 1994
(1) BUSINESS AND BASIS OF PRESENTATION
BUSINESS
Cheyenne Software, Inc. (Cheyenne) is engaged in the development and sale
of software products for use in microcomputers and computer systems in
network applications.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
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. Operating
results for the six month period ended Dec. 31, 1994 are not necessarily
indicative of the results that may be expected for the year ending June 30,
1995. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended June 30, 1994.
(2) STOCK SPLIT
On February 10, 1994, the Company's Board of Directors declared a three-
for-two stock split, payable in the form of a 50% stock dividend (Stock
Split) which was distributed on March 29, 1994 to holders of record on
March 1, 1994. All references to number of shares, except shares
authorized, and per share data for the three and six months ended Dec. 31,
1993 have been restated to reflect this stock split.
(3) RECLASSIFICATION
Certain prior year information has been reclassified to conform with the
fiscal 1995 presentation format.
(4) INVESTMENT IN GATES/FA
On August 29, 1994, Cheyenne sold its remaining 1,348,290 shares of
Gates/FA common stock in exchange for 798,996 common shares of Arrow
Electronics, Inc. (Arrow), a public company. The transaction qualified as
a tax-free exchange and resulted in an approximate pre-tax gain of
$21,232,000. As a result of the transaction, Cheyenne acquired
approximately 2% of Arrow's outstanding common stock. Prior to December
31, 1994 Cheyenne sold 145,000 shares of Arrow common stock. Subsequently,
through February 9, 1995 Cheyenne sold an additional 490,000 shares of
Arrow common stock. The Company accounts for its investment in Arrow
common stock under the cost method of accounting.
(5) ACQUISITION OF NETSTOR
On December 19, 1994, the Company acquired certain assets and assumed
certain liabilities of NETstor, Inc. (NETstor), a developer of Hierarchical
Storage Management software products for the UNIX computer platform in the
network storage management market, for $1,150,000 of cash and $200,000 of
additional future contingent payments. The acquisition has been accounted
for as a purchase and the operating results of NETstor are included in the
consolidated statement of earnings from the date of acquisition. In
connection with the acquisition, the Company recorded a $547,000 expense
for purchased research and development. The excess of the acquisition costs
over the fair value of the net assets acquired, amounting to $110,000, is
included in other assets in the accompanying balance sheet and is being
amortized on a straight line basis over five years.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Quarter Ended December 31, 1994 compared to Quarter ended December 31, 1993.
In recent quarters, Cheyenne was impacted by uncertainty regarding the
near-term future of the computer industry and, in particular, the networking
segment. This uncertain environment led to more cautious purchasing decisions
mainly by North American distributors. Cheyenne's growth is determined
ultimately by increases in end-user demand. In FQ295, end-user demand
continued to grow. The Company believes this growth may be due to
several factors. First, the networking market appears to be strengthening as
the result of Novell's NetWare 4.1 and Microsoft's NT campaigns. Second, FQ295
included the year end of a number of end-users who make purchasing decisions at
the end of the year. Third, FQ1 is seasonally slow versus FQ2. Fourth, new
additional Cheyenne sales people and marketing programs may have contributed
to this growth.
It is too early to judge the effect of these factors on FY95 as a whole.
Cheyenne continues to work diligently to increase end-user demand by adding more
sales and support people, increasing spending on global marketing programs and
remains confident in the long-term health of its business.
RESULTS OF OPERATIONS
The following tables include a summary of each item from the statements of
earnings as a percentage of revenues. Please refer to these tables while
reading the following discussion.
7
<PAGE>
TABLE 1
<TABLE>
<CAPTION>
Comparison FQ295 vs. FQ294**
----------------------------
(Unaudited)
FQ295 FQ294
----- -----
Amount Ratio Amount Ratio
------ ----- ------ -----
(in thousands except per share data)
<S> <C> <C> <C> <C>
Revenues $29,611 100.00% $24,196 100.00%
Cost of sales 2,895 9.78% 2,330 9.63%
------ ------ ------ ------
Gross Profit 26,716 90.22% 21,866 90.37%
Operating Expenses:
R&D and Technical Support 5,059 17.08% 2,632 10.88%
Selling and Marketing 9,253 31.25% 4,533 18.73%
General & Administrative 2,272 7.67% 2,220 9.18%
Charge for purchased research and development 547 1.85% --- 0.00%
------ ------ ----- ------
Total Operating Expenses 17,131 57.85% 9,385 38.79%
Operating Income 9,585 32.37% 12,481 51.58%
Interest Income 813 2.75% 392 1.62%
------ ------ ------ ------
Operating & Interest Income 10,398 35.12% 12,873 53.20%
Equity in Earnings of Gates/FA --- 240
--- ---
Income Before Gains (losses) and Income Taxes 10,398 13,113
Other Gains (losses) (379) 90
---- ----
Income Before Income Taxes 10,019 13,203
Provision for income taxes 3,406 4,502
------ ------
NET INCOME $6,613 $8,701
------ ------
------ ------
Per share data*:
NET INCOME 0.17 0.22
---- ----
---- ----
<FN>
*All per share data have been restated for all periods presented to reflect the
payment on March 29, 1994 of a three-for-two stock split.
**Due to the Bit Software, Inc. acquisition on May 19, 1994 accounted for as a
pooling of interests, all periods presented include Bit's results.
</TABLE>
8
<PAGE>
TABLE 2
<TABLE>
<CAPTION>
Six Months 1995 vs. Six Months 1994**
-------------------------------------
(Unaudited)
Six Months Ended Six Months Ended
Dec. 31, 1994 Dec. 31, 1993
------------- -------------
Amount Ratio Amount Ratio
------ ----- ------ -----
(in thousands except per share data)
<S> <C> <C> <C> <C>
Revenues $51,263 100.00% $44,239 100.00%
Cost of sales 5,032 9.82% 4,033 9.12%
------- ------- ------- -------
Gross Profit 46,231 90.18% 40,206 90.88%
------- ------- ------- -------
Operating Expenses:
R&D and Technical Support 9,497 18.53% 4,710 10.65%
Selling and Marketing 17,488 34.11% 8,810 19.91%
General & Administrative 4,052 7.90% 4,256 9.62%
Charge for purchased research and development 547 1.07% --- 0.00%
------ ------ ------ ------
Total Operating Expenses 31,584 61.61% 17,776 40.18%
------ ------ ------ ------
Operating Income 14,647 28.57% 22,430 50.70%
Interest Income 1,480 2.89% 726 1.64%
------ ------ ------ ------
Operating & Interest Income 16,127 31.46% 23,156 52.34%
Equity in Earnings of Gates/FA 85 623
---- ----
Income Before Gains and Income Taxes 16,212 23,779
Other Gains 20,853 90
------ ----
Income Before Income Taxes 37,065 23,869
Provision for income taxes 15,514 8,107
------ ------
NET INCOME $21,551 $15,762
------- -------
------- -------
Per share data*:
NET INCOME $0.54 $0.40
----- -----
----- -----
<FN>
*All per share data have been restated for all periods presented to reflect the
payment on March 29, 1994 of a three-for-two stock split.
**Due to the Bit Software, Inc. acquisition on May 19, 1994 accounted for as a
pooling of interests, all periods presented include Bit's results.
</TABLE>
9
<PAGE>
REVENUES
Cheyenne's revenues increased 22.4% in FQ295 versus FQ294 to $29,611,000
from $24,196,000. The increase is attributable to the expanding market for LAN
products, Cheyenne's broadening product line, increasing network data storage
requirements, more effective sales and marketing programs, plus the addition of
a few new distributors worldwide.
A breakdown of sales is shown in Table 3.
TABLE 3
<TABLE>
<CAPTION>
Software Sales Breakdown
(in Thousands)
FQ295 % FQ294 %
----- - ----- -
<S> <C> <C> <C> <C>
Distribution:
US $8,767 29.6% $10,318 42.7%
Canada 407 1.4% 382 1.6%
Europe 11,950 40.3% 8,429 34.8%
Rest of World 1,513 5.1% 689 2.8%
------ ----- ---- ----
Total Distribution: 22,637 76.4% 19,818 81.9%
Japan 1,388 4.7% 554 2.3%
OEM 3,070 10.4% 3,156 13.0%
Major Accounts 710 2.4% 451 1.9%
Direct (U.S.) 1,806 6.1% 217 0.9%
----- ---- --- ----
Total 29,611 100% 24,196 100%
</TABLE>
As shown, U.S. Distribution sales decreased 15% in FQ295 versus FQ294,
European Distribution sales increased 42%, Japan sales increased 150%, and OEM
sales decreased 2.7%. U.S. Distribution sales decreased in FQ295 due to the
effect of a cautionary outlook by some U.S. distributors and certain sales such
as upgrades in FQ295 are now considered "Direct" while they were included in
"U.S. Distribution" in FQ294. U.S. Distribution sales for the quarter, however,
increased 39% sequentially in FQ295 from a lower than expected FQ195. OEM sales
were basically flat in FQ295 from FQ294. OEM sales, however, increased 52%
sequentially in FQ295 from a lower than expected FQ195. Since distributors now
offer bundling and value-added services that compete with OEM's, Cheyenne
continues to expect a slowing in the growth of OEM sales.
Please refer to TABLE 1
GROSS PROFIT
The gross profit margin decreased to 90.22% in FQ295 versus 90.37% in
FQ294. Cheyenne has seen a decrease in gross margins due to slight increases in
the percentages of sales from lower priced products, such as upgrades, which
have higher costs as a percentage of the sales price. In addition, gross
margins have decreased slightly from the Company's traditional levels due to the
inclusion of Bit Software products that have about a 60% gross margin due to the
fact that their products have average selling prices that are much lower than
Cheyenne's products, yet the costs to produce each product are similar.
10
<PAGE>
RESEARCH & DEVELOPMENT & TECHNICAL SUPPORT.
These expenses increased 92% versus FQ294. Since sales increased only 22%,
Research and Development, as a percentage of sales, increased to 17.08% versus
10.88% in last year's comparable quarter. The increase was due to the Company's
significantly broader product line that must further be developed and supported
by Cheyenne's engineering and technical support personnel. The percentage
increase in Research and Development and Technical Support was much greater than
the percentage sales increase because developing new and enhancing existing
products and supporting customers' network questions is increasingly becoming
more complicated, thus requiring even higher manpower levels. The Company
approximately doubled its worldwide technical support staff since last year to
over 100 professionals. Cheyenne is moving from a centralized staff in New York
to a worldwide decentralized customer support staff. The Company believes this
investment in a large Research and Development and Technical Support staff will
provide a long term competitive advantage.
SELLING AND MARKETING EXPENSES
Selling and Marketing expenses increased 104% in FQ295 versus FQ294. Therefore,
selling expenses increased to 31.25% of sales in FQ295 versus 18.73% last year.
The increase was mainly due to additional sales and marketing personnel,
particularly in Europe, where less sales support from the Company's traditional
distributors is anticipated as changes take place in that market. Also,
expanded marketing programs and promotions were a factor in the increase. In
addition, a new pilot Direct Marketing project was initiated which is expected
to enhance product sales made directly to end users and is beginning to yield
results.
GENERAL AND ADMINISTRATION EXPENSES ("G&A")
G&A expenses increased only 2% in FQ295 versus FQ294. In FQ294 and FQ394, the
Company began to allocate expenses from this category to Research and
Development and Selling and Marketing Expenses. Without the allocation, G&A
expenses in FQ295 would have shown a greater increase mainly due to higher
depreciation expenses and higher legal expenses.
CHARGE FOR PURCHASED RESEARCH AND DEVELOPMENT
On December 19, 1994, Cheyenne purchased certain assets of NETstor, Inc. In
connection with the acquisition, Cheyenne took a one time charge of
approximately $547,000 for the write-off of purchased R&D.
TOTAL OPERATING EXPENSES
As a result of the above items, total operating expenses increased to
$17,131,000 or 82.5% versus last year's comparable quarter.
INTEREST INCOME AND OTHER
Interest income increased to $813,000 in FQ295 versus $392,000 in FQ195, due to
higher cash and cash equivalents and investment balances, and also due to higher
interest rates.
OPERATING AND INTEREST INCOME
Based on the 22.4% increase in revenues in FQ295 versus FQ294 and the 82.5%
increase in total operating expenses, operating and interest income decreased
19% in FQ295 to 35.12% of sales versus 53.20% in FQ294. The lower operating
margin was due mainly to increased expenditures in the Research and Development
and Sales and Marketing functions, much of which was an investment in the
future. The Company continues to invest in its business and build the
infrastructure to support its global customer base. These increased costs
affect net margins, and earnings versus last year are therefore likely to grow
at a rate less than sales in the near future.
11
<PAGE>
EQUITY IN EARNINGS OF GATES/FA
Cheyenne recorded its approximately 21% share of Gates/FA earnings under the
equity method only through August 29, 1994, the date of the Gates/FA/Arrow
merger. Cheyenne will no longer record any equity earnings since its ownership
of Arrow Electronics, Inc. shares will be accounted for under the cost method.
Therefore, there were no equity earnings in FQ295 but there were $240,000 of
such earnings in FQ294.
OTHER GAINS AND EXPENSES
During FQ295 Cheyenne sold 145,000 shares of Arrow Electronics, Inc. common
stock resulting in a loss of $379,000. In FQ294, the Company had a gain of
$90,000 as a result of the sale of certain securities.
PROVISION FOR INCOME TAXES
The effective income tax rate on pretax earnings was 34%, which is less than the
statutory rates primarily due to tax benefits from the Company's FSC and tax-
exempt investment income.
PER SHARE DATA
The net income per share from recurring operations was 17 cents versus 22 cents
last year.
SIX MONTHS COMPARISON
The six months comparison for FY95 versus FY94 is shown in TABLE 2. In general,
the same factors that were discussed in connection with the three months ended
FQ295 versus FQ294 discussion apply to the six month comparison. As shown, net
income for the first six months of FY95 was 54 cents versus 40 cents during the
same period last year. The 54 cent figure includes a one time gain of 28 cents
per share arising out of the sale by Cheyenne on August 29, 1994 of the
remaining 1,348,290 shares of Gates/FA in exchange for 798,996 shares of Arrow
Electronics, Inc.
LIQUIDITY AND CAPITAL RESOURCES
The Company had no debt and $80,492,000 in cash, cash equivalents and
investments as of December 31, 1994. Cash, cash equivalents and investments
grew $5,802,000 in FQ295. Cheyenne received approximately $5,059,000 of cash in
connection with the sale of 145,000 shares of Arrow Electronics in FQ295. As of
February 9, 1995, Cheyenne has sold an additional 490,000 shares of Arrow
Electronics for cash proceeds of approximately $18,600,000. All accounts payable
are current and accounts receivable are collected on average in 83 days.
Capital expenditures for the six months were $3,403,000 versus $2,620,000 in
last year's comparable period. The increase is due to purchases of furniture,
as well as computer, telephone and test equipment needed to support the growing
employee base and business. It is anticipated that capital expenditures will be
about $9,500,000 in FY95 versus $5,290,000 in FY94. Further investments in
computers, test equipment and facilities are planned based upon continued growth
in the number of employees to support Cheyenne's growing business and the
partial move to a new 100,000 square foot facility located in Lake Success, New
York, near the current corporate headquarters in Roslyn Heights, New York.
Management believes Cheyenne's current cash, cash equivalents and investments
position coupled with anticipated cash flows from operations, will be more than
adequate to meet its anticipated cash requirements for planned capital
expenditures and operations for the next twelve months.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Neither Cheyenne nor any of its subsidiaries is a party to any material pending
legal proceedings, other than routine litigation incidental to the business, and
other than as set forth below:
1) COLDATA, INCORPORATED v. CHEYENNE SOFTWARE, INC.
An action was commenced in July 1991, and is currently pending in the
Supreme Court of the State of New York, County of Nassau, entitled "Coldata,
Incorporated v. Cheyenne Software, Inc." Coldata, Incorporated ("Coldata")
alleges, among other things, that Cheyenne failed to complete the detailed
design specifications and implementation schedule for the development of a
particular computer program (called "CAAMS"), and therefore, breached the
agreement between the parties. Coldata also alleges that Cheyenne breached its
fiduciary duties to Coldata by failing to develop and market CAAMS and by its
participation in other unrelated software projects to the exclusion of Coldata.
Coldata seeks damages of $1.85 million, plus $1 million of punitive damages
and legal fees and costs.
Cheyenne disputes all of the material allegations asserted by Coldata and
is defending the action vigorously. Based upon a review of the original
agreement with Coldata, available documentation and the allegations contained in
Coldata's complaint, Cheyenne believes that Coldata's claims lack merit.
Cheyenne has asserted in its answer to the complaint several affirmative
defenses which seek to preclude any recovery by Coldata. Furthermore, Cheyenne
raised several counterclaims, arising out of Coldata's alleged breach and/or
alleged substantial nonperformance of its obligations, duties and/or conditions
precedent under the agreement. The parties have now completed the discovery
process.
On December 22, 1994, Cheyenne filed a motion for partial summary judgment
to dismiss Coldata's claims to recover lost profits. Cheyenne also sought
summary judgment dismissing Coldata's alleged breach of fiduciary duty claim.
As part of the same motion, Cheyenne also moved IN LIMINE for a ruling
precluding certain evidence from being introduced by Coldata at trial concerning
Coldata's damage claims. On January 17, 1995, Coldata entered into a
stipulation with Cheyenne whereby both parties agreed to withdraw with prejudice
and waive any claim it might have had against the other for an affirmative
recovery of lost profits in connection with their respective claims. On
February 1, 1995, the motion was submitted without oral argument to the court.
The case is scheduled to go on trial no sooner than March 27, 1995. Management
does not expect that the resolution of this lawsuit will have a material adverse
effect on the financial position or results of operations of the Company.
2) IN RE CHEYENNE SOFTWARE, INC. SECURITIES LITIGATION
Master File No. 94 Civ. 2771 (TCP)
On or about June 11, 1994, a securities fraud class action complaint,
entitled BELL V. CHEYENNE SOFTWARE, INC., ET AL., was filed in the United States
District Court for the Eastern District of New York. The lawsuit names as
defendants the Company and several of its officers and directors. In the
following weeks, several other similar lawsuits were filed in the Eastern
District of New York. The actions allege securities fraud claims under Sections
10(b) and 20 of the Securities Exchange Act of 1934, and seek compensatory
damages on behalf of all the shareholders who purchased shares between
approximately January 24, 1994 and approximately June 17, 1994, as well as
attorneys' fees and costs. (In addition to the complaints on file, one
shareholder has informally notified the Company that it may pursue similar
claims.) The gravamen of the actions is that the Company and the individual
defendants made misrepresentations and omissions to the public, which caused the
Company's stock to be artificially inflated. The suits rely on what is known as
the "fraud on the market" theory of liability.
On July 20, 1994, Chief Judge Platt ordered that all of the actions be
consolidated under the caption of IN RE CHEYENNE SOFTWARE, INC. SECURITIES
LITIGATION. The Court also set a schedule for the filing of a Consolidated
Amended Complaint. Currently, the parties expect that the Consolidated Amended
Complaint will be filed sometime during March, 1995.
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Although the defendants have, as yet, filed no Answer or other responses to
the pleadings, they deny any and all liability and intend to vigorously defend
against the claims.
3) RAND v. OXENHORN, ET AL.
Delaware Chancery Court (New Castle County) No. 13583
On or about June 30, 1994, a shareholder derivative complaint, entitled
RAND V. OXENHORN, ET AL., was filed in the Court of Chancery for the State of
Delaware in and for New Castle County. The lawsuit, purportedly filed
derivatively on behalf of the Company, names as defendants eleven of its
officers and directors. The complaint's factual allegations are similar to
those of IN RE CHEYENNE SOFTWARE, INC. SECURITIES LITIGATION described above.
However, instead of securities fraud claims, the action alleges that the
defendants breached their fiduciary obligations to the Company. The suit seeks
a variety of compensatory damages as well as attorneys fees.
On August 19, 1994, the defendants filed a motion to dismiss on the grounds
that (1) the plaintiff failed to comply with the pleading and demand
requirements of a derivative action and (2) the pleadings fail to state a claim
upon which relief may be granted. On October 14, 1994, and before defendants'
motion to dismiss was ruled on, an amended complaint was filed only naming as
defendants six of Cheyenne's officers and directors. Cheyenne is currently
reviewing an appropriate response to the amended complaint.
The defendants deny any and all liability and intend to vigorously defend
against the claims.
4) SEC INFORMAL INQUIRY
On June 28, 1994, the SEC commenced an informal inquiry into Cheyenne. The
SEC advised that the inquiry should not be construed as an indication by the SEC
or its staff that any violations of law have occurred or is a reflection upon
any person, entity or security. Cheyenne is cooperating fully with the SEC's
informal inquiry.
Item 2. Changes in Securities
Nothing to Report
Item 3. Defaults Upon Senior Securities
Nothing to Report
Item 4. Submission of Matters to a Vote of Security Holders
Cheyenne's Annual Meeting of Stockholders was held on December 15,
1994. The stockholders approved the following:
(i) The election of each of the following nominees to the Board
of Directors:
Rino Bergonzi For: 34,254,680 Withheld: 303,498
ReiJane Huai For: 34,268,421 Withheld: 289,757
Richard Kramer For: 34,273,926 Withheld: 284,252
Bernard D. Rubien For: 34,249,388 Withheld: 308,790
Ginette Wachtel For: 34,266,126 Withheld: 292,052
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(ii) Ratification of the appointment of KPMG Peat Marwick LLP, as
independent auditors of the Company for the year ending June
30, 1995:
For: 34,112,986 Against: 259,919 Abstention: 185,273
(iii) An amendment to the Company's 1987 Non-Qualified Stock Option
Plan (the "Non-Qualified Plan") to increase the aggregate
number of shares of common stock, $0.01 par value per share
(the "Common Stock"), which may be issued upon the exercise
of all options granted pursuant to the Non-Qualified Plan
from 3,487,500 shares to 4,237,500 shares.
For: 27,109,348 Against: 7,181,093 Abstention: 267,737
(iv) An amendment to the Non-Qualified Plan to expand the class of
persons eligible to be granted options under the Non-
Qualified Plan to include consultants.
For: 30,877,079 Against: 3,424,782 Abstention: 256,317
(v) An amendment to the Non-Qualified Plan to increase the
maximum term in which options granted pursuant to the Non-
Qualified Plan shall be exercisable from 5 years to 7 years.
For: 32,174,555 Against: 2,098,645 Abstention: 284,978
(vi) An amendment to the Company's 1989 Incentive Stock Option
Plan (the "Incentive Plan") to increase the aggregate number
of shares of Common Stock which may be issued upon the
exercise of all options granted pursuant to the Incentive
Plan from 3,656,250 shares to 4,806,250 shares.
For: 27,858,283 Against: 6,379,365 Abstention: 320,530
(vii) An amendment to the Incentive Plan to increase the maximum
term in which options granted pursuant to the Incentive Plan
shall be exercisable from 5 years to 7 years.
For: 32,336,039 Against: 1,897,506 Abstention: 324,633
(viii) An amendment to the Company's Certificate of Incorporation to
increase the aggregate number of shares of Common Stock which
the Company shall have the authority to issue from 50,000,000
shares to 75,000,000 shares.
For: 32,256,413 Against: 2,002,594 Abstention: 299,171
Item 5. Other Information
Nothing to Report
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
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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, hereunto duly authorized.
Date: February 13, 1995 By: /S/ ELLIOT LEVINE
--------------------------------
Elliot Levine, Executive Vice President,
Senior Financial Officer and Treasurer
(Principal Financial Officer)
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