<PAGE>
Conformed copy with exhibits
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 30, 1997
-----------------
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 0-17754
CONSILIUM, INC.
---------------
(Exact name of registrant as specified in its charter)
Delaware 94-2523965
- ------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
485 Clyde Avenue, Mountain View, California 94043
- ------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 691-6100
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed under 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 June 10, 1997:
Common Stock, $0.01 par value 8,018,291
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Class Number of Shares
1
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CONSILIUM, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets --
April 30, 1997 and October 31, 1996................... 3
Condensed Consolidated Statements of Operations --
Three and six months ended April 30, 1997
and 1996.............................................. 4
Condensed Consolidated Statements of Cash Flows --
Six months ended April 30, 1997 and 1996.............. 5
Notes to Condensed Consolidated Financial Statements.. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................... 15
Signatures............................................... 19
2
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PART I. FINANCIAL INFORMATION
CONSILIUM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
April 30, 1997 October 31, 1996
-------------- ----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,598 $ 8,094
Short term investments - 1,000
Accounts receivable, net 13,435 9,139
Other current assets 1,035 1,114
------- -------
Total current assets 22,068 19,347
Property and equipment, net 4,709 4,827
Software development costs, net 2,518 3,094
Goodwill, net 1,389 1,345
Other assets 416 380
------- -------
Total assets $31,100 $28,993
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit/Note payable $ 3,051 $ 1,792
Accounts payable 4,450 4,114
Other current liabilities and
accrued expenses 5,798 4,015
Deferred revenue 9,400 5,694
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Total current liabilities 22,699 15,615
Long-term liabilities 32 41
------- -------
Total liabilities 22,731 15,656
Stockholders' equity 8,369 13,337
------- -------
Total liabilities and
stockholders' equity $ 31,100 $28,993
======= =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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CONSILIUM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three months ended Six months ended
April 30, April 30,
1997 1996 1997 1996
------- ------- ------- -------
REVENUES:
Product $ 4,995 $ 3,409 $ 6,815 $ 8,191
Services 5,787 3,953 12,421 7,884
Development 310 417 430 863
------- ------- ------- -------
Total revenues 11,092 7,779 19,666 16,938
COST OF REVENUES:
Product 909 770 1,705 1,491
Services 3,781 1,641 7,882 3,119
Development 253 348 370 675
------- ------- ------- -------
Total cost of revenues 4,943 2,759 9,957 5,285
------- ------- ------- -------
GROSS MARGIN 6,149 5,020 9,709 11,653
------- ------- ------- -------
OPERATING EXPENSES:
Research and development 3,003 2,802 6,235 5,102
Selling and marketing 3,267 3,314 6,612 6,378
General and administrative 914 1,136 1,802 2,081
------- ------- ------- -------
Total operating expenses 7,184 7,252 14,649 13,561
Loss from operations (1,035) (2,232) (4,940) (1,908)
Interest income 3 80 64 226
Interest expense (36) - (72) -
------- ------- ------- -------
LOSS BEFORE
INCOME TAX PROVISION (1,068) (2,152) (4,948) (1,682)
PROVISION FOR INCOME TAXES 53 124 115 372
------- ------- ------- -------
NET LOSS $(1,121) $(2,276) $(5,063) $(2,054)
======= ======= ======= =======
NET LOSS PER SHARE $ (0.14) $ (0.29) $ (0.63) $ (0.27)
======= ======= ======= =======
SHARES USED IN PER SHARE
CALCULATIONS: 7,963 7,773 7,974 7,741
======= ======= ======= =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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CONSILIUM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
April 30,
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(5,063) $(2,054)
------- -------
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 1,761 1,511
Provision for doubtful accounts (9) 190
Change in assets and liabilities:
Accounts receivable (4,287) (586)
Other assets (148) 217
Accounts payable 336 1,099
Deferred revenue 3,697 (913)
Other liabilities and accrued expenses 1,783 (819)
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Net cash used for operating activities (1,930) (1,355)
------- -------
Cash flows from investing activities:
Capital expenditures (682) (2,711)
Capitalized software development costs (238) (490)
Sales of short-term investments 1,000 1,478
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Net cash provided by (used for) investing
activities 80 (1,723)
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Cash flows from financing activities:
Proceeds from issuance of common stock and
exercise of options 288 923
Repayment on note payable (1,792) -
Borrowing from line of credit / note payable 3,051 2,000
------- -------
Net cash provided by financing activities 1,547 2,923
Effect of exchange rate changes on cash (193) -
------- -------
Net decrease in cash and cash equivalents (496) (155)
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Cash and cash equivalents at beginning of period 8,094 10,686
------- -------
Cash and cash equivalents at end of period $ 7,598 $10,531
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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CONSILIUM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM FINANCIAL DATA
The interim condensed consolidated financial statements of Consilium, Inc.
and its subsidiaries ("the Company") are unaudited but reflect, in the
opinion of management, all normal recurring adjustments necessary to
present fairly the financial information set forth therein. These interim
condensed consolidated financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended October 31, 1996.
The Company believes the results of operations for the three and six months
ended April 30, 1997 and the cash flows for the six months ended April 30,
1997 are subject to fluctuation and are not necessarily indicative of
results of operations and cash flows for any future period.
2. NET INCOME (LOSS) PER SHARE
Net income per common share is computed using the weighted average number
of common and dilutive common equivalent shares outstanding during the
period. Dilutive common equivalent shares consist of the dilutive effect
of stock options and warrants as computed using the treasury stock method.
Net loss per share is based on the weighted average number of common shares
outstanding during the period. Common equivalent shares have not been
included in the calculation of loss per share as their inclusion would be
antidilutive.
3. NOTE PAYABLE / LINE OF CREDIT
Effective as of January 31, 1997, the Company was in default of the
profitability, minimum adjusted quick ratio and cash coverage ratio
covenants with its existing bank under its Credit Agreement dated April 30,
1996, as amended (the "Credit Agreement"). As of that date, the Company had
$1,667,000 outstanding under the Credit Agreement.
In April 1997, the Company entered into a new revolving line of credit
agreement (the "Line of Credit Agreement") under which it can borrow up to
$5,000,000, based on eligible accounts receivable. The revolving line of
credit is secured by substantially all of the Company's assets, bears
interest at the bank's prime rate per annum (8.5% at April 30, 1997) and
expires on March 15, 1998. All amounts due under the above mentioned
Credit Agreement were repaid when the Company obtained this new revolving
line of credit. At April 30, 1997, $3,051,000 was outstanding under the
revolving line of credit and the Company's borrowing base exceeded its
maximum borrowing capacity. The Line of Credit Agreement requires the
Company to maintain certain financial covenants. At April 30, 1997, the
Company was not in compliance with one of these covenants. Following the
end of the quarter, the Company obtained a waiver from the bank for the
default.
6
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4. NEW ACCOUNTING PRONOUNCEMENTS
Effective November 1, 1996, the Company adopted the disclosure
only provisions of Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation". The effect on the
Company's financial position and results of operations, upon adoption, was
not significant.
Also effective November 1, 1996, the Company adopted the provisions of SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of." The adoption of this new pronouncement did not
have any effect on the Company's financial position or results of
operations.
The Company will adopt the provisions of SFAS No. 128, "Earnings Per Share"
at the end of its fiscal year ending October 31, 1997. Pro forma net losses
per share assuming SFAS No. 128 had been adopted at the beginning of fiscal
1996 would not be different from the net losses per share as reported in
the Company's interim financial statements for the three and six months
ended April 30, 1997 and 1996.
5. RECLASSIFICATIONS
Certain reclassifications were made to prior year amounts to conform to the
1997 presentation. These reclassifications did not change the previously
reported net income (loss), total assets or total cash flows of the Company
for prior year.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
This discussion contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties, including but not limited to,
statements regarding expected development revenues, expected revenue from
systems integration projects, market acceptance of the Company's products,
demand for the Company's products in its target industries, incurrence of
research and development expenses, competition and fluctuation in product
revenue. The Company's actual results could differ significantly from the
results discussed in the forward-looking statements in the section entitled
"Potential Fluctuations in Quarterly Results". Factors that could cause or
contribute to such differences include, among others, those discussed below as
well as those discussed in the Company's Annual Report on Form 10-K for the year
ended October 31, 1996. The following discussion should be read in conjunction
with the consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS
- ---------------------
REVENUES. Total revenues for the second quarter of fiscal 1997 increased 43% to
- ---------
$11,092,000, compared with $7,779,000 in the second quarter of fiscal 1996.
Revenues for the first six months of fiscal 1997 increased 16% to $19,666,000,
compared with $16,938,000 in the same period of fiscal 1996. The increase for
the second quarter of fiscal 1997 was primarily due to higher product revenues
from the Company's WorkStream DFS(TM) product line and services revenues
associated with the Company's new systems integration services business. For the
six months ended April 30, 1997, the increase in total revenues over the same
period of the previous fiscal year was primarily due to a higher level of
services revenues in the Asia/Pacific region, partially offset by a lower level
of product and development revenues.
Percentage of total revenues for the three and six months ended April
30, 1997 and 1996 by geographic region were as follows:
Three months ended Six months ended
April 30, April 30,
1997 1996 1997 1996
---- ---- ----- ----
North America 41% 45% 44% 55%
Europe 21% 21% 18% 16%
Asia/Pacific 38% 34% 38% 29%
The proportional increase in sales to Asia/Pacific for the six months
ended April 30, 1997 was primarily due to services revenue associated with the
Company's new systems integration services business in the Asia/Pacific region.
The proportional decrease in sales to North America for the six months ended
April 30, 1997 was due to lower product license sales in the North America
region during the first quarter of fiscal 1997.
8
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Percentage of total revenues for the three and six months ended April
30, 1997 and 1996 by business unit were as follows:
Three months ended Six months ended
April 30, April 30,
1997 1996 1997 1996
---- ---- ---- ----
Semiconductor and Electronics
Business Unit
(WorkStream DFS(TM)) 88% 88% 89% 86%
Healthcare Products and Process
Industries Business Unit
(FlowStream(R)) 12% 12% 11% 14%
The Company's Semiconductor and Electronics Business Unit markets and sells
WorkStream DFS products to manufacturers who produce their products in discrete
lots or batches, particularly those in the semiconductor and electronics
industries. The Company's Healthcare Products and Process Industries Business
Unit markets and sells FlowStream products to regulated or complex industries
that employ batch process manufacturing, particularly those in the healthcare
products (pharmaceutical, medical devices and biotechnology), chemical and other
process industries.
Product Revenues. Product revenues for three months ended April 30, 1997
- -----------------
increased 47% over the same period of the previous fiscal year. The increase
was primarily due to an increase in product revenues from the Company's
Workstream DFS product line. For the six months ended April 30, 1997, product
revenues decreased 17% over the same period of the previous fiscal year. The
decrease was primarily due to lower product revenue levels from the Company's
WorkStream DFS product line during the first quarter of fiscal 1997.
Product revenues attributable to products in the Company's Workstream DFS
product line increased 38% to $4,694,000 during the three months ended April 30,
1997, as compared with $3,409,000 in the previous year quarter. The 1997 second
fiscal quarter increase was primarily due to an increase in demand in the
semiconductor and electronics industries for the Company's WorkStream DFS
product line and related third party products in the Asia/Pacific region. For
the six months ended April 30, 1997, product revenue from the WorkStream DFS
product line decreased 19% to $6,455,000, as compared with $7,948,000 in the
previous fiscal year due to fluctuations in timing of new orders for
WorkStream(R) products from new semiconductor fabrications during the first
quarter of fiscal 1997.
Product revenues attributable to FlowStream for the three months ended
April 30, 1997 were $301,000, as compared to $0 for the same period in fiscal
1996. The increase was primarily attributable to fluctuations in the timing of
orders for FlowStream software from the healthcare products and process
industries. For the six months ended April 30, 1997, FlowStream revenues were
$359,000, as compared to $243,000 for the same period in the previous fiscal
year. The increase was primarily due to the timing of receipt of orders from
quarter to quarter. The Company expects to continue to see such fluctuations in
revenue until there is a higher level of acceptance of the FlowStream product.
9
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Services Revenues. Services revenues for the three months ended April 30, 1997
- ------------------
increased 46% to $5,787,000, compared with $3,953,000 for the same period of
fiscal 1996. For the six months ended April 30, 1997, services revenues
increased 58% to $12,421,000, compared with $7,884,000 for the same period of
fiscal 1996. Services revenues are primarily from systems integration services
relating to the Workstream DFS(TM) product line, annual software maintenance
fees, specialized programming services, resident and application consulting
services and customer training. The increase in services revenues for the three
and six months ended April 30, 1997 was primarily due to revenues derived from
the Company's new systems integration business. The Company anticipates that
services revenues in the remainder of fiscal 1997 will increase from prior year
levels due to services revenues associated with the Company's new systems
integration services. Services revenues normally are subject to fluctuation
primarily due to the timing of new contracts and the completion of existing
projects.
Development Revenues. Development revenues for the three months ended April
- ---------------------
30, 1997 decreased 26% to $310,000, compared with $417,000 for the same period
of fiscal 1996. For the six months ended April 30, 1997, development revenues
decreased 50% to $430,000, compared with $863,000 for the same period of fiscal
1996. Development revenues include work associated with porting agreements and
development contract work for third parties. Under these contracts and
agreements, the Company earns development and porting revenues, with
participating third parties having the right to license and use the software,
often sooner than otherwise would have occurred. Development revenues can vary
significantly from period to period, depending upon the number of contracts
which have been entered into and the state of completion of such projects. It
is difficult to accurately forecast the level of development revenues beyond the
near term due to the variable timing and scope of development projects, which
may be changed during the period of development. Based on current internal
development resource allocations and projects planned, the Company expects that
development revenues in fiscal 1997 will decrease significantly from prior year
levels, although the Company may take on additional development projects in the
future if business and strategic objectives of the Company are met by such
projects.
COSTS AND EXPENSES
- ------------------
Cost of Product Revenues. Cost of product revenues for the three months ended
- -------------------------
April 30, 1997 increased 18% to $909,000, compared with $770,000 for the same
period of the previous fiscal year. For the six months ended April 30, 1997,
cost of product revenues increased 14% to $1,705,000, compared with $1,491,000
for the same period of fiscal 1996. The absolute dollar increase in cost of
product revenues for the three and six months ended April 30, 1997 was primarily
due to increased product license sales and higher third party product costs
during the period. Cost of product revenues includes amortization of
capitalized software development costs, royalties, and purchased software which
is resold to the end customer, typically along with the Company's own software.
Depending on the mix of sales of proprietary software (and the variance in
associated third party royalties) and additional third party software relating
to specific orders, the associated costs of product revenue can vary
significantly. Product costs as a percentage of product revenue for the three
and six months ended April 30, 1997 were 18% and 25%, respectively, compared
with 23% and 18% for the same periods of the previous year. The decrease in
cost of product revenues for the three months ended April 30, 1997 as a
percentage of product revenue was due to a change in the mix of product revenues
coupled with overall lower royalties. The increase in cost of product revenues
for the six months
10
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ended April 30, 1997 as a percentage of product revenues was due to higher
purchase costs of third party software.
Cost of Services Revenues. Cost of services revenues increased 130% to
- --------------------------
$3,781,000 for the three months ended April 30, 1997, compared with $1,641,000
for the same period of the previous fiscal year. For the six months ended April
30, 1997, cost of services revenues increased 153% to $7,882,000, compared with
$3,119,000 for the same period of the previous fiscal year. The increase in
absolute dollars and percentage of cost of services revenues was primarily due
to the hiring of additional services personnel, both permanent and sub-
contracted, to add to the Company's ability to support the new systems
integration services business and to enhance the Company's ability to meet
customer requirements for customer support and consulting services. Cost of
services revenues was 65% and 63% of total services revenues for the three and
six months ended April 30, 1997, respectively, compared with 42% and 40% in the
comparable periods of fiscal 1996. The increase in cost of services revenues as
a percentage of services revenues was primarily due to the higher costs invested
in building up the Company's new systems integration services business in fiscal
1997.
Cost of Development Revenues. Cost of development revenues decreased 27% to
- -----------------------------
$253,000 for the three months ended April 30, 1997, compared with $348,000 for
the same period of the previous fiscal year. For the six months ended April 30,
1997, cost of development revenues decreased 45% to $370,000, as compared to
$675,000 for the same period of fiscal 1996. The absolute dollar decrease in
cost of development revenues was primarily due to lower development revenue
levels during the period. Cost of development revenues was 82% and 86% of total
development revenues for the three and six months ended April 30, 1997, compared
with 83% and 78% in the comparable periods of fiscal 1996. The increase in cost
of development as a percentage of development revenues for the six months ended
April 30, 1997 was primarily due to relatively low margins associated with
certain development projects during the first quarter in fiscal 1997.
Development costs include direct labor costs associated with development
contracts and porting projects as well as third party consulting expenses.
Development costs can vary significantly from project to project.
Research and Development Expenses. Research and development expenses
- ----------------------------------
represented 27% and 32% of total revenues for the three and six month periods
ended April 30, 1997, respectively, compared with 36% and 30% for the same
periods of the previous fiscal year. The decrease in the percentage of research
and development expenses as a percentage of total revenues in the recent three
month period compared with the same quarter last year was due to a higher level
of sales in the second quarter of fiscal 1997. Expenses were $3,003,000 and
$6,235,000 for the three and six months ended April 30, 1997, respectively, as
compared to $2,802,000 and $5,102,000 for the same periods of the previous
fiscal year. The increases in the absolute dollar amount of research and
development expenses for the three and six months ended April 30, 1997 were
primarily due to a decrease in software development costs eligible for
capitalization and the hiring of additional research and development personnel,
primarily to add computing platform options and functional enhancements for the
Company's products. Included in research and development expenses are costs
associated with the development of new products and the costs of enhancing and
maintaining existing products.
Software development expenditures of $103,000 and $204,000 were capitalized
for the three months ended April 30, 1997 and 1996, respectively. The amounts
represent approximately 3% and 7% of total research and development expenditures
during such periods.
11
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The absolute dollar and percentages decreases were due to a decline in the
absolute dollar amount of software development costs eligible for capitalization
during the quarter ended April 30, 1997, coupled with a higher level of overall
research and development expenditures. In accordance with SFAS No. 86, the
amount of research and development expenditures capitalized in a given time
period depends upon the amount of development work performed subsequent to the
establishment of technological feasibility for a product. Accordingly, amounts
capitalized may vary from period to period.
Selling and Marketing Expenses. Selling and marketing expenses represented 29%
- -------------------------------
and 34% of total revenues for the three and six months ended April 30, 1997,
respectively, as compared with 43% and 38% for the same periods of fiscal 1996.
The decrease in sales and marketing expenses as a percentage of total revenues
during the three and six months ended April 30, 1997, compared with the same
periods last year was due to a higher level of sales and lower overall selling
and marketing expenditures. Selling and marketing expenses were $3,267,000 and
$6,612,000 for the three and six months ended April 30, 1997, respectively,
compared with $3,314,000 and $6,378,000 for the same periods of the previous
year. The fiscal 1997 second quarter decrease in absolute dollars in selling and
marketing expenses was primarily due to a decrease in headcount as a result of
the Company's plan to reduce the overall expenses related to the FlowStream(R)
product. The increase in absolute dollar amount of selling and marketing
expenses for the six months ended April 30, 1997, compared with the same period
in fiscal 1996, was primarily due to an increase in expenses during the first
quarter of fiscal 1997 as a result of an increase in headcount and related
travel expenses, partially offset by the decrease in selling and marketing
expenses during the second quarter of fiscal 1997.
General and Administrative Expenses. General and administrative expenses
- ------------------------------------
represented 8% and 9% of total revenues for the three and six month periods
ended April 30, 1997, respectively, as compared with 15% and 12% for the same
periods of the previous fiscal year. The proportional decreases in general and
administrative expenses as a percentage of total revenues for the three and six
months ended April 30, 1997 were due to a higher level of sales and lower
general and administrative expenses during the periods. General and
administrative expenses decreased to $914,000 and $1,802,000 for the three and
six months ended April 30, 1997, compared to $1,136,000 and $2,081,000 for the
same periods in fiscal 1996. The decreases in absolute dollars for the three
and six months ended April 30, 1997 were primarily due to a decrease in legal
and moving costs over the same periods of the previous year. General and
administrative expenses include the costs of the finance, accounting and
administrative operations of the Company.
Interest Income and Expense. Interest income was $3,000 and $64,000 for the
- ----------------------------
three and six months ended April 30, 1997, respectively, compared to $80,000 and
$226,000 for the same periods in the previous fiscal year. Lower invested cash
balances accounted for the decrease. For the three months ended April 30, 1997,
interest expense was $36,000, as compared to $0 for the same period in the
previous fiscal year. Interest expense was $72,000 and $0 for the six months
ended April 30, 1997 and 1996, respectively. The increase in interest expense
was primarily due to interest on a $2,000,000 promissory note obtained from a
bank in April 1996.
Provision for Income Taxes. The income tax provision for the six months ended
- ---------------------------
April 30, 1997 represents taxes on earnings of certain foreign subsidiaries,
which are profitable, and taxes paid in certain foreign jurisdictions. The
Company has established a valuation allowance against its deferred tax asset and
reviews this allowance on a periodic basis. At such time that the Company
12
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believes that it is more likely than not that a portion of the deferred tax
asset will be realized, the valuation allowance will be reduced.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. The Company's results of
- --------------------------------------------
operations historically have fluctuated on a quarterly basis due to numerous
factors. These factors may include: the relatively high average selling price
of the Company's products; a relatively small number of transactions; the size
and timing of new orders; market acceptance of the Company's products;
introduction of competitive product offerings and subsequent deferrals in sales
orders as competitive products are evaluated by prospective customers; the
timing of co-development projects with customers; expense levels; pricing
changes; gain or loss of significant customers or distributors; and the general
economic conditions in the Company's primary markets. Results could be
negatively affected if the semiconductor industry slowed its expansion, or if
the healthcare products and process industries, which have not yet adopted
computer automated manufacturing on a wide scale, do not develop into a strong
market for the Company's FlowStream product line, or if the Company is
unsuccessful in managing systems integration projects profitably. Any
unfavorable change in these or other factors could have a material adverse
effect on the Company's operating results for a particular quarter. The
operating results in any quarter are not necessarily indicative of results for
future financial periods.
LIQUIDITY AND CAPITAL RESOURCES. As of April 30, 1997, the Company had
- --------------------------------
$7,598,000 in cash and cash equivalents, as compared with $9,094,000 in cash and
cash equivalents and short term investments at October 31, 1996. The Company
used $1,930,000 for operating activities during the six months ended April 30,
1997, compared with $1,355,000 used for operating activities in the same period
of the previous fiscal year. Net cash used for operating activities for the six
months ended April 30, 1997 primarily resulted from the net loss from the period
and an increase in accounts receivable, offset by an increase in accounts
payable and deferred revenue.
Net cash provided by investing activities was $80,000 during the first six
months of fiscal 1997, as compared with $1,723,000 net cash used for investing
activities for the same period in fiscal 1996. The $80,000 net cash provided by
investing activities during the six months ended April 30, 1997 represented
sales of short-term investments of $1,000,000, offset by capital expenditures
and capitalized software development costs of $682,000 and $238,000.
Net cash provided by financing activities was $1,547,000 during the first
six months of fiscal 1997, which represented borrowing on the new revolving line
of credit of $3,051,000, proceeds from issuance of common stock of $288,000 and
repayments of borrowing on the $2,000,000 bank promissory note of $1,792,000.
Under the asset purchase agreement of the Taiwan operations of Systematic
Designs International, Inc., the Company may be required to make additional
annual performance-based payments (in cash or stock) over a two year period
ending on July 8, 1998. Such performance-based payments will be based upon a
specified percentage, ranging from 17.5% to 50.0%, of certain revenues, as
defined in the purchase agreement.
13
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Effective as of January 31, 1997, the Company was in default of the
profitability, minimum adjusted quick ratio and cash coverage ratio covenants
with its existing bank under the Credit Agreement dated April 30, 1996, as
amended (the "Credit Agreement"). As of that date, the Company had $1,667,000
outstanding under the Credit Agreement.
In April 1997, the Company entered into a new revolving line of credit
agreement (the "Line of Credit Agreement") under which it can borrow up to
$5,000,000, based on eligible accounts receivable. The revolving line of credit
is secured by substantially all of the Company's assets, bears interest at the
bank's prime rate per annum (8.5% at April 30, 1997) and expires on March 15,
1998. All amounts due under the above mentioned Credit Agreement were repaid
when the Company obtained this new revolving line of credit. At April 30, 1997,
$3,051,000 was outstanding under the revolving line of credit and the Company's
borrowing base exceeded its maximum borrowing capacity. The Line of Credit
Agreement requires the Company to maintain certain financial covenants. At
April 30, 1997, the Company was not in compliance with one of these covenants.
Following the end of the quarter, the Company obtained a waiver from the bank
for the default.
Management believes the existing cash and cash equivalents combined with
its borrowing capacity, capital raising ability and cash generated from
operations will be sufficient to meet the Company's working capital and capital
expenditure requirements for the next twelve months.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
----------------------
None
Item 3. Defaults upon Senior Securities
--------------------------------
See discussion in Part I, Item 2 "Liquidity and Capital Resources"
section
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its Annual Meeting of Stockholders on March 11, 1997.
The stockholders voted on proposals to:
1. Elect one (1) Class III Director
2. Approve the Company's 1996 Stock Option Plan.
3. Appoint Arthur Andersen LLP as Independent Accountants for the
fiscal year ending October 31, 1997.
The proposals were approved by the following votes:
<TABLE>
<CAPTION>
Authority
Withheld/ Broker
For Against Abstain Non-votes
-------- ------- ------- ---------
<S> <C> <C> <C> <C>
1. Election of Class I
Director,
Jonathan J. Golovin 6,668,136 42,761 -- --
2. Approve Company's 1996
Stock Option Plan 6,383,823 310,017 17,057 --
3. Appoint Arthur
Andersen LLP 6,702,197 3,700 5,000 --
</TABLE>
Item 5. Other Information
------------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a). List of Exhibits
15
<PAGE>
Exhibit
Number Exhibit Title
- ------- -------------
3.1 Certificate of Incorporation of the Company. /3/
3.2 By-Laws of the Company. /3/
10.1 Lease agreement dated November 28, 1988, among the Company and John
Arrillaga, Trustee of the John Arrillaga Separate Trust and Richard
T. Peery, Trustee of the Richard T. Peery Separate Property
Trust. /1/
10.2 Master Lease Agreement, dated December 2, 1988, between the Company
and General Electric Capital Corporation, with schedules. /1/
10.3 Letter Agreement, dated July 22, 1987, with respect to the
employment of Thomas Tomasetti. /1,6/
10.4 Lease agreement paperwork for the 630 Clyde Court facility, dated
March 6, 1990, among the Company and Santa Clara Property
Associates. /2/
10.5 Agreement between the Company and Honeywell, Inc., Industrial
Automation and Control, dated April 1, 1993. /3,5/
10.6 Form of Director and Officer Indemnity Agreement. /4,6/
10.7 Amended and Restated 1983 Stock Option Plan. /6,7/
10.8 Forms of Stock Option Agreement used in conjunction with the 1983
Stock Option Plan. /6,7/
10.9 1990 Outside Director's Stock Option Plan. /6,7/
10.10 Forms of Outside Directors Stock Option Agreement used in
conjunction with the 1990 Outside Director's Stock Option
Plan. /6,7/
10.11 Lease agreement for the Company's principal facility, dated August
2, 1995, among the Company and The Prudential Insurance Company of
America. /7/
10.12 Letter Agreement, dated August 5, 1994, with Respect to the
employment of Edward Norton. /6,7/
10.13 Letter Agreement, dated September 28, 1994, with respect to the
employment of Richard Van Hoesen. /6,7/
10.14 Letter Agreement, dated July 12, 1996 , with respect to the
resignation of Thomas Tomasetti. /6,8/
16
<PAGE>
10.15 Letter Agreement dated June 3, 1996, with respect to the employment
of Laurence R. Hootnick. /6,8/
10.16 Asset Purchase Agreement for the acquisition of the Taiwan
operations of Systematic Designs International, Inc. dated July 2,
1996. /10/
10.17 Letter Agreement dated August 6, 1996, with respect to the
employment of Wynn Bowman. /6,9/
10.18 Letter Agreement dated August 6, 1996, with respect to the
employment of Michael J. Field. /6,9/
10.19 Change of Control Agreement with Laurence R. Hootnick. /11/
10.20 Change of Control Agreement with Jonathan J. Golovin. /11/
10.21 Form of Change of Control Agreement for Executive Officers. /11/
10.22 1996 Stock Option Plan and Forms of Stock Option Agreement. /11/
27 Financial Data Schedule (available in EDGAR format only).
/1/ Incorporated by reference from exhibits of the same number in
Registrant's Registration Statement on Form S-1 (File No. 33-27947),
effective May 9, 1989.
/2/ Incorporated by reference from exhibit 10.3 to Registrant's Annual
Report on Form 10-K for the Year ended October 31, 1990.
/3/ Incorporated by reference from exhibits 3.1, 3.2 and 10.19,
respectively, to Registrant's Quarterly Report on Form 10-Q for the
Quarter ended April 30, 1993.
/4/ Incorporated by reference from exhibit 10.6 to Registrant's Quarterly
Report on Form 10-Q for the Quarter ended July 31, 1994.
/5/ The Securities and Exchange Commission has granted confidential
treatment for portions of this document.
/6/ Compensatory or employment arrangement.
/7/ Incorporated by reference from exhibits of the same number to
Registrant's Annual Report on Form 10-K for the Year ended October 31,
1995.
/8/ Incorporated by reference from exhibits of the same number in
Registrant's Quarterly Report on Form 10-Q for the Quarter ended July
31, 1996.
/9/ Incorporated by reference from exhibits of the same number to
Registrant's Annual Report on Form 10-K for the Year ended October 31,
1996.
17
<PAGE>
/10/ Incorporated by reference from exhibit 2.1 to Registrant's Report on
Form 8-K filed on July 26, 1996 for the acquisition of the Taiwan
operations of Systematic Designs International, Inc.
/11/ Incorporated by reference from exhibits of the same number in
Registrant's Quarterly Report on Form 10-Q for the Quarter ended
January 31, 1997.
(b). Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended
April 30, 1997.
18
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, a duly authorized officer and the chief financial officer of the
registrant.
CONSILIUM, INC.
------------------------
(Registrant)
Date June 13, 1997 by: /s/ Clifton Wong
------------------------ ------------------------
Clifton Wong
Vice President, Finance and
Chief Financial Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<CASH> 7,598
<SECURITIES> 0
<RECEIVABLES> 13,435
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,068
<PP&E> 4,709
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,100
<CURRENT-LIABILITIES> 22,699
<BONDS> 0
0
0
<COMMON> 8,369
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 31,100
<SALES> 19,666
<TOTAL-REVENUES> 19,666
<CGS> 9,957
<TOTAL-COSTS> 9,957
<OTHER-EXPENSES> 14,649
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> (4,948)
<INCOME-TAX> 115
<INCOME-CONTINUING> (4,940)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,063)
<EPS-PRIMARY> (0.63)
<EPS-DILUTED> 0
</TABLE>
