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 SEPT. 30, 1995
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 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
October 30, 1995 was 37,496,676 (excluding 2,035,000 shares of treasury stock).
<PAGE>
INDEX
CHEYENNE SOFTWARE, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--
September 30, 1995 and June 30, 1995 ......................... 3
Consolidated Statements of Earnings--
Three Months ended September 30, 1995 and 1994 .............. 4
Consolidated Statements of Cash Flows--
Three Months Ended September 30, 1995 and 1994 ............... 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 ................................................. 12
Signature .................................................................. 14
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CHEYENNE SOFTWARE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30 and June 30, 1995
<TABLE><CAPTION>
Sept. 30 June 30
Assets 1995 1995
------ ---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,832 $ 15,592
Short term investments 34,014 15,088
Accounts receivable, less allowance for doubtful accounts of
$1,413,000 and $1,302,000, respectively 32,891 31,201
Deferred income taxes 1,567 1,400
Prepaid expenses and other current assets 5,894 6,218
----------- -----------
Total current assets 82,198 69,499
Long term investments 36,554 40,522
Fixed assets, net 19,576 16,511
Equipment under capital leases, net 2,846 ---
Other assets 3,758 2,862
----------- -----------
Total assets $144,932 $129,394
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 8,112 $ 5,962
Accrued expenses 5,069 5,751
Income taxes payable 1,614 ---
Current portion of obligations under capital leases 1,212 ---
----------- --------------
Total current liabilities 16,007 11,713
Obligations under capital leases 1,502 ---
Deferred income taxes 1,568 1,352
----------- -----------
Total liabilities 19,077 13,065
---------- ----------
Minority interest in subsidiary --- 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;
39,527,051 and 39,313,861 shares issued and outstanding 395 393
Additional paid-in capital 55,524 53,008
Retained earnings 100,442 93,046
Foreign currency translation adjustment (55) 464
Net unrealized gain (loss) on investments 7 (143)
Treasury Stock, at cost; 2,035,000 shares (30,458) (30,458)
--------- ---------
Total shareholders' equity 125,855 116,310
--------- ---------
Total liabilities and shareholders' equity $144,932 $129,394
======== ========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
CHEYENNE SOFTWARE, INC.
Consolidated Statements of Earnings
Three Months Ended September 30, 1995 and 1994
(unaudited)
<TABLE><CAPTION>
Three Months Ended
September 30
1995 1994
---- ----
(In thousands, except per share data)
<S> <C> <C>
Revenues $38,464 $21,652
Cost of Sales (including technical support) 6,693 3,760
--------- ---------
Gross Profit 31,771 17,892
-------- --------
Operating Expenses:
Research and development 5,166 2,815
Selling and marketing 11,126 8,235
General and administrative 3,277 1,780
Charge for purchased research and development 1,636 ---
--------- ------------
Total operating expenses 21,205 12,830
-------- --------
Operating income 10,566 5,062
Non-Operating Income:
Interest income and other 726 752
Other gain --- 21,232
------------ --------
Income before income taxes 11,292 27,046
Provision for income taxes 3,896 12,108
--------- --------
Net income $ 7,396 $14,938
======== =======
Net income per share $ 0.19 $ 0.38
========= =========
Weighted average number of common shares and
equivalents outstanding 38,829 39,687
======== ========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
CHEYENNE SOFTWARE, INC.
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1995 and 1994
(Unaudited)
<TABLE><CAPTION>
Three Months Ended
September 30,
1995 1994
-------- -------
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 7,396 $14,938
Adjustments to reconcile net income to net cash
provided by operating activities:
Tax benefit from exercise of stock options 1,422 ---
Equity in earnings of Gates/FA --- (85)
Amortization of municipal and corporate debt 88 66
Depreciation and amortization 1,235 777
Gain on exchange of Gates/FA common stock for Arrow Electronics common stock --- (21,232)
Charge for purchased research and development 1,636 ---
Changes in operating assets and liabilities, net of effects from acquisitions:
(Increase) decrease in accounts receivable (1,584) 3,175
Decrease (increase) in prepaid expenses and other current assets 324 (113)
Increase in other assets (705) (172)
Increase (decrease) in accounts payable, accrued expenses and income taxes payable 1,515 (471)
Deferred income taxes 26 9,735
--------- ---------
Net cash provided by operating activities 11,353 6,618
--------- ---------
Cash flows from investing activities:
Purchases of fixed assets (3,809) (1,767)
Purchases of short term investments (25,244) (2,489)
Purchases of long term investments (654) (5,032)
Proceeds from redemptions and maturities of short term investments 11,064 1,202
Proceeds from redemptions and maturities of long term investments 16 560
Payment for acquisition of Chili Pepper (718) ---
Payment for purchase of minority interest (236) ---
--------- ------------
Net cash used in investing activities (19,581) (7,526)
-------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options 1,120 472
Principal payments under capital lease obligations (132) ---
--------- ------------
Net cash provided by financing activities 988 472
Effect of exchange rate changes on cash (520) 2
--------- ------------
Increase in cash and cash equivalents (7,760) (434)
Cash and cash equivalents at beginning of year 15,592 11,629
-------- --------
Cash and cash equivalents at end of period $ 7,832 $11,195
======== =======
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 41 $ ---
=========== ===========
Cash paid during the year for income taxes $ 210 $ 3,565
========== ========
Supplemental disclosure of non-cash investing and financing activities:
Equipment additions and related capital lease obligations $ 2,846 $ ---
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CHEYENNE SOFTWARE, INC.
Notes to Consolidated Financial Statements
September 30, 1995
(1) Business and Basis of Presentation
----------------------------------
Business
--------
Cheyenne Software, Inc. and its subsidiaries (Cheyenne) are
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 three month period ended September 30, 1995 are
not necessarily indicative of the results that may be expected for the
year ending June 30, 1996. For further information, refer to the
financial statements and footnotes thereto and other information included
in Cheyenne's annual report on Form 10-K for the year ended June 30,
1995.
(2) Reclassification
----------------
Certain prior year information has been reclassified to conform with the
fiscal 1996 presentation format.
(3) Capitalized Leases
------------------
During the first quarter of fiscal 1996, Cheyenne entered into various
capital leases for equipment. The equipment recorded under the capital
leases are amortized over the terms of the related leases by the
straight-line method. Future minimum lease payments required under
capitalized leases as of September 30, 1995 are as follows:
Year ending June 30,
--------------------
1996 - remaining $ 929
1997 1,212
1998 1,111
-------
Total minimum lease payments 3,252
Less amount representing interest (538)
--------
Present value of net minimum lease payments $2,714
======
(4) Acquisition of Chili Pepper Software
------------------------------------
On September 28, 1995, Cheyenne acquired certain assets and assumed
certain liabilities of Chili Pepper Software, Inc. (Chili Pepper), a
manufacturer of Hierarchical Storage Management (HSM) solutions for the
desktop PC for approximately $718,000 of cash and the assumption of
approximately $1,568,000 of liabilities. The acquisition has been
accounted for as a purchase and the operating results of Chili Pepper are
included in the consolidated statement of earnings from the date of
acquisition. In connection with the acquisition, Cheyenne in FQ196
recorded an expense for purchased research and development of
approximately $1,636,000. The revenues and earnings of Chili Pepper for
the periods prior to the acquisition were insignificant compared to those
of Cheyenne.
6
<PAGE>
(5) Subsequent Events
-----------------
On October 31, 1995, Cheyenne acquired, for an immaterial amount, the
assets of Media Blitz, Inc., a manufacturer of optical and tape jukebox
and CD-ROM management software solutions for the Microsoft Windows NT
environment. The acquisition will be accounted for as a purchase.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------
Quarter ended September 30, 1995 compared to Quarter ended September 30, 1994.
In FQ495 and FQ196, Cheyenne continued to strengthen and diversify its
product offerings. The Company also continued to build and expand its worldwide
sales channels, technical support capabilities and information systems and other
infrastructure. The benefits of these investments are becoming evident, as sales
of Cheyenne's Windows NT and UNIX products are now contributing to Cheyenne's
growth, along with sales of Cheyenne's NetWare products.
A significant portion of Cheyenne's revenues are from products (mainly
ARCserve) supporting NetWare operating systems. The next generation of ARCserve
for NetWare, Version 6, is anticipated for release in FQ296. Cheyenne believes
that Version 6 offers the market additional critical features and improved
price/performance. It is necessary for Cheyenne to continuously upgrade its
products and to provide more efficient solutions to the needs and problems of
its users, especially as competition continues to increase based on product
functionality and price. Market acceptance of ARCserve 6 will further establish
Cheyenne as a leader in the market for data and storage management products.
Cheyenne's competitive position, however, could be adversely affected if the
product is subsantially delayed, experiences a high rate of "bugs" or fails to
include features required by a significant number of users. The Company expects
that ARCserve 6 will be well accepted by the market.
Results of Operations
- ---------------------
The following Table 1 includes a summary of each item from the statements of
earnings as a percentage of revenues. Please refer to the table while reading
the following discussion.
(continued on next page)
7
<PAGE>
TABLE 1
<TABLE><CAPTION>
Comparison FQ196 vs. FQ195
--------------------------
(Unaudited)
FQ196 FQ195
----- -----
Amount Ratio Amount Ratio
------ ----- ------ ------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Revenues $38,464 100.0% $21,652 100.0%
Cost of Sales (including technical support) 6,693 17.4 3,760 17.4
--------- ---- --------- ----
Gross Profit 31,771 82.6 17,892 82.6
-------- ---- -------- ----
Operating Expenses:
Research and development 5,166 13.4 2,815 13.0
Selling and marketing 11,126 28.9 8,235 38.0
General and administrative 3,277 8.5 1,780 8.2
Charge for purchased research and development 1,636 4.3 --- ---
--------- --- ------ ----
Total Operating Expenses 21,205 55.1 12,830 59.2
-------- ---- --------- ----
Operating Income 10,566 27.5% 5,062 23.4%
-------- ===== --------- =====
Non-Operating Income:
Interest income and other 726 752
Other gain --- 21,232
------------ --------
Income Before Income Taxes 11,292 27,046
Provision for Income Taxes 3,896 12,108
--------- --------
Net Income $ 7,396 $14,938
======== =======
Net Income Per Share $0.19 $0.38
===== =====
Weighted Average Number of Common Shares and
Equivalents Outstanding 38,829 39,687
====== ======
</TABLE>
8
<PAGE>
Revenues
- --------
Cheyenne's revenues increased 77.6% in FQ196 versus FQ195 to
$38,464,000 from $21,652,000. 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
increased sales outside the United States and the addition of a few new
distributors worldwide. As noted above, Cheyenne anticipates the release of
ARCserve 6 for NetWare in FQ296. While ARCserve 6 is not intended by Cheyenne to
replace previous versions of ARCserve, certain distributors and other customers
may exercise contractual rights to exchange previous versions of ARCserve with
ARCserve 6. Any such exchanges will reduce the revenues associated with the
shipment of previous versions of ARCserve in FQ296.
A breakdown of sales is shown in Table 2.
TABLE 2
-------
SOFTWARE SALES BREAKDOWN
FQ196 % FQ195 %
----- - ----- -
Distribution:
North America $12,285 32.0% $ 6,565 30.3%
Europe 12,241 31.8 8,373 38.7
Rest of World 2,121 5.5 1,505 7.0
-------------------------------------
Total Distribution: 26,647 69.3 16,443 76.0
Japan 3,338 8.7 1,100 5.1
OEM 4,744 12.3 2,020 9.3
Major Accounts 1,296 3.3 723 3.3
Direct and Other (U.S.) 2,439 6.4 1,366 6.3
-------------------------------------
Total $38,464 100.0% $21,652 100.0%
======= ====== ======= ======
Distribution sales increased 62.1% in FQ196 versus FQ195, European
Distribution sales increased 46.2%, Japan sales increased 203.5%, and OEM sales
increased 134.9% (from the lower than expected results in FQ195). Sequentially,
FQ196 versus FQ495, North America Distribution sales decreased 11.1%, European
Distribution sales decreased 1.0%, Japan sales increased 11.0% and OEM sales
decreased 20.5% (primarily due to a large one-time sale in FQ495).
Please refer to TABLE 1
-------
Gross Profit
- ------------
The gross profit margin was 82.6% for both FQ196 and FQ195. Technical
Support costs are now reflected in Cost of Sales rather than Research &
Development. Prior periods have been restated. The technical support portion of
Cost of Sales increased by more than 1.2% of sales while the direct cost of
production decreased by about 1.3% of sales. Cheyenne has seen a decrease in
gross margins over the last 2 fiscal years due to increases in the percentages
of sales from lower priced products, such as upgrades, which have higher costs
as a percentage of the sales price, and increases in the cost of providing
technical support.
9
<PAGE>
Research & Development
- ----------------------
These expenses increased 83.5% versus FQ195. Research & Development as a
percentage of sales increased slightly to 13.4% versus 13.0% 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 personnel.
Selling and Marketing Expenses
- ------------------------------
Selling and Marketing expenses increased 35.1% in FQ196 versus FQ195. Selling
and Marketing expenses decreased to 28.9% of sales in FQ196 versus 38.0% last
year. The dollar increase was mainly due to the hiring of additional sales and
marketing personnel, particularly in Europe, where less sales support from the
Company's traditional distributors is anticipated as new distributors enter this
market, competing more on price and less on service. This trend is expected to
continue, and accordingly, further increases in Selling and Marketing expenses
in Europe will be necessary. Cheyenne's sales in Japan have increased, and the
Company continues to invest in that market. Cheyenne also continues to build a
sales, marketing and support infrastructure in Taiwan, Australia, Singapore,
Mexico and Brazil. The Company expects increased Selling and Marketing expenses
as new products are introduced in upcoming periods and that Selling and
Marketing expenses will increase as a percentage of sales from FQ196 levels. In
FQ196, the Company reclassified certain expenses from Selling and Marketing to
offset revenues. Prior periods have not been adjusted due to immateriality and
net income is not affected by the reclassification.
General and Administration Expenses ("G&A")
- -------------------------------------------
G&A expenses increased 84.1% in FQ196 versus FQ195. The portion of depreciation
expenses included in G&A has increased due to significant investments by the
Company in test equipment, new computers, new communications and MIS equipment
on a worldwide basis. Also, legal expenses associated with the shareholder
lawsuit and the SEC Formal Order of Private Investigation contributed to the
increase.
Charge for Purchased Research and Development
- ---------------------------------------------
On September 28, 1995, Cheyenne purchased certain assets of Chili Pepper
Software, Inc. In connection with the acquisition, Cheyenne took a one time
charge of approximately $1,636,000 for the write-off of purchased R&D. The
technological feasibility of the in process technology was not yet established
at the date of the acquisition and the technology has no alternative use.
Total Operating Expenses
- ------------------------
As a result of the above items, total operating expenses increased to
$21,205,000, or 65.3% versus last year's comparable quarter. Excluding the
charge for Purchased Research and Development in FQ196, total operating expenses
increased 52.5% versus last year's comparable quarter.
Operating Income
- ----------------
Based on the 77.6% increase in revenues in FQ196 versus FQ195 and the 65.3%
increase in total operating expenses, operating income (excluding the charge for
Purchased Research and Development in FQ196) increased in FQ196 to 31.7% of
sales versus 23.4% in FQ195. The higher operating margin in FQ196 was due in
part to lower than expected sales in FQ195. The Company continues to invest in
its business and build the infrastructure to support its global customer base
and to improve its long term competitive position. These increased costs have
affected and may continue to affect margins.
Non-operating Income
- --------------------
Non-operating income decreased from $21,984,000 in FQ195 (consisting primarily
of a $21,232,000 gain in connection with the exchange of Gates/FA Distributing,
Inc. shares for Arrow Electronics, Inc. shares) to $726,000 in FQ196. Lower
available capital due to purchases of the Company's common stock, lower
interest rates and certain insignificant one-time factors contributed to a small
decrease in interest income in FQ196 from FQ195.
10
<PAGE>
Provisions for Income Taxes
- ---------------------------
The effective income tax rate on pretax earnings was 34.5%, which is less than
the statutory rates primarily due to tax benefits from the Company's FSC and
tax-exempt investment income, but somewhat higher than previous periods due to
generally higher foreign income taxes.
Per Share Data
- --------------
The net income per share was 19 cents versus 38 cents last year. Excluding the
charge for Purchased Research and Development in FQ196 and the one-time gain in
FQ195 for the exchange of Gates/FA shares for shares of Arrow Electronics, Inc.,
net income per share was 22 cents versus 10 cents last year.
Liquidity and Capital Resources
- -------------------------------
The Company had no debt and $78,172,000 in cash, cash equivalents and
investments as of September 30, 1995. Cash, cash equivalents and investments
grew $6,970,000 in FQ196. All accounts payable are current and accounts
receivable are collected on average in 78 days.
Capital expenditures for the three months ended September 30, 1995 were
$3,333,000 versus $1,767,000 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. The Company is leasing
certain equipment on terms it believes favorable, which has increased cash
available for operations. It is anticipated that capital expenditures will be
about $15,000,000 in FY96 versus $10,974,000 in FY95. 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 investment
positions coupled with anticipated cash flow from operations, will be more than
adequate to meet its anticipated cash requirements for planned capital
expenditures and operations for the next twelve months and any additional
purchases of the Company's common stock.
10
<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) 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. 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, the Court ordered that all of the actions be consolidated
under the caption of In re Cheyenne Software, Inc. Securities Litigation. On
---------------------------------------------------
March 8, 1995, plaintiffs filed an Amended Complaint. On March 23, 1995,
plaintiffs served a Motion for Class Certification. The Company has contested
certain aspects of that Motion, and the Court has yet to issue a ruling. On
April 11, 1995, the Company served a Motion to Dismiss certain of the claims
alleged in the Amended Complaint. The Motion to Dismiss is expected to be heard
by March, 1996.
The defendants deny any and all liability and intend to vigorously defend
against the claims.
2) RAND V. OXENHORN, ET AL.
-----------------------
Delaware Chancery Court (New Castle County) No. 13583
On or about June 27, 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 present
or former 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 or directors. Cheyenne filed a motion to
dismiss the Amended Complaint on the same grounds listed above on February 16,
1995.
The defendants deny any and all liability and intend to vigorously defend
against the claims.
12
<PAGE>
3) SEC FORMAL PRIVATE INVESTIGATION
--------------------------------
On June 28, 1994, the SEC commenced an informal inquiry into Cheyenne.
On or about April 14, 1995, the SEC advised the Company that it had issued a
Formal Order of Private Investigation of the Company. The Private Investigation
is a continuation of the informal inquiry. The Formal Order, among other things,
enables the SEC to utilize its subpoena powers to obtain relevant information
from third parties as well as the Company. The Private Investigation relates to
possible violations of federal securities laws. The Company has been cooperating
and will continue to cooperate fully with the SEC.
4) JWANCO, INC., ET AL. V. CHEYENNE SOFTWARE, INC. ET AL.
------------------------------------------------------
California Superior Court (County of Alameda) No. H-183331-1
On or about May 2, 1995, plaintiffs JWANCO, Inc. (formerly known as Bit
Software, Inc.), Jonathan Wan, Yau Ki Chuck, Norman Chan, David Law and David
Wong filed an action in the Superior Court of California in and for the County
of Alameda against the Company, Cheyenne Communications, Inc., a wholly owned
subsidiary of the Company, and several of its officers, directors and employees.
The action alleges breach of contract, fraud, wrongful termination, negligent
infliction of emotional distress, and a number of other related torts. The
essence of the allegations is that the defendants breached agreements and
defrauded JWANCO, Inc., and the individual plaintiffs in connection with the
Company's acquisition of certain assets and assumption of certain liabilities of
Bit Software, Inc. on May 19, 1994. These allegations are substantially similar
to those In re Cheyenne Software, Inc. Securities Litigation described above. In
-----------------------------
addition, the Complaint alleges, on behalf of plaintiff Jonathan Wan only,
wrongful termination and a variety of other causes of action relating to the
employment and termination of the employment of Jonathan Wan by Cheyenne
Communications. The defendants have removed the action to the United States
District Court, and have moved to transfer it to New York. Management of the
Company, based on advice of outside legal counsel, does not believe that the
ultimate resolution of this lawsuit will have a material adverse affect on the
financial position or results of operations of the Company.
Although no answer has yet been filed, the defendants deny any and all
liability and intend to vigorously defend against the claims.
5) PCPC V. CHEYENNE SOFTWARE, INC.
-------------------------------
United States District Court (District of Delaware) Case No. 95-301 (SLR)
On May 19, 1995, Personal Computer Peripherals Corporation ("PCPC")
filed a lawsuit in the United States District Court for the District of
Delaware, Case No. 95-301(SLR), naming Cheyenne, Legato Systems, Inc., Arcada
Software, Artisoft, Palindrome (a subsidiary of Seagate) and Symantec as
defendants. PCPC alleges infringement of patent No. 5,135,065, entitled "Backup
Computer Program for Networks" issued to PCPC on July 21, 1992. PCPC is seeking
an injunction against infringement of its patent, treble damages, attorneys'
fees and other damages. On July 10, 1995, Cheyenne answered the complaint and
denied any and all liability. Cheyenne intends to vigorously defend against the
claims. Management of the Company, based on advice of outside legal counsel,
does not believe that the ultimate resolution of this lawsuit will have a
material adverse affect on the financial position or results of operations of
the Company.
13
<PAGE>
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
Nothing to Report
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
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: November 10, 1995 By: /s/ Elliot Levine
----------------------
Elliot Levine, Executive Vice President,
Senior Financial Officer and Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
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