<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
-------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD ENDED ______ TO ______
COMMISSION FILE NO. 0-16096
INPRISE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2895440
(STATE OR OTHER JURISDICTION OF (I.R.S EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
100 ENTERPRISE WAY, SCOTTS VALLEY, CALIFORNIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
95066-3249
(ZIP CODE)
(831) 431-1000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
The number of shares of common stock outstanding
as of October 31, 1998 was 47,940,757.
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM I CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INPRISE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE AND SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 78,067 $ 100,707
Short-term investments........................................................... 18,338 1,843
Accounts receivable, net......................................................... 46,564 34,664
Inventories...................................................................... 1,410 787
Other............................................................................ 8,808 6,462
------------- --------------
Total current assets........................................................... 153,187 144,463
Property and equipment, net....................................................... 109,521 104,944
Other non-current assets.......................................................... 6,290 6,417
------------- --------------
$ 268,998 $ 255,824
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 12,432 $ 11,687
Accrued expenses................................................................. 39,297 38,424
Short-term restructuring......................................................... 8,029 1,277
Deferred revenue................................................................. 14,086 12,429
Income taxes payable............................................................. 1,277 4,054
Other............................................................................ 6,690 12,012
------------- --------------
Total current liabilities...................................................... 81,811 79,883
Deferred revenue.................................................................. 1,391 ---
Long-term debt and other.......................................................... 22,346 22,025
Mandatorily redeemable convertible preferred stock;
$50,000 par value; 1,470 shares authorized;
770 and 550 issued and outstanding............................................... 38,374 27,358
Stockholder's equity:
Common stock; $.01 par value; 100,000,000 shares authorized;
49,804,000 and 50,745,000 issued and outstanding................................. 498 508
Additional paid-in capital....................................................... 386,076 381,894
Accumulated deficit.............................................................. (255,091) (259,691)
Cumulative translation adjustment................................................ 3,868 3,847
------------- --------------
135,351 126,558
Less common stock in treasury at cost -- 1,596,600 shares at September 30, 1998 (10,275) ---
------------- --------------
$ 268,998 $ 255,824
============= ==============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
INPRISE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT EARNINGS (LOSS) PER SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------
1998 1997 1998 1997
-------------------------------------------
<S> <C> <C> <C> <C>
Licenses and other revenue................................ $ 42,481 $ 43,267 $ 124,696 $ 125,444
Service revenue........................................... 5,482 4,797 16,276 14,222
-------- -------- -------- --------
Net revenues............................................. 47,963 48,064 140,972 139,666
-------- -------- -------- --------
Cost of licenses and other revenue........................ 3,857 6,100 11,071 18,069
Cost of service revenue................................... 4,180 2,373 11,084 7,269
-------- -------- -------- --------
Cost of revenues........................................ 8,037 8,473 22,155 25,338
-------- -------- -------- --------
Gross profit.............................................. 39,926 39,591 118,817 114,328
-------- -------- -------- --------
Selling, general and administrative....................... 28,450 29,763 81,407 99,380
Research and development.................................. 11,509 12,446 34,906 41,986
Restructuring and merger related charges.................. -- -- 19,281 5,976
Other non-recurring charges............................... -- -- -- 17,100
-------- -------- -------- --------
Total operating expenses................................. 39,959 42,209 135,594 164,442
-------- -------- -------- --------
Operating loss............................................ (33) (2,618) (16,777) (50,114)
Interest income, net and other............................ 1,149 790 2,873 1,934
Gain on long-term investment.............................. 15,439 -- 15,439 --
-------- -------- -------- --------
Income (loss) before income taxes......................... 16,555 (1,828) 1,535 (48,180)
Income tax provision (benefit)............................ 150 270 (3,312) 979
-------- -------- -------- --------
Net income (loss)......................................... $ 16,405 $ (2,098) $ 4,847 $ (49,159)
======== ======== ======== ========
Net income (loss) per share - basic....................... $ 0.32 $ (0.05) $ 0.09 $ (1.03)
======== ======== ======== ========
Net income (loss) per share - diluted..................... $ 0.29 $ (0.05) $ 0.08 (1.03)
======== ======== ======== ========
Shares used in computing basic income (loss) per share.... 50,509 49,869 50,825 48,179
======== ======== ======== ========
Shares used in computing diluted income (loss) per share.. 56,812 49,869 57,494 48,179
======== ======== ======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
INPRISE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------------
1998 1997 1998 1997
------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss)................................ $ 16,405 $ (2,098) $ 4,847 $ (49,159)
Other comprehensive income (loss)................
Foreign currency translation adjustments....... 395 (26) 21 301
----------- ------------ ----------- ------------
Comprehensive income (loss)...................... $ 16,800 $ (2,124) $ 4,868 $ (48,858)
=========== ============ =========== ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
INPRISE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS (IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
-------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................ $ 4,847 $ (49,159)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization............................................. 5,577 9,942
Loss on disposal of fixed assets.......................................... 2,617 1,580
Gain on long-term investment.............................................. (15,439) ---
Changes in assets and liabilities:
Accounts receivable....................................................... (11,313) (7,335)
Inventories............................................................... (623) 72
Other current assets...................................................... (2,260) 426
Other non-current assets.................................................. 127 2,244
Accounts payable, accrued expenses and short-term restructuring........... 8,034 17,083
Income taxes payable...................................................... (2,777) (9,083)
Other (primarily deferred revenue and long-term restructuring)............ (4,155) 1,226
---------- ----------
Cash used by operating activities......................................... (15,365) (33,004)
---------- ----------
Cash flows from investing activities:
Acquisition of property and equipment........................................ (12,814) (6,120)
Sale of fixed assets......................................................... 43 756
Net change in short-term investments......................................... (1,071) (39)
---------- ----------
Cash used by investing activities......................................... (13,842) (5,403)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock....................................... 3,941 23,412
Cash used for repurchase of common stock..................................... (8,166) ---
Proceeds from issuance of preferred stock and warrants....................... 11,000 24,591
Borrowings of capital lease obligations and other debt activity.............. (107) 8,213
---------- ----------
Cash provided by financing activities........................................... 6,668 56,216
---------- ----------
Effect of exchange rate changes on cash......................................... (101) 460
---------- ----------
Net change in cash and cash equivalents......................................... (22,640) 18,269
Beginning cash and cash equivalents............................................. 100,707 81,381
---------- ----------
Ending cash and cash equivalents................................................ $ 78,067 $ 99,650
========== ==========
Supplemental schedule of non-cash activities:
Repurchase of Company's common stock on account $ 2,109 $ ---
========== ==========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
INPRISE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements reflect
all adjustments (which include only normal, recurring adjustments), which are,
in the opinion of management, necessary for a fair presentation of the results
for the periods shown. The results of operations for such periods are not
necessarily indicative of the results expected for the entire fiscal year, which
ends on December 31, 1998. The preparation of consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. These
unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
of Inprise Corporation (the "Company" or "Inprise") for the nine months ended
December 31, 1997 included in the Registrant's Form 10-K.
Reclassification
Certain reclassifications have been made to the prior period condensed
consolidated financial statements to conform to the presentation adopted in the
current period.
Change in Fiscal Year End
During 1997, the Company changed its year end from March 31 to December 31
effective January 1, 1998.
Name Change
On June 5, 1998, the Company's stockholders approved a proposal to amend the
Company's Restated Certificate of Incorporation to change the name of the
Company from Borland International, Inc. to Inprise Corporation. The Company's
stock symbol was changed to "INPR."
REVENUE RECOGNITION
In October 1997 and March 1998, the American Institute of Certified Public
Accountants issued Statement of Position 97-2 "Software Revenue Recognition"
("SOP97-2") and Statement of Position 98-4, "Deferral of the Effective Date of
the Provisions of SOP97-2, Software Revenue Recognition" ("SOP98-4"), which the
Company currently is required to adopt for transactions entered into in the
fiscal year beginning January 1, 1998. SOP97-2 and SOP98-4 provide guidance on
recognizing revenue on software transactions and supersedes issued Statement of
Position 91-1 "Software Revenue Recognition" ("SOP91-1"). The Company believes
that the adoption of SOP97-2 and SOP98-4 has not had a significant impact on its
current licensing or revenue recognition practices.
ACQUISITION
On February 27, 1998 the Company completed the acquisition of Visigenic
Software, Inc. ("Visigenic") in a transaction accounted for as a pooling of
interests and, as a result, the Company's previously issued financial statements
for the periods presented in this Form 10-Q have been restated to include the
assets, liabilities and operating results of Visigenic in accordance with
generally accepted accounting principles and the instructions in Regulation S-X.
<PAGE>
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards
for reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from nonowner sources. Examples of items to be included in
comprehensive income which were excluded from net income include foreign
currency translation adjustments and unrealized gains/losses on available-for-
sale securities. The Company adopted SFAS 130 in the quarter ended March 31,
1998. Components of comprehensive income for the three and nine months ended
September 30, 1998 and 1997 have been disclosed on the Statement of
Comprehensive Income. The total accumulated other comprehensive income balance
was approximately $3.9 million as of September 30, 1998.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, FASB issued Statement No. 131, "Disclosure about Segments of an
Enterprise and Related Information" (SFAS 131"). SFAS 131 establishes standards
for the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The
disclosures prescribed by SFAS 131 will be effective the year ending December
31, 1998. The Company has not evaluated the impact that adopting SFAS 131 will
have on its notes to the consolidated financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP98-1"). SOP98-1 provides guidance
for determining whether computer software is internal-use software and on
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. The disclosures prescribed by SOP98-1
will be effective for the year ending December 31, 1999. The Company has not yet
determined the impact, if any, of adopting this statement.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting
standards for derivative instruments, embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The accounting for changes in the
fair value of the derivative depends on the intended use of the derivative and
the resulting designation. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Company will adopt SFAS 133 in
the first quarter of the fiscal year ending December 31, 2000 and has not yet
evaluated the impact of the adoption on the Company's results of operations,
financial position, capital resources or liquidity.
NOTE 2. EARNINGS (LOSS) PER SHARE
For the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS 128"), "Earnings Per Share." SFAS 128
requires the presentation of basic earnings per share ("EPS") and diluted EPS,
for companies with potentially dilutive securities, such as options. Earnings
per share data for all prior periods have been restated to conform with the
provisions of SFAS 128.
Basic earnings per share are computed using the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per share
are computed using the weighted average number of shares of common stock and
potentially dilutive securities outstanding during the period. Potentially
dilutive securities consist of mandatorily redeemable convertible preferred
stock (using the if-converted method) and stock options and warrants (using the
treasury stock method). Potentially dilutive securities are excluded from the
computation if their effect is antidilutive. The following is a reconciliation
of the computation of basic and diluted earnings (loss) per share (in thousands,
except per share data):
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------------------------
1998 1997 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) before accretion charge to the
mandatorily redeemable convertible preferred stock
relating to warrants................................ $ 16,405 $ (2,098) $ 4,847 $ (49,159)
Accretion charge to the mandatorily redeemable
convertible preferred stock for warrants............ 164 383 306 383
---------- ---------- ---------- ----------
Income (loss) available to common stockholders for
basic and diluted earnings per share................ $ 16,241 $ (2,481) $ 4,541 $ (49,542)
========== ========== ========== ==========
Denominator:
Denominator for basic net income (loss) per share --
weighted average shares............................. 50,509 49,869 50,825 48,179
Effect of dilutive securities......................... 6,303 -- 6,669 --
---------- ---------- ---------- ----------
Denominator for diluted net income (loss) per share --
adjusted weighted average shares and assumed
conversions......................................... 56,812 49,869 57,494 48,179
========== ========== ========== ==========
Net income (loss) per share - basic................... $ 0.32 $ (0.05) $ 0.09 $ (1.03)
========== ========== ========== ==========
Net income (loss) per share - diluted................ $ 0.29 $ (0.05) $ 0.08 $ (1.03)
========== ========== ========== ==========
</TABLE>
The 495 shares of Series B Preferred Stock and 198,000 warrants to purchase
common shares outstanding at September 30, 1997 were not included in the
computation of diluted EPS for the three and nine months ended September 30,
1997, because their effect on earnings per share would have been antidilutive.
Options to purchase approximately 7,621,000 and 10,376,000 shares of common
stock were outstanding at September 30, 1998 and 1997, respectively, but were
not included in the computation of diluted EPS as the inclusion of such options
would have been antidilutive.
NOTE 3. ACQUISITION
On February 27, 1998, the Company issued approximately 12,118,060 shares of
Inprise Common Stock in exchange for all of the outstanding common stock of
Visigenic Software, Inc. ("Visigenic"). In connection with the Company's
assumption of outstanding Visigenic employee stock options, the Company reserved
2,527,284 common shares for future issuances. The merger was accounted for as a
pooling of interests and accordingly, the Company's consolidated financial
statements were restated for all periods prior to the merger to include the
operations of Visigenic.
Pursuant to the merger, Visigenic's year end was conformed to the Company's
newly adopted year end of December 31 (see Note 1). The following unaudited pro
forma combined financial information assumes that the merger occurred on the
first day of the earliest period presented (in thousands of dollars, except per
share amounts).
<PAGE>
<TABLE>
<CAPTION>
PROFORMA
INPRISE VISIGENIC COMBINED
------- --------- --------
<S> <C> <C> <C>
Three Months Ended September 30, 1998
Net revenues $ -- $ -- $ 47,963
Net income -- -- 16,405
Net income per share -- basic -- -- 0.32
Net income per share -- diluted $ -- $ -- $ 0.29
Three Months Ended September 30, 1997
Net revenues $ 42,500 $ 5,564 $48,064
Net income (loss) 1,518 (3,616) (2,098)
Net income (loss) per share -- basic 0.03 (0.25) (0.05)
Net income (loss) per share -- diluted $ 0.03 $ (0.25) $ (0.05)
PROFORMA
INPRISE VISIGENIC COMBINED
------- --------- --------
Nine Months Ended September 30, 1998
Net revenues $ -- $ -- $ 140,972
Net income -- -- 4,847
Net income per share -- basic -- -- 0.09
Net income per share -- diluted $ -- $ -- $ 0.08
Nine Months Ended September 30, 1997
Net revenues $ 121,638 $ 18,028 $ 139,666
Net loss (40,872) (8,287) (49,159)
Net loss per share -- basic (1.06) (0.58) (1.03)
Net loss per share -- diluted $ (1.06) $ (0.58) $ (1.03)
</TABLE>
This pro forma combined financial information is provided for comparative
purposes only and does not purport to be indicative of the results which
actually would have been obtained if the merger had been effected for the
periods indicated, or of the results which may be obtained in the future.
In conjunction with the acquisition of Visigenic, the Company implemented a
worldwide realignment of its corporate structure. In the quarter ended March 31,
1998, the Company recorded a $19.3 million restructuring and merger related
charge of which $9.9 million related to severance costs associated with the
elimination of duplicate workforce, $3.2 million to terminate certain lease
agreements and the write-off of certain fixed assets and $2.5 million for other
costs associated with the restructuring. Additionally, the Company charged to
income approximately $3.7 million in expenses associated with the merger.
The following table summarizes the Company's restructuring activity for the
nine months ended September 30, 1998:
<TABLE>
<CAPTION>
SEVERANCE OTHER
AND ASSET
BENEFITS FACILITIES CHARGES OTHER TOTAL
--------------- -------------- --------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Accrual as of December 31, 1997............ $ 143 $ 572 $ -- $ 635 $ 1,350
Nine Months Ended September 30, 1998:
1998 restructuring...................... 9,863 336 2,900 2,482 15,581
Cash charges............................ (3,575) (12) -- (2,699) (6,286)
Non -- cash charges..................... -- -- (2,616) -- (2,616)
---------- ---------- ---------- --------- ---------
Accrual as of September 30, 1998........... $ 6,431 $ 896 $ 284 $ 418 $ 8,029
========== ========== ========== ========= =========
</TABLE>
Subsequent to December 31, 1997, there have not been any changes to the
Company's estimate of the total costs of prior restructurings.
<PAGE>
NOTE 4. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCK WARRANTS
During 1997, the Company completed a private placement of equity securities
to a group of institutional investors (the "Investors"). The financing
agreements included the sale of Series B Preferred Stock (the "Series B Shares")
and warrants to purchase Common Stock (the "Warrants"). Each Series B share is
convertible, at the option of the holder, into shares of Common Stock of the
Company. Subject to various additional conditions, the Company has the option
("Company Put Option") to require the Investors to purchase additional Series B
Shares and Warrants and the Investors have the right to require that the Company
sell to them additional Series B Shares and Warrants ("Investor Call Options").
The Series B Shares and Warrants issued upon exercise of the Company Put Option
or the Investor Call Options will have the same terms and rights as the Series B
Shares and Warrants issued at the Initial Closing except that the maximum
conversion price and exercise price, respectively, will be based upon the market
price of the Company's Common Stock at the time of the subsequent issuance of
such Series B Shares and Warrants. For specific information regarding the
Series B financing, see the footnotes to the financial statements within the
Form 10-Q for the quarters ending June 30, and March 31, 1998, the Form 10-K for
the period ending December 31, 1997 and Form 8-K filed with the SEC on July 14,
1997.
On July 27, 1998, the holders of the Series B Shares exercised their rights
under the Investor Call Options to purchase approximately 220 shares of Series B
Shares and 88,000 Warrants to purchase Inprise Common Stock. Total proceeds from
the exercise of the Investor Call Options were approximately $11.0 million. Each
of the newly issued Series B Shares is convertible, at the option of the holder,
into shares of Inprise Common Stock based upon a conversion price equal to $6.88
or if lower, the lowest closing market price of Inprise common stock during the
seven trading days prior to the conversion date. The warrants have an exercise
price of $8.59 per share. The Company recorded a charge of approximately $0.2
million to the income available to common stockholders for the value of the
Warrants during the quarter ended September 30, 1998 (see Note 2. Earnings
(Loss) per Share). The remaining value of the Warrants, approximately $0.1
million, will be charged to income available to common shareholders over the
next two quarters.
Each of the above issuances were not and will not be registered under the
Securities Act of 1933, as amended (the "1933 Act") in reliance upon the
exemptions provided by Section 4(2) of the 1933 Act and/or Regulation D
promulgated thereunder as a transaction by an issuer not involving a public
offering.
NOTE 5. INVESTMENT IN STARFISH SOFTWARE, INC.
The Company has a minority common stock interest in Starfish Software, Inc.
("Starfish"). On September 23, 1998 ("Closing Date"), Motorola, Inc.
("Motorola") completed the acquisition of Starfish. The acquisition involved a
combination of cash and Motorola common stock part of which was withheld in
escrow. Based upon the cash and common stock consideration not subject to
escrow, the Company recorded a gain of approximately $15.4 million during the
quarter ended September 30, 1998. Additionally, the Company will record a gain
for consideration received upon close of escrow. As of September 30, 1998, the
Company had not received the cash or Motorola common shares. The Company's
interest in the proceeds were classified as a short-term investment.
NOTE 6. STOCK REPURCHASE PROGRAM
On July 21, 1998, the Company's Board of Directors authorized the Company to
repurchase up to one million shares of Company's Common Stock for up to $10.0
million. On August 10, 1998, the Company announced completion of the stock buy-
back program authorized by its Board of Directors. On September 21, 1998, the
Company's Board of Directors authorized the Company to repurchase up to 10% of
the Company's outstanding share of common stock on a fully diluted basis, or
approximately 5,900,000 shares, inclusive of the 1,000,000 share repurchase
completed on August 10, 1998. As of September 30, 1998, the Company had
repurchased approximately 1.6 million shares under these two programs at an
average price of $6.44 per share. The repurchase of common stock was financed
principally by cash from operations.
<PAGE>
NOTE 7. INCOME TAXES
Income tax expense for the quarter ended September 30, 1998 was approximately
$0.15 million. Such tax expense results principally from non-U.S. withholding
taxes, which are assessed without regard to the profitability of the applicable
operation.
NOTE 8. LEGAL
Information with respect to this item is incorporated by reference to
Part I - Item 2 "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Litigation," of this Form 10-Q.
NOTE 9. SUBSEQUENT EVENTS
Investment in Starfish Software, Inc.
On October 27, 1998, the Company sold its shares of Motorola stock at an
average per share price of approximately fifty dollars. The Company will record
a gain on the sale of the stock of approximately $1.2 million during the quarter
ended December 31, 1998.
Stock Repurchase Program
On September 21, 1998, the Company's Board of Directors authorized the
Company to repurchase up to 10% of the Company's outstanding common shares
outstanding, see Note 6. As of October 30, 1998, the Company has repurchased
approximately 3.5 million shares as authorized by the Board's resolution at an
average price of $5.87 per share.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report contains
forward-looking statements. The forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in such forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in the section "Factors That May Affect Future Results and Market
Price of Stock."
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's opinions only as of the date hereof. The
Company undertakes no obligation to revise or publicly release the results of
any revisions to these forward-looking statements. Readers should carefully
review the risk factors described in other documents the Company files from time
to time with the Securities and Exchange Commission, including the Annual Report
on Form 10-K for the nine month period ended December 31, 1997, copies, of
which, may be obtained from the Company or from the Securities and Exchange
Commission at its website at www.sec.gov.
OVERVIEW
Inprise Corporation (the "Company") develops, markets and supports software
development tools, intelligent middleware, database management systems, and
application management systems for business enterprises and independent software
developers. The Company has several product lines and additional complementary
products and services that are designed to meet the needs of software developers
and business enterprises developing and using software in the desktop, local
area network ("LAN"), client/server and Internet/intranet environments.
The Company derives its net revenues from licenses and service fees. The
Company markets and sells to corporations, governments, educational institutions
and end-user customers through direct sales and through the Internet. The
Company also markets and distributes its products worldwide through independent
distributors, dealers, value-added resellers ("VARs") and independent software
vendors ("ISVs").
The Company's service revenue consists of fees derived from maintenance and
support agreements and from consulting and training services. Maintenance and
support agreements covering Inprise products provide for technical and emergency
support and product upgrades.
Results for the three and nine month periods ended September 30, 1997 have
been restated to reflect the impact of the Company's acquisition of Visigenic
Software, Inc. which was completed on February 27, 1998 and was accounted for as
a pooling of interests.
<PAGE>
The following table sets forth the unaudited consolidated results of
operations as a percentage of net revenues for the three and nine months ended
September 30, 1998 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------------------
1998 1997 1998 1997
------------------------------------------------------------
<S> <C> <C> <C> <C>
Licenses and other revenue............................... 88.6% 90.0% 88.5% 89.8%
Service revenue.......................................... 11.4 10.0 11.5 10.2
----- ------ ----- -----
Net revenues........................................... 100.0 100.0 100.0 100.0
Cost of licenses and other revenue....................... 8.0 12.7 7.8 12.9
Cost of service revenue.................................. 8.7 4.9 7.9 5.2
----- ------ ----- -----
Cost of revenues......................................... 16.7 17.6 15.7 18.1
----- ------ ----- -----
Gross margin............................................. 83.3 82.4 84.3 81.9
----- ------ ----- -----
Selling, general and administrative...................... 59.3 61.9 57.7 71.2
Research and development................................. 24.0 25.9 24.8 30.1
Restructuring and merger related charges................. -- -- 13.7 4.3
Other non-recurring charges.............................. -- -- -- 12.2
----- ------ ----- -----
Total operating expenses................................. 83.3 87.8 96.2 117.8
----- ------ ----- -----
Operating loss........................................... (0.0) (5.4) (11.9) (35.9)
Interest income, net and other........................... 2.3 1.6 2.0 1.4
----- ------ ----- -----
Income (loss) before gain on sale of long-term
investment and income taxes............................. 2.3 (3.8) (9.9) (34.5)
Gain on long-term investment............................. 32.2 --- 11.0 ---
----- ------ ----- -----
Income (loss) before income taxes........................ 34.5 (3.8) 1.1 (34.5)
Income tax provision (benefit)........................... 0.3 0.6 (2.3) 0.7
----- ------ ----- -----
Net income (loss)........................................ 34.2% (4.4)% 3.4% (35.2)%
===== ====== ===== =====
</TABLE>
NET REVENUES
The following table sets forth the unaudited consolidated net license and
other, and service revenues for the three and nine months ended September 30,
1998 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------------------------
1998 1997 CHANGE
----------------------------------------------
<S> <C> <C> <C>
Licenses and other $ 42,481 $ 43,267 (1.8)%
Service revenue 5,482 4,797 14.3%
------- ------- ----
Total revenue $ 47,963 $ 48,064 (0.2)%
======= ======= ====
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------------------
1998 1997 CHANGE
----------------------------------------------
<S> <C> <C> <C>
Licenses and other $ 124,696 $ 125,444 (0.6)%
Service revenue 16,276 14,222 14.4%
-------- -------- ----
Total revenue $ 140,972 $ 139,666 0.9%
======== ======== ====
</TABLE>
License revenue represents amounts earned for granting customers licenses
to use the Company's software products. License and other revenue decreased
1.8% for the quarter ended September 30, 1998 as compared to the corresponding
calendar quarter of 1997. Enterprise and client/server license revenue
increased 70.8% for the quarter ended September 30, 1998 as compared to the
corresponding calendar quarter of 1997. Enterprise and client/server license
revenue represented 70.3% of total licenses and other revenue for the quarter
ended September 30, 1998 as compared to 40.4% for the quarter ended September
30, 1997. This increase in enterprise and client/server license revenue was
offset by a decline in revenue from licenses of the desktop database product
line and certain other versions of desktop language products. The Company
experienced a
<PAGE>
decline in revenue from licenses of desktop products and expects that revenues
from such products will continue to decline in future periods. As a result, the
Company believes that license revenues relating to enterprise and client/server
products will continue to increase as a percentage of the Company's total
revenues.
Service revenue represents amounts earned for support, consulting and
education services for the Company's software products. Service revenue
increased 14.3% for the quarter ended September 30, 1998 as compared to the
quarter ended September 30, 1997. This increase is consistent with the Company's
emphasis on premium support and consulting services to enterprise and large
corporate customers.
The Company's international sales are generated primarily through its
international subsidiaries. International receivables are usually collectible
in the foreign currency. International revenues accounted for 53.5% of the
Company's total revenue (revenues from Europe, Japan and other regions were
35.5%, 9.4%, and 8.6% of total revenue, respectively) for the quarter ended
September 30, 1998 as compared to 49.7% (revenues from Europe, Japan and other
regions were 24.4%, 14.4%, and 10.9% of total revenue, respectively) for the
quarter ended September 30, 1997. The increase in international revenues was
principally attributable to higher revenues in Europe, partially offset by a
decrease in revenues in Asia, principally Japan, which was primarily due to the
weakness in that region's economy. The Company is unable to predict when and to
what extent the economies in Asia will recover. There can be no assurances that
should there be an upturn in the region's economy that the Company will return
to previous revenue levels and/or profitability. Management expects that the
Company's international operations will continue to provide a significant
portion of the Company's total revenues.
Although the Company's operating and pricing strategies take into account
changes in exchange rates over time, the Company's operating results may be
significantly affected in the short term by fluctuations in foreign currency
exchange rates. Also, international revenues and profits will be adversely
affected if economic weakness continues in Asia, or if other international
economies experience similar economic weakness. Additionally, international
operations subject the Company to a number of risks inherent in developing and
selling products outside the United States including potential loss of developed
technology, limited protection of intelligent property rights, imposition of
government regulations, imposition of export duties and restrictions, cultural
differences in the conduct of business, and political and economic instability.
COST OF REVENUES
Cost of license revenues consists primarily of production, royalties paid
to third-party vendors and product packaging. Cost of license and other
revenues was $3.9 million and $6.1 million for the quarters ended September
30, 1998 and 1997, respectively. Cost of license revenues may vary as a
percentage of license revenues due to changes in the Company's royalty
obligations to third-party technology providers, the percentage of revenues
attributable to larger licenses for the Company's enterprise products and the
number of new products and product releases in a given period. The reduction
in the overall cost of license and other revenues is principally attributable
to a higher number of transactions in which license revenues did not require
the shipment of tangible property and an improvement in the management of
inventory and its associated costs.
Cost of service revenues consist primarily of employee and third-party
contractor costs and associated expenses incurred in providing customer support,
training, education and consulting services. Cost of service revenues was $4.2
million and $2.4 million for the quarters ended September 30, 1998 and 1997,
respectively. The increase in the cost of service expense was primarily due to
an increase in the number of personnel employed by the Company to provide these
services. The cost of services as a percentage of service revenues may vary
between periods due to the mix of services provided by the Company and the
extent to which employee or contractor resources are used to provide those
services.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses consist primarily of salaries,
commissions and bonuses and other personnel-related expenses, facilities
expenses, travel and entertainment, promotional lead generation expenses,
advertising and marketing costs. Selling, general and administrative expenses
were $28.5 million and $29.8 million for
<PAGE>
the three months ended September 30, 1998 and 1997, respectively, and were 59.3%
and 61.9% of net revenues for such periods, respectively. Selling, general and
administrative expenses declined by 4.4% as compared to the corresponding
calendar quarter of 1997. In addition to cost savings associated with the prior
year restructuring efforts, the Company took steps to eliminate redundant
marketing programs and duplicative functions within its sales organization.
While the Company has experienced a decline in the sales and marketing expense
from the prior year due to these restructuring efforts, the Company intends to
expand certain global sales and marketing programs consistent with the market
strategy of the Company. Accordingly, the Company expects it selling and
marketing expenses to increase in the future.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of salaries and other
personnel-related expenses, facilities costs and third-party consultants.
Research and development expenses were $11.5 million and $12.4 million for the
three months ended September 30, 1998 and 1997, respectively, and were 24.0% and
25.9% of net revenues for such periods, respectively. Research and development
expenses declined 7.5% as compared to the corresponding calendar quarter of
1997. The decrease in research and development expenses is principally due to a
reduction in headcount associated with the prior year restructuring efforts.
While the research and development expense have decreased from prior years due
to the restructuring efforts, the Company believes that a significant level of
research and development investment is required to remain competitive and
expects such expenses will increase in future periods.
RESTRUCTURINGS
The following table summarizes the Company's restructuring activity for the
nine months ended September 30, 1998:
<TABLE>
<CAPTION>
SEVERANCE OTHER
AND ASSET
BENEFITS FACILITIES CHARGES OTHER TOTAL
----------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Accrual as of December 31, 1997........ $ 143 $ 572 $ -- $ 635 $ 1,350
Nine Months Ended September 30, 1998:
1998 restructuring.................. 9,863 336 2,900 2,482 15,581
Cash charges........................ (3,575) (12) -- (2,699) (6,286)
Non -- cash charges................. -- -- (2,616) -- (2,616)
$ --------- ----------- ----------- ---------- ----------
Accrual as of September 30, 1998....... $ 6,431 $ 896 $ 284 $ 418 $ 8,029
========= =========== =========== ========== ==========
</TABLE>
Subsequent to December 31, 1997, there have been no changes to the Company's
estimate of the total costs of prior restructurings.
INTEREST INCOME, NET AND OTHER
Interest income, net and other was $1.1 million and $0.8 million for the
three months ended September 30, 1998 and 1997, respectively, and represented
2.3% and 1.6% of net revenues for such periods, respectively.
INCOME TAXES
Income tax expense for the quarter ended September 30, 1998 was approximately
$0.15 million. Such tax expense results principally from non-U.S. withholding
taxes, which are assessed without regard to the profitability of the applicable
operation.
GAIN ON SALE OF LONG-TERM INVESTMENTS
In September 1998, Motorola, Inc. ("Motorola") acquired Starfish. The
acquisition involved a combination of cash and Motorola common stock.
<PAGE>
The Company recorded a gain of approximately $15.4 million during the quarter
ended September 30, 1998 related to the sale of Starfish.
LITIGATION
The Company and certain of its former officers and directors were named
defendants in two lawsuits, Kaplan, et al vs. Kahn, et al, and, Crook, et al vs.
----------------------------- -----------------
Kahn, et al, originally filed in the United States District Court for the
- -----------
Northern District of California in 1993 and 1995, respectively. The lawsuits
allege certain securities law violations by the Company and certain of its
former officers and directors relating to periods between 1991 and 1994. In
1996, the parties entered into a stipulation to settle both lawsuits, the
stipulation was submitted for court approval and monies were deposited in escrow
to fund the settlement. At the time, the Company recorded a charge in the amount
of its contribution to the settlement to be paid by the Company. On March 18,
1998, the Court preliminarily approved a revised settlement plan, which did not
involve any further contribution by the Company. The court has directed counsel
for the class representatives to provide notice of the revised settlement plan
to the members of the shareholder classes. A form of notice has been submitted
to the court and is awaiting approval, at which point the notice will be mailed
to the settlement class members for the purpose of soliciting their views on the
settlement. It is unknown what response, if any, will be elicited from the class
members. In the interim, the previously-established discovery cut-off and
pretrial conferences dates remain vacated. The Company continues to believe that
the settlement ultimately will be approved, but is unable to predict the outcome
of this matter at this time. If these lawsuits are not settled and the cases are
litigated, an adverse decision in either case could have a material adverse
effect on the Company's financial condition and results of operations.
Three securities class action lawsuits have been filed against the Company's
OEC subsidiary, certain former officers and directors of OEC, and OEC's outside
auditors which lawsuits allege certain securities laws violations prior to the
Company's acquisition of OEC. These three lawsuits have been consolidated in the
United States District Court for the District of Massachusetts under the name
Zeid, et al. v. Open Environment Corp., et al. The Company and other defendants
- ---------------------------------------------
filed a motion to dismiss the consolidated complaint on December 16, 1997. The
motion was granted in part and denied in part. The case will now proceed to the
discovery phase. No trial date has been set. The Company's OEC subsidiary
intends to defend this lawsuit vigorously. If this lawsuit is not settled and
the case is litigated, an adverse decision could have a material adverse effect
on the Company's financial condition and results of operations.
Western Imaging, Inc. ("Western Imaging") filed a complaint in the U.S.
---------------------
District Court for the Northern District of California in April 1997 against
Visigenic (prior to the acquisition of Visigenic by the Company) and Corel
Corporation ("Corel"), a licensee of Visigenic, alleging breach of contract and
other claims relating to the sale by Visigenic of certain technology to Western
Imaging. Western Imaging is seeking injunctive relief, unspecified damages,
impoundment of the disputed software during the pendency of the litigation, and
punitive damages. Prior to its acquisition by the Company, Visigenic had not
sold or marketed the disputed software products since January 1995 and the
Company does not utilize this technology in any current product offering.
Visigenic agreed to defend Corel pursuant to the terms of its license to Corel.
In August 1997, Visigenic and Corel filed an answer to the complaint denying
Western Imaging's allegations. Pursuant to the Court's February 20, 1998 order,
the parities completed a non-binding mediation on July 17, 1998. No settlement
was reached. The parties have agreed to participate in a second mediation
following discovery and a motion for summary judgement, or, in the alternative,
summary adjudication which Visigenic and Corel intend to file. A further case
management conference took place on August 14, 1998 at which time discovery and
motion cutoffs were set, and the trial was scheduled for April 5, 1999. The
Company will file a motion for summary judgment in the immediate future, which
will be heard in December. The Company believes it has meritorious defenses to
such claims and intends to defend the litigation vigorously. Because the
results of the litigation, including any potential settlement, are uncertain,
there can be no assurance that they will not have a material adverse effect on
the Company's business, operating results and financial condition.
The Company is involved in various legal actions arising in the normal course
of business. The Company believes that the probability is remote that the
financial consequence of judgments, if any, arising from any of such actions
would have a materially adverse impact on its financial condition or results of
operations. However, due to the inherent uncertainties of litigation, the
outcome of any of these actions could be unfavorable and the Company may choose
to make payments, or enter into other arrangements, to settle such actions or
may be required to pay damages or other expenses. Such an outcome in certain of
these matters could have a material adverse effect on the Company's financial
condition or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
<PAGE>
Cash, cash equivalents and short-term investments were $96.4 million at
September 30, 1998, a decrease of $6.2 million from a balance of $102.6 million
at December 31, 1997. Included in short-term investments as of September 30,
1998 was approximately $15.4 million in consideration to be received from the
sale of Starfish. Working capital increased from $64.6 million as of December
31, 1997 to $71.4 million as of September 30, 1998, primarily due to the
consideration to be received from the sale of Starfish.
Cash and cash equivalents decreased by approximately $22.6 million during the
nine months ended September 30, 1998. Significant uses of cash included $12.8
million in acquisition of property and equipment, an increase in accounts
receivable of $11.3 million as a result of the increase in collection cycle due
to a higher percentage of enterprise sales and the repurchase of $8.2 million of
the Company's Common Stock. Significant sources of cash included $11.0 million
in proceeds received from the issuance of Series B preferred stock, an increase
in accounts payable, accrued expenses and short-term restructuring of $8.0
million, and the issuance of common stock in connection with exercise of
employee stock options of $3.9 million.
The Company believes that its existing cash balances and funds expected to be
provided by operations will be sufficient to finance its working capital and
capital expenditure requirements at least through the next twelve months.
Thereafter, the Company may require additional funds to support its working
capital requirements or for other purposes and may seek to raise such additional
funds through public or private equity financing or from other sources. There
can be no assurance that additional financing will be available at all or that
if available, such financing will be obtainable on terms favorable to the
Company.
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
HISTORY OF OPERATING LOSSES. Although the Company had a profit for the nine
month period ended December 31, 1997 and the three and nine months ended
September 30, 1998, the Company has had operating losses on an annual basis for
five of the past six fiscal years, including a loss of approximately $128.0
million for the year ended March 31, 1997. The Company's revenues have declined
in each year since fiscal 1993 as a result of declines in the sales of the
Company's desktop products. In recent years, such declines were in part offset
by sales of the Company's enterprise, Internet/intranet and client/server
products. The Company's ability to achieve revenue growth and profitability are
substantially dependent upon the success of the Company's enterprise,
Internet/Intranet and client/server product strategies, and upon its ability to
successfully complete and introduce new products, to successfully implement
restructuring and cost control measures from time to time and to successfully
integrate products and operations of acquired companies. There can be no
assurance that the Company will be able to successfully accomplish the foregoing
or to maintain or improve profitability in future periods.
SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS AND SEASONALITY. The
strength and profitability of the Company's business depends on the overall
demand for computer software and growth in the computer industry. Additionally,
the Company's business depends in part on general economic and business
conditions. The Company's quarterly operating results have varied significantly
in the past and the Company expects that such results are likely to vary
significantly from time to time in the future. Such variations result from,
among other matters, the following: the size and timing of significant orders
and their fulfillment; demand for the Company's products; timing of revenue
recognition related to source code license fees; the number, timing and
significance of product enhancements and new product announcements by the
Company and its competitors; changes in pricing policies by the Company or its
competitors; the timing and extent of sales and marketing organizations within
OEM customers and resellers becoming familiar with and endorsing the Company's
products for resale; changes in operating expenses; changes in the Company's
sales incentive plans; budgeting cycles of its customers; customer order
deferrals in anticipation of enhancements or new products offered by the Company
or its competitors; product life cycles; product defects and other product
quality problems; personnel changes; seasonal trends and general domestic and
international economic and political conditions.
Operating results can also be adversely impacted by deferral of customer
orders in light of customer uncertainty regarding the Company's short- and long-
term prospects. As an increasing percentage of the Company's revenues are from
enterprise, Internet/Intranet and client/server products, the Company expects
that an increasing percentage of its revenues will be from large orders. The
timing of such orders and their fulfillment may cause material fluctuations in
the Company's operating results, particularly on a quarterly basis. These large
orders often will include significant revenues which must be deferred and
recognized over future periods. In addition, the Company intends to continue to
expand its domestic and international direct sales force. The timing of such
expansion and the rate at which new sales people become productive could also
cause material fluctuations in the Company's quarterly operating results.
Enterprise sales typically contain multiple elements, including license for
development and deployment products, technical support, maintenance,
consulting and training services. Often enterprise sales will include a
license and deployment fee paid upon signing of the contracts and may include
current and future payments for technical support and consulting services.
Most of these elements, including the technical support, maintenance,
consulting and training, are not delivered upon signing of the contract, and
therefore, revenue associated to these elements must be deferred until
delivery or the services rendered. By contrast, the Company's desktop sales
historically have included only a license for the current version of the
product with an option to purchase technical support and maintenance. With the
growth of the Company's enterprise sales, a significant portion of the fee may
relate to undelivered elements, requiring a portion of the fee to be deferred.
As the Company expects that an increasing percentage of its business will be
from the sale of enterprise products and services, the Company expects a
larger percentage of revenue maybe deferred. The amount of revenue associated
to these undelivered elements and the timing of recognition of the revenue may
have a material affect on the Company's business, operating results and
financial position.
Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast. Revenues are also difficult to forecast because the
market for client/server and enterprise application development software is
rapidly evolving, and the Company's sales cycle for client/server and enterprise
products, from initial evaluation to purchase and the provision of support
services, is lengthy and varies substantially from customer to customer. Because
the Company normally ships products within a short time after it receives an
order, it typically does not have any material backlog. As a result, to achieve
its quarterly revenue objectives, the Company is dependent upon obtaining orders
in any given quarter for shipments in that quarter. Furthermore, because many
customers place orders toward the end of a quarter, the Company generally
recognizes a substantial portion of its revenues at the end of a quarter. As the
Company's expense levels are based in significant part on the Company's
expectations as to future revenues and are therefore relatively fixed in the
short term, if revenue levels fall below expectations, net income is likely to
be disproportionately adversely affected. There can be no assurance that the
Company will be able to maintain profitability on a quarterly or annual basis in
the future. Due to the foregoing factors, it is likely that in some future
quarter the Company's operating results will be below the expectations of public
market analysts and investors. In such event, the price of the Company's Common
Stock would likely be materially adversely affected.
<PAGE>
TRANSITION TO DIRECT SALES STRATEGY. In order for the Company's enterprise
software products to achieve market acceptance, the Company will need to
continue to adjust to longer sales cycles and successfully transition from the
channel sales model for its traditional desktop products to a direct sales model
for its enterprise software products. Sales of these enterprise products are
expected to be made predominately to large companies, institutions, and
government entities. These types of customers generally commit significant
resources to an evaluation of enterprise software and require the vendor to
expend substantial time, effort, and money educating them about the value of the
vendor's solution. As a result, sales to these types of customers generally
require an extensive sales effort throughout the customer's organization, and
often require final approval by an executive officer or senior level employee.
The Company has experienced and will likely continue to experience delays
following initial contact with a prospective customer and expend substantial
funds and management effort in connection with these sales. As the Company has
relatively little experience with these types of sales, there can be no
assurance that the Company can successfully transition to the direct sales
model. In order to complete these types of sales, the Company will be required
to restructure its direct sales force, extensively train and effectively manage
its sales personnel, invest greater resources in the sales effort, and educate
the authorized resellers. The Company may not be able to accomplish any of the
foregoing on a timely and cost-effective basis. Failure to do so could have a
material adverse effect on the Company's business, operating results, or
financial condition. Additionally, the Company will need to add trained
technical personnel to help it implement solutions for its enterprise software
customers relating to enterprise software products. Personnel with the
sufficient level of expertise and experience for these positions are in great
demand, and the Company may not be able to hire and retain a sufficient number
of qualified personnel for these purposes. Failure to do so could have a
material adverse effect on the Company's business, operating results, or
financial condition.
In 1998, the Company made changes to its sales compensation programs.
Although such changes are intended to enhance overall revenues, such changes
could have a material adverse impact on revenues and sales related expenses.
RETAIL DISTRIBUTION CHANNEL. A significant portion of the Company's sales
are made through the retail distribution channel, which is subject to
fluctuations in customer demand. The Company's retail distribution customers
also carry the products of Inprise's competitors. These retail distributors
may have limited capital to invest in inventory, and their decisions to
purchase the Company's products is partly a function of pricing, terms and
special promotions offered by Inprise, as well as by its competitors over
which the Company has no control and which it cannot predict.
The Company's pattern of net revenues and earnings may be affected by
"channel fill." Distributors may fill their distribution channels in
anticipation of price increases, sales promotions or incentives. Distributors
inventories may be decreased between the date Inprise announces a new version or
new product and the date of release, because distributors, dealers and end users
often delay purchases, cancel orders or return products in anticipation of
availability of new version or new product. The impact of channel fill is
somewhat mitigated by the Company's deferral of revenue associated with
distributors and resellers inventories estimated to be in excess of appropriate
levels; however, net revenues may still be materially affected favorably or
adversely by the effects of channel fill, particularly in periods where a large
number of new products are simultaneously introduced.
Product returns can occur when the Company introduces upgrades and new
versions of products or when distributors or retailers have excess inventories.
Inprise's return policy allows its distributors, subject to certain limitations,
to return purchased products in exchange for new products or for credit towards
future purchases. End users may return products through dealers and
distributors within a reasonable period from the date of purchase for a full
refund, and retailers may return older versions of the Company's products. The
Company estimates and maintains reserves for product returns. However, future
returns could exceed the reserves established by the Company, which could have a
material adverse affect on the operating results of the Company.
INTEGRATION OF VISIGENIC. The combination of the two companies requires,
among other things, continual integration of the companies' respective product
offerings and technology and coordination of their research and development,
sales and marketing, and financial reporting efforts. There can be no assurance
that such integration will continue smoothly or successfully. If significant
difficulties are encountered in the integration of the existing
<PAGE>
product lines and technology, resources could be diverted from new product
development, resulting in delays in new product introductions. The integration
of the product lines could also cause confusion or dissatisfaction among
existing customers. The integration of certain operations will require the
dedication of management and other personnel resources, which may distract
attention from the day-to-day business of the Company. While certain key members
of management have resigned subsequent to the merger, the Company believes their
departure will not materially affect the consolidation of the two companies.
Failure to successfully accomplish the integration of the two companies'
operations and personnel (including the retention of key personnel) could have a
material adverse effect on the Company's business, financial condition or
results of operations.
RESTRUCTURING. In connection with the Company's acquisitions and in
response to the significant losses from operations, the Company implemented a
restructuring and realignment of its operations in March 1998. This
restructuring resulted in significant reductions in workforce and other
ongoing costs. Given the extent of the restructurings which the Company has
undertaken, there can be no assurance that the remaining resources are
sufficient for the Company to return to consistent revenue growth or
profitability, nor can there be any assurance that the Company will realize
the cost savings which the restructuring was designed to produce.
DEPENDANCE ON KEY PERSONNEL AND CHANGES IN MANAGEMENT. The success of the
Company depends in large part upon the ability of the Company to recruit and
retain qualified employees, particularly highly skilled engineers. The
competition for such personnel is intense, and there can be no assurance that
the Company will be successful in retaining or recruiting such personnel. In
prior years, certain management and other key personnel were hired away by
competitors who offered very substantial signing bonuses and compensation
packages that would have been very difficult for the Company to match. There can
be no assurance that the Company will not be subject to further losses of
management and other key personnel. In addition, the Company has had and may
continue to be required to substantially increase the compensation, bonuses,
stock options or other fringe benefits offered to employees in order to attract
and retain management and other key personnel. Further, new government
regulations, poor stock performance, or other factors could diminish the value
of the stock option program and force the Company to pay more cash compensation.
The loss of management and other key personnel, and the delays which may be
experienced in recruiting new management and other personnel as well as the
additional costs which may be incurred in retaining or attracting new personnel,
may have a material adverse affect on the Company, its product launches and its
operating results.
NEW BUSINESS AREA. The Company's strategy is to focus on enterprise
customers, software developers, and the Internet/intranet markets.
Accordingly, revenues derived from the Company's products, particularly its
distributed object products, will depend in large part upon the rate of
adoption by businesses and end-users of distributed object technology for
information processing and the Internet and intranets for commerce and
communications. Critical issues concerning the Internet and intranets,
including security, reliability, cost, ease of use and access and quality of
service, remain unresolved at this time, inhibiting adoption by many
enterprises and end-users. To the extent the Internet and intranets are not
widely used by businesses and end-users, there would be a corresponding
material adverse effect on the Company's business, operating results and
financial condition. The Company's relatively recent entry into these markets
is subject to a number of risks, including among others, its inexperience in
these markets; the new and evolving nature of the markets themselves; the
Company's need to make choices regarding the operating systems, database
management systems and server software on which to focus; the ongoing
transition of and investment of resources for this segment by the Company; the
Company's limited experience in this area; and, the presence of several very
large and well-established businesses, as well as a number of smaller very
successful companies, already competing in this market. There can be no
assurance that sales in these markets will meet the Company's objectives, in
which case the Company's business, operating results or financial condition
could be materially adversely affected.
The Company's distributed object products acquired from Visigenic are based
on several standards, including Common Object Request Broker Architecture
("CORBA") and Internet Inter-ORB Protocol ("IIOP"). These standards are intended
to facilitate the management and communication of applications created in object
oriented programming languages such as C + + and Java. These new standards are
just beginning to gain widespread acceptance, and compete with proprietary
solutions such as Microsoft's ActiveX and DCOM. The distributed object software
market is relatively young, and there are few proven products. Further, some of
the distributed object products acquired from Visigenic are designed
specifically for use in applications for the Internet and intranets. Because
critical issues concerning the
<PAGE>
Internet and intranets, including security, reliability, cost, ease of use and
access and quality of service remain unresolved, the growth of applications
targeted at the Internet/intranets is uncertain and difficult to predict. If
CORBA or IIOP are not adopted or are adopted more slowly than anticipated or if
product offerings from competitors are chosen in lieu of the Company's products,
there could be a material adverse effect on the Company's business, operating
results or financial condition.
DEPENDANCE ON JAVA; RISKS ASSOCIATED WITH ENCRYPTION TECHNOLOGY. Certain of
the Company's products are based on Java, an object-oriented programming
language developed by JavaSoft, a subsidiary of Sun Microsystems. Java was
developed primarily for Internet/intranet applications. Java does not yet have
sufficient history to establish its reliability, thereby inhibiting adoption of
Java. To date, there have been only a very limited number of commercially
significant Java-based products, and it is too early to determine whether Java
will become a significant technology. Alternatives to Java have been announced
by several companies, including Microsoft. If Java is not adopted or is adopted
more slowly than anticipated, there could be a material adverse effect on the
Company's business, operating results or financial condition.
The Company plans to use encryption technology in certain of its future
products to provide the security required for the exchange of confidential
information. Encryption technologies have been breached in the past. There can
be no assurance that there will not be a compromise or breach of the security
technology used by the Company. If any such compromise or breach were to occur,
it could have a material adverse effect on the Company's business, results of
operations or financial condition. Additionally, the export of encryption
technology is subject to government regulation. The inability to obtain approval
for the export of such technology could have a material adverse effect on the
Company's business, operating results or financial condition.
DEPENDENCE ON THIRD-PARTY LICENSES. The Company is dependent on licenses
from third-party suppliers for certain elements of its products. In particular,
the Company is dependent upon certain licenses from Microsoft which is both a
licensor to the Company and its most significant competitor. If any such third-
party licenses were terminated or not renewed or if these third parties fail to
develop new products in a timely manner, the Company would be unable to
redistribute certain components of its products and would be required to develop
an alternative approach to developing its products. Furthermore, such products
may not be successful in providing the same level of functionality. Such delays,
increased costs or reduced functionality could materially adversely affect the
Company's business, operating results and financial condition.
DECLINE IN REVENUE FROM DESKTOP PRODUCTS. A significant portion of the
Company's revenues to date have been attributable to its desktop products.
Revenues derived from the sale of these products, particularly the Company's
desktop database products, have declined over the last five fiscal years. The
decline in revenues has been caused by a number of factors, including, among
others, the success of product "suites" offered by competitors which have had an
adverse impact on the sale of individual products; the sale by the Company of
its Quattro Pro and Paradox product lines; and the continued competitive pricing
pressures that have resulted in lower average sales prices for desktop products.
While the Company expects the decline in revenues associated with the
Company's desktop products to continue, revenues from the sales of the Company's
desktop products currently continue to represent an important portion of the
Company's revenues. Although the Company plans to invest in the development,
sales, marketing and support of such products on a limited basis, there can be
no assurance that revenues from desktop products will not decline faster than
expected. If revenues from such products decline materially or at a more rapid
rate than currently anticipated, the Company's business, operating results and
financial condition would be materially adversely affected.
ENFORCEMENT OF THE COMPANY'S INTELLECTUAL PROPERTY RIGHTS. The Company
relies on a combination of patent, copyright, trademark, and trade secret laws,
non-disclosure agreements and other intellectual property protection methods to
protect its proprietary technology. Despite these efforts to protect its
proprietary rights, unauthorized parties may copy aspects of its products or
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of its products is difficult, and while it is difficult to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem. In addition, the laws of many
foreign countries do not protect the proprietary rights as fully as do the laws
of the United States. There
<PAGE>
can be no assurance that the Company's means of protecting its proprietary
rights in the United States or abroad will be adequate or that competitors will
not independently develop similar technology.
Other than the Western Imaging matter discussed in Part I, Item 2
---------------
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Litigation," of this Form 10-Q, there are no pending material
lawsuits against the Company regarding infringement of any existing patents or
other intellectual property rights or any material notices that the Company is
infringing the intellectual property rights of others. However, there can be no
assurance that such infringement claims will not be asserted by third parties in
the future. If any such claims are asserted and determined to be valid, there
can be no assurance that the Company will be able to obtain licenses of the
intellectual property rights in question on reasonable terms. The Company's
involvement in any patent dispute or other intellectual property dispute or
action to protect proprietary rights may have a material adverse effect on the
Company's business, operating results and financial condition. Adverse
determinations in any litigation may subject the Company to significant
liabilities to third parties, require the Company to seek licenses from third
parties and prevent the Company from manufacturing and selling its products. Any
of these situations can have a material adverse effect on the Company's
business, operating results and financial condition.
NEW PRODUCT INTRODUCTIONS. The Company's future sales will depend
substantially on its ability to continue to successfully design and market new
products and upgrades of current products for existing and new computer
platforms and operating environments. There can be no assurances that sales of
such new products and versions will meet the Company's expectations, due to
various factors. For example, the Company may introduce certain of such products
later to market than expected or later to market than competitors'
introductions, or competitors may introduce competitive products at lower
prices. In addition, product upgrades (which enable users to upgrade from
earlier versions of the Company's products or competitor's products) have lower
prices and margins than new products. The acceptance of the Company's new
products is dependent, in part, on the continued adoption of the Internet as a
new computing paradigm and the adoption of the Java programming language.
From time to time, the Company has made and expects to make, announcements to
its customers with respect to the timeframes within which new products are
expected to be shipped. Such announcements are made for the purpose of providing
customers with a general idea of the expected availability of products for
planning purposes, are based only upon estimates and are not a prediction of the
exact availability date for such products. In the past, certain of the Company's
products shipped later, and in some cases substantially later, than the
timeframe within which the Company originally anticipated that the products
would be available. Some of the products acquired from Visigenic are based on
technology licensed from third parties, and the Company has limited control over
whether and when these technologies are enhanced. The failure or delay in
enhancements of technology licensed from third parties could have a material
adverse effect on the Company's ability to develop and enhance its products. Due
to the inherent uncertainties of software development, it is likely that such
situations will occur from time to time in the future. Moreover, the loss of key
employees may increase the risk of delays in product availability from
timeframes originally anticipated. Consequently, announcements regarding the
Company's expectations of when products may ship should not be considered a
prediction by the Company that the products will ship in any particular quarter
or otherwise be relied upon by investors as a basis for predicting the Company's
results for any future period. Delays in the shipment of such products and
product enhancements could have a material adverse impact on the Company.
Without the introduction of such new products and product enhancements, the
Company's products may become technologically obsolete, and as a result the
Company's business, operating results and financial condition could be
materially adversely affected. There can be no assurance that the future
development and marketing efforts by the Company will be successful.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND SALES. For the three
months ended September 30, 1998, non-U.S. revenue represented approximately
53.5% of the Company's total revenue. There are certain risks inherent in doing
business on an international level, such as unexpected changes in regulatory
requirements, export restrictions, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, longer payment cycles,
problems in collecting accounts receivable, political instability, fluctuations
in currency exchange rates, seasonal reductions in business activity during the
summer months in Europe and certain other parts of the world and potentially
adverse tax consequences, any of which could adversely impact the success of the
Company's international operations. In addition, similar to other software
companies, the Company has experienced adverse effects including but not limited
to longer payment terms, declining sales and currency
<PAGE>
fluctuations, as a result of the Asian financial crisis. There can be no
assurance that one or more of such factors will not have a material adverse
effect on the Company's future international operations and, consequently, on
the Company's business, operating results and financial condition. In addition,
the Company's subsidiaries in Europe and Japan operate in local currencies, and
their results are translated monthly into US dollars. If the value of the US
dollar increases relative to foreign currencies, the Company's business,
operating results and financial condition could be materially adversely
affected.
YEAR 2000. The Company is in the process of addressing the broad range of
issues associated with the programming code in existing computer systems as
the year 2000 approaches. The "Year 2000" issue is pervasive and complex, as
many computer systems were not designed to handle any dates beyond the year
1999. Therefore computer hardware and software may need to be modified prior
to the Year 2000 in order to remain functional. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Year 2000 issue creates potential risk for the Company from
unforeseen problems in its own computer systems, and from third parties with
whom the Company deals on financial and other transactions worldwide and in
its own software products licensed to customers. Failures of the Company
and/or third parties' computer systems could have a material impact on the
Company's business, operating results and financial condition.
The Year 2000 issue may affect the Company's products. The Company is
reviewing its currently developed and actively marketed product offerings and
based upon its review to date, generally believes they are Year 2000 capable.
Despite such analysis and review the Company's products may contain undetected
errors or defects associated with Year 2000 date functions, which could result
in delay or loss of revenue, diversion of development resources, damage to the
Company's reputation, or increased service or warranty costs, any of which
could materially adversely affect the business, operating results and
financial condition. Versions of the Company products that are not the most
currently released or that are not currently being developed may not be Year
2000 capable. The Company sells some of its older product lines, which are not
being actively developed and updated, and such products are also not
necessarily Year 2000 capable. Furthermore, use of the Company's products in
connection with other products which are not Year 2000 capable, including
hardware, software and firmware, may result in the inaccurate exchange of date
data resulting in performance issues and system failures. To the extent the
Company's products or third party products that include the Company's
products, prove not to be Year 2000 capable or in the event of disputes with
customers regarding whether the Company's products are capable, the Company's
business, results of operations and financial condition could be materially
adversely affected. Moreover, the Company's customers could choose to convert
to other Year 2000 capable products or to develop their own products in order
to avoid such malfunctions, and such actions by customers could have a
material adverse effect on the Company's business, financial condition or
results of operations.
The existence of Year 2000 issues may give rise to legal claims against the
Company, notwithstanding standard provisions in the Company's license
agreements with its customers disclaiming all express and implied warranties
against such defects or limiting the Company's obligations therefor. Such
legal claims could have a materially adverse impact on the Company's business
and results of operations.
The Company is now reviewing its internal systems to determine what may be
required to resolve Year 2000 issues. These systems include software products
provided by third-party vendors, the Company's own software and hardware
supplied by third party vendors. The Company is implementing new internal
systems and as part of the implementation is testing the new systems for Year
2000 compliance. The Company currently plans to have its review completed
and tested by mid-1999. Although the Company is not aware of any material
operational issues or costs associated with its internal systems in connection
with the Year 2000, the Company may experience material unanticipated problems
and costs caused by undetected errors or defects in the technology used in its
internal systems.
The Company has initiated formal communications with suppliers and vendors
of products and services to determine whether their operations and the
products and services they provide are Year 2000 compliant or to monitor their
remediation efforts toward Year 2000 compliance. The Company currently plans
to have its analysis and remediation completed by mid-1999.
Many companies are currently expending significant resources in order to
address the Year 2000 issue. Expenditures to address the Year 2000 issue often
involve the modification of legacy and other existing software systems rather
than the development of new systems. Because of the size of such expenditures,
companies may defer or cancel other new software development projects for which
such companies might otherwise have purchased products from the Company. Any
reductions in the Company's revenues resulting from such the Year 2000 issue
could have a material adverse effect on the Company's business, results of
operations and financial condition.
In addition, the Company could be materially adversely affected by costs or
complications relating to code changes, testing and implementation for its own
systems or similar issues faced by its distributors, suppliers, customers,
vendors and the financial service organizations with which the Company does
business. Certain countries where the Company either operators or sells its
products may impose requirements in connection with the Year 2000 which are in
addition to or different from those in the United States. At this time, the
Company has not yet determined the cost related to achieving Year 2000
compliance and currently expects to be able to estimate such cost by early
1999.
The Company intends to commence work on various types of contingency
planning to address potential problems with internal systems and with
suppliers and other third parties. It is expected that assessment, remediation
and contingency planning activities will be on-going through 1998 and 1999
with the goal of resolving all material internal systems and third party
issues.
<PAGE>
EUROPEAN MONETARY UNION (EMU). The Company is in the process of addressing the
issues raised by the introduction of the Single European Currency (Euro) for
initial implementation as of January 1, 1999 and during the transition period
through to January 1, 2002. The Company is currently replacing its main
information systems. The new information system contains EMU functionality that
allows for dual currency reporting and information management. The
implementation is scheduled to be completed within the subsidiaries located in
EMU participating countries by January 1, 1999. Although the Company is
currently taking steps to address the impact, if any, of EMU compliance for such
third party products, failure of any critical technology components to operate
properly post EMU could have a material affect on the Company's business,
results of operation and financial condition.
Furthermore, the Company's foreign exchange exposures to legacy sovereign
currencies of the participating countries in the EMU will become foreign
exchange exposures to the Euro upon its introduction. Currently, the Company
has no derivative foreign exchange contracts denominated in legacy sovereign
currencies with maturity of January 1, 1999 or later. To the extent hedging
transactions are entered for exposures after January 1, 1999, they will be
denominated in Euros or legacy sovereign currency, as applicable. Although the
Company is not aware of any material adverse financial risks due to the change
from legacy sovereign currencies to the Euro, conversion may result in
problems which may have an adverse impact on the Company's business because
the Company may be required to incur unanticipated expenses to remedy these
problems.
EVOLVING MARKETS. In light of the changing markets in which the Company
compete, it is uncertain whether the Company's historical product life cycle
will continue. The Company has, in the past, experienced declining sales of
certain of its products in anticipation of the release of new products.
Furthermore, it cannot be determined whether the increasing price competition in
the industry, the timing of competitors' product releases or other factors will
have an adverse effect upon the product upgrade revenue that has historically
been a significant component of the Company's revenue. Finally, a greater
portion of the Company's revenues are expected to be derived from the licensing
of products to enterprise customers, which transactions are characterized by
longer sales cycles and increased transaction values. As a result, such revenues
may be subject to increased variability over time.
The Company's distributed object products acquired from Visigenic are based
on several standards, including Common Object Request Broker Architecture
("CORBA") and Internet Inter-ORB Protocol ("IIOP"). These standards are intended
to facilitate the management and communication of applications created in object
oriented programming languages such as C + + and Java. These new standards are
just beginning to gain widespread acceptance, and compete with proprietary
solutions such as Microsoft's ActiveX and DCOM. The distributed object software
market is relatively young, and there are few proven products. Further, some of
the distributed object products acquired from Visigenic are designed
specifically for use in applications for the Internet and intranets. Because
critical issues concerning the Internet and intranets, including security,
reliability, cost, ease of use and access and quality of service remain
unresolved, the growth of applications targeted at the Internet/intranets is
uncertain and difficult to predict. If CORBA or IIOP are not adopted or are
adopted more slowly than anticipated or if product offerings from competitors
are chosen in lieu of the Company's products, there could be a material adverse
effect on the Company's business, operating results or financial condition.
The Company's VisiChannel for Java Database Connectivity ("JDBC") database
access product acquired from Visigenic is based on the JDBC standard, which was
developed to enable applications to access data from JDBC compliant data
sources. While the JDBC standard is supported by most of the major database and
software vendors, it is a recent standard that has not yet gained widespread
acceptance and it currently co-exists with proprietary database access solutions
from many of these same database and software vendors.
Because the markets for the Company's products are new and evolving, it is
difficult to assess or predict with any assurance the size or growth rate, if
any, of these markets. There can be no assurance that the markets for the
Company's products will develop, or that the Company's products will be adopted.
If these markets fail to develop,
<PAGE>
develop more slowly than expected or attract new competitors, or if the
Company's products do not achieve market acceptance, the Company's business,
operating results and financial condition could be materially adversely
affected. Because the Company's strategy is to develop standards-based products
and these standards are relatively new, not widely accepted and compete with
other emerging standards, to the extent that these standards are not
commercially successful, this will have a material adverse affect on the
Company's business, operating results and financial condition. Competing or
alternative technologies are being or are likely in the future to be promoted by
current and potential competitors of the Company, some of which have well-
established relationships with current and potential customers of the Company
and have extensive knowledge of the markets served by the Company, better name
recognition and more extensive development, sales and marketing resources than
the Company.
RELIANCE ON VARS AND ISVS. A significant element of the strategy employed by
Visigenic prior to its acquisition by the Company was to embed the technology in
products offered by value-added reseller ("VAR") and independent software vendor
("ISV") customers, such as Cisco, Compuware, Healtheon, Hewlett-Packard,
Microsoft, Hitachi, Netscape, Novell, Oracle, Platinum Technology and Sybase.
Historically, a relatively small number of VAR and ISV customers accounted for a
significant percentage of Visigenic's revenues. In fiscal 1996, ten VAR and ISV
customers accounted for approximately 65% of Visigenic's revenues and in fiscal
1997, ten VAR and ISV customers accounted for approximately 48% of the
Visigenic's revenues. The Company is seeking similar distribution arrangements
with other VARs and ISVs to embed Visigenic technology in their products. To
date, the terms and conditions, including prices and discounts, of agreements
with VAR and ISV customers relating to the product line acquired from Visigenic
have been highly negotiated and vary significantly among customers.
Substantially all such agreements are non-exclusive and do not require the VAR
or ISV to make minimum purchases. The Company has no control over the shipping
dates or volumes of systems shipped by its VAR and ISV customers, and there can
be no assuance that the VARs and ISVs will ship products incorporating the
Company's products in the future. Furthermore, the Company's license agreements
with its VARs and ISVs customers generally do not require the VARs and ISVs to
recommend or offer the Company's products exclusively.
Many of the markets for the VAR and ISV products in which technology acquired
from Visigenic is being embedded are new and evolving and, therefore, will be
subject to the same risks faced by the Company in the markets for its other
products. Furthermore, certain of the companies with which Visigenic maintained
or would have otherwise sought to establish VAR or ISV relationships are
competitors of the Company, and accordingly, the acquisition of Visigenic could
adversely affect the Company's ability to maintain or secure such relationships.
If the Company is unsuccessful in maintaining its current relationships and
securing license agreements with additional VARs and ISVs on commercially
reasonable terms or at all, or if the Company's VAR and ISV customers are
unsuccessful in selling their products, the Company's business, financial
condition and results of operations could be materially adversely affected.
EXTREME VOLATILITY OF STOCK PRICE. Like the stock of other high technology
companies, the market price of the Company's Common Stock has experienced
significant fluctuations and may continue to be extremely volatile. During the
past three fiscal years, the closing market price of the Company's Common Stock
has ranged from a high of $21.25 to a low of $4.75. The market price of the
Common Stock may be significantly affected by factors such as the announcement
of new products or product enhancements by the Company or its the competitors,
technological innovation by the Company or its competitors, quarterly variations
in the Company's or competitors' results of operations, changes in prices of the
Company's or its competitors' products and services, changes in revenue and
revenue growth rates for the Company as a whole or for specific geographic
areas, business units, products or product categories, changes in earnings
estimates by market analysts, speculation in the press or analyst community, and
general market conditions or market conditions specific to particular
industries. Such fluctuations may have a significant impact on the market price
of the Company's Common Stock.
EXTREMELY COMPETITIVE INDUSTRY. The software industry is extremely
competitive. Rapid change, uncertainty due to new and emerging technologies and
fierce competition characterize the industry. The pace of change has recently
accelerated due to the Internet/intranet and new programming languages, such as
Java. The Company competes with a number of other companies, including
Microsoft, Computer Associates, Oracle, Sybase and Symantec. Certain of its
competitors have substantially greater financial, management, marketing and
technical resources than the Company. In the past, competitors have utilized
their greater resources to provide substantial signing bonuses and other
<PAGE>
inducements to lure away the Company's management and other key personnel. In
addition, Microsoft is the developer of the Windows operating environments. To
the extent that the Company is unable to obtain information regarding existing
and future operating systems from the developer of such systems, the release of
the Company's products for such systems may be delayed. The product line
acquired from Visigenic is targeted at the emerging markets for standards-based
distributed object software products. The markets for these products are
intensely competitive, subject to rapid change and significantly affected by new
product introductions and other market activities of industry participants. The
Company's principal competitive factors in these markets are product quality,
performance and price, vendor and product reputation, product architecture and
quality of support. In the standards-based distributed object market, the
products acquired from Visigenic compete principally against offerings by Iona
Technologies, Expersoft and BEA. These products also compete against existing or
proposed distributed object solutions from hardware vendors such as Hewlett-
Packard, ICL, IBM and Sun. In addition, because there are relatively low
barriers to entry in the software market and because the products are based on
publicly available standards, the Company expects to experience additional
competition in the future from other established and emerging companies if the
market for distributed object software continues to develop and expand. In
particular, operating system vendors such as ICL, Hewlett-Packard, IBM,
Microsoft and Sun may offer standards-based distributed object products bundled
with their operating systems. For instance, Microsoft has introduced DCOM for
Microsoft operating systems, which could reduce or eliminate the need for CORBA-
compliant ORBs, such as those offered by the products acquired from Visigenic.
Many of the foregoing competitors and potential competitors have well-
established relationships with current and potential customers of the Company,
have extensive knowledge of the markets serviced by the Company's customers,
more extensive development, sales and marketing resources and are capable of
offering single vendor solutions. Increased competition could result in price
reductions, fewer customer orders, reduced gross margins and loss of market
share, any one of which could materially adversely affect the Company's
business, operating results and financial condition. In addition, current and
potential competitors may make strategic acquisitions or establish cooperative
relationships, thereby increasing the ability of their products to address the
needs of the Company's current and prospective customers. Accordingly, it is
possible that new competitors may emerge, or alliances among current and new
competitors may be formed, that may rapidly gain significant market share.
Certain competitors have been known to license software for free to gain
competitive advantage. Such competition could materially adversely affect the
Company's ability to sell additional licenses and maintenance and support
renewals on terms favorable to the Company. Further, competitive pressures could
require the Company to reduce the price of its products and related services,
which could materially adversely affect the Company's business, operating
results and financial condition. Commercial acceptance of the Company's products
and services could be adversely affected by critical or negative statements or
reports by brokerage firms, industry and financial analysts, and industry
periodicals concerning the Company and its products, business, or competitors,
or the advertising or marketing efforts of competitors that could affect
customer perception. There can be no assurance that the Company will be able to
compete successfully against current and future competition, and the failure to
do so would have a material adverse effect upon the Company's business,
operating results and financial condition.
The advent of the Internet/intranet as a computing, communication and
collaboration platform as well as a low cost and efficient distribution vehicle,
on-line services, and electronic commerce increases competition and creates
uncertainty as to future technology directions. The Company faces intense
competition in the development and marketing of Internet/intranet and Java
development software from a wide variety of companies. There can be no
assurances that the Company will be able to compete effectively for business
opportunities as they arise on the Internet/intranet, on-line services,
electronic commerce and other emerging areas.
ANTI-TAKEOVER PROVISIONS. The Company's Stockholders' Rights Plan and
certain provisions of the Company's Certificate of Incorporation may discourage
or prevent certain types of transactions involving an actual or potential change
in control of the Company, including transactions in which the stockholders
might otherwise receive a premium for their shares over then current market
prices, and may limit the ability of stockholders to approve transactions that
they may deem to be in their best interests. In addition, the Company's Board of
Directors has the authority to fix the rights and preferences of and issue
shares of Preferred Stock without action by the stockholders, which may have the
effect of delaying or preventing a change in control of the Company.
SOFTWARE DEFECTS AND LIABILITY CLAIMS. Software products frequently contain
errors or defects,
<PAGE>
especially when first introduced or when new versions or enhancements are
released. Although the Company has not experienced any material adverse effects
resulting from any such defects or errors to date, there can be no assurance
that, despite testing by the Company and by current and potential customers,
defects and errors will not be found in current versions, new versions or
enhancements after commencement of commercial shipments, which could result in
delay or loss of revenue, delay in market acceptance, diversion of development
resources, damage to the Company's reputation, increased service and warranty
costs, and of which could have a material adverse effect upon the Company's
business, operating results and financial condition.
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in the Company's license agreements may not be effective as
a result of existing or future federal, state or local laws or ordinances or
unfavorable judicial decisions. A successful product liability claim brought
against the Company could have a material adverse effect upon the Company's
business, operating results and financial condition.
SUPERIOR RIGHTS AND PREFERENCES OF SERIES B PREFERRED STOCK. The Company has
authorized the issuance of up to 1,470 shares of its Series B Preferred Stock,
of which 770 shares are outstanding as of October 31, 1998. The Series B
Preferred Stock has certain rights and preferences which are superior to those
of Common Stock. In particular, each share of Series B Preferred Stock is
entitled to vote the number of shares of Common Stock into which such share of
Series B Preferred Stock is convertible, on matters on which all stockholders of
the Company are entitled to vote as compared to one vote per share of Common
Stock. In addition, upon any liquidation, dissolution or winding up of the
Company, each share of Series B Preferred Stock is entitled to be paid the
original purchase price per share, or $50,000, from the assets of the Company
prior to any payments to the holders of Common Stock. The Company's Board of
Directors, without stockholder approval, is authorized to issue up 1,000,000
shares of the Company's Preferred Stock (including the 1,470 authorized shares
of Series B Preferred Stock) with voting, conversion or other rights that could
adversely affect the voting power and other rights of the holders of Common
Stock or the market price of the Common Stock.
POTENTIAL DILUTIVE EFFECT OF CONVERSION AND ADDITIONAL ISSUANCE OF SERVICE B
PREFERRED STOCK. The number of shares of Common Stock which may be issued upon
conversion of the Series B Preferred Stock is dependent upon the trading price
of Common Stock at the time of conversion. To the extent that the trading price
of Common Stock is lower than $6.94 per share (or $6.88 per share for the Series
B shares purchased on July 27, 1998) at the time of any conversion of the
currently outstanding shares of Series B Preferred Stock, the number of shares
of Common Stock issuable upon such conversion will increase. Until December 31,
1998, the Company has the option, subject to certain conditions, to require
existing holders of Series B Preferred Stock to purchase in the aggregate up to
500 additional shares of Series B Preferred Stock. In the event the Company
exercises this option and additional shares of Series B Preferred Stock are
issued, existing holders of Common Stock could be subject to dilution.
Upon at least twenty trading days' written notice, the Company may elect to
redeem, on the date which is the second, third, or fourth anniversary of
effectiveness of the registration statement, all of the Series B Shares which
remain outstanding on the date which is the second anniversary of effectiveness
of the Registration Statement, at 110% of par. Subject to certain conditions,
the Company also has a right to call for redemption for all or a portion of the
Series B Shares if the Conversion Rate is less than $6.00 per share.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS. As a part of the Company's
business strategy, the Company will review acquisition prospects that would
complement the Company's existing product offerings, augment the Company's
market coverage or enhance its technological capabilities, or that may otherwise
offer growth opportunities. The Company may make acquisitions of businesses,
products or technologies in the future. Future acquisitions by the Company could
result in potentially dilutive issuances of equity securities, the incurrence of
debt and contingent liabilities and amortization expenses related to goodwill
and other intangible assets, any of which could materially adversely affect the
Company's operating results and/or the market price of the Common Stock.
Acquisitions entail numerous risks, including difficulties in the assimilation
of acquired operations, technologies and products, diversion of management's
attention to other business concerns, risks of entering markets in which the
<PAGE>
Company has no or limited prior experience and potential loss of key employees
of acquired organizations. No assurance can be given as to the ability of the
Company to successfully integrate any businesses, products, technologies or
personnel that might be acquired in the future, and the failure of the Company
to do so could materially adversely effect the Company's business, financial
condition and operating results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No disclosure is required by the Registrant.
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information with respect to this item is incorporated by reference to Part I,
Item 2 "Management's Discussion and Analysis of Financial Condition and Results
of Operation's Litigation," of this Form 10-Q.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Information with respect to this item is incorporated by reference to Part
I, Item 1, Note 4 to the Condensed Consolidated Financial Statements of the
Registrant filed as part of this Form 10-Q.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no submission of matters for vote of the stockholders of Inprise,
Corporation during the quarter ended September 30, 1998.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule containing summary financial information of
Inprise Corporation for the three months ended September 30, 1998
27.2 Restated Financial Data Schedules containing summary financial information
of Inprise Corporation for the nine months ended December 31, 1997 (*).
27.3 Restated Financial Data Schedules containing summary financial information
of Inprise Corporation for the six months ended September 30, 1997 (*).
27.4 Restated Financial Data Schedules containing summary financial information
of Inprise Corporation for the three months ended June 30, 1997 (*).
27.5 Restated Financial Data Schedules containing summary financial information
of Inprise Corporation for the year ended March 31, 1997 (*).
27.6 Restated Financial Data Schedules containing summary financial information
of Inprise Corporation for the nine months ended December 31, 1996 (*).
27.7 Restated Financial Data Schedules containing summary financial information
of Inprise Corporation for the six months ended September 30, 1996 (*).
27.8 Restated Financial Data Schedules containing summary financial information
of Inprise Corporation for the three months ended June 30, 1996 (*).
27.9 Restated Financial Data Schedules containing summary financial information
of Inprise Corporation for the year ended March 31, 1996 (*).
(*) Reported amounts have been restated to include the operations of Visigenic
Software, Inc. for the period then ended.
(b) REPORTS ON FORM 8-K
The Company did not file a report on Form 8-K during the quarter ended
September 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed by the undersigned thereunto
duly authorized.
INPRISE CORPORATION
-------------------
(REGISTRANT)
Date: November 13, 1998 /s/ Kathleen M. Fisher
-----------------------------
KATHLEEN M. FISHER
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF INPRISE CORPORATION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS. THE AMOUNTS SHOWN ARE IN THOUSANDS,
EXCEPT EARNINGS PER SHARE AMOUNTS.
</LEGEND>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 78,067
<SECURITIES> 18,338
<RECEIVABLES> 54,614
<ALLOWANCES> 8,050
<INVENTORY> 1,410
<CURRENT-ASSETS> 153,187
<PP&E> 212,377
<DEPRECIATION> 112,856
<TOTAL-ASSETS> 268,998
<CURRENT-LIABILITIES> 81,811
<BONDS> 0
38,374
0
<COMMON> 498
<OTHER-SE> 124,578
<TOTAL-LIABILITY-AND-EQUITY> 268,998
<SALES> 124,696
<TOTAL-REVENUES> 140,972
<CGS> 11,071
<TOTAL-COSTS> 22,155
<OTHER-EXPENSES> 135,594
<LOSS-PROVISION> (832)
<INTEREST-EXPENSE> 759
<INCOME-PRETAX> 1,535
<INCOME-TAX> (3,312)
<INCOME-CONTINUING> 4,847
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,847
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.08
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-K OF INPRISE CORPORATION
THE NINE MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS. THE AMOUNTS HAVE BEEN RESTATED TO
INCLUDE THE OPERATIONS OF VISIGENIC SOFTWARE, INC. FOR THE PERIOD THEN ENDED.
THE AMOUNTS SHOWN ARE IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS.
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<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
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<SECURITIES> 1,843
<RECEIVABLES> 46,660
<ALLOWANCES> 11,996
<INVENTORY> 787
<CURRENT-ASSETS> 144,463
<PP&E> 186,612
<DEPRECIATION> 106,193
<TOTAL-ASSETS> 255,824
<CURRENT-LIABILITIES> 79,883
<BONDS> 0
27,358
0
<COMMON> 508
<OTHER-SE> 126,050
<TOTAL-LIABILITY-AND-EQUITY> 255,824
<SALES> 132,075
<TOTAL-REVENUES> 145,936
<CGS> 18,145
<TOTAL-COSTS> 25,690
<OTHER-EXPENSES> 124,794
<LOSS-PROVISION> 261
<INTEREST-EXPENSE> 1,068
<INCOME-PRETAX> (2,812)
<INCOME-TAX> 1,082
<INCOME-CONTINUING> (3,894)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,894)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF INPRISE CORPORATION
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS. THE AMOUNTS HAVE BEEN RESTATED TO
INCLUDE THE OPERATIONS OF VISIGENIC SOFTWARE, INC. FOR THE PERIOD THEN ENDED.
THE AMOUNTS SHOWN ARE IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 99,650
<SECURITIES> 1,793
<RECEIVABLES> 40,865
<ALLOWANCES> 13,826
<INVENTORY> 971
<CURRENT-ASSETS> 137,113
<PP&E> 215,913
<DEPRECIATION> 109,462
<TOTAL-ASSETS> 251,127
<CURRENT-LIABILITIES> 82,581
<BONDS> 0
0
0
<COMMON> 502
<OTHER-SE> 121,638
<TOTAL-LIABILITY-AND-EQUITY> 251,127
<SALES> 87,221
<TOTAL-REVENUES> 96,244
<CGS> 12,664
<TOTAL-COSTS> 17,656
<OTHER-EXPENSES> 83,795
<LOSS-PROVISION> 261
<INTEREST-EXPENSE> 778
<INCOME-PRETAX> (4,012)
<INCOME-TAX> 612
<INCOME-CONTINUING> (4,624)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,624)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF INPRISE CORPORATION
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS. THE AMOUNTS HAVE BEEN RESTATED TO
INCLUDE THE OPERATIONS OF VISIGENIC SOFTWARE, INC. FOR THE PERIOD THEN ENDED.
THE AMOUNTS SHOWN ARE IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 92,660
<SECURITIES> 1,754
<RECEIVABLES> 42,747
<ALLOWANCES> 15,698
<INVENTORY> 1,018
<CURRENT-ASSETS> 130,767
<PP&E> 216,568
<DEPRECIATION> 108,082
<TOTAL-ASSETS> 247,318
<CURRENT-LIABILITIES> 83,151
<BONDS> 0
0
0
<COMMON> 491
<OTHER-SE> 117,105
<TOTAL-LIABILITY-AND-EQUITY> 247,318
<SALES> 43,953
<TOTAL-REVENUES> 48,180
<CGS> 6,564
<TOTAL-COSTS> 9,183
<OTHER-EXPENSES> 41,586
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 325
<INCOME-PRETAX> (2,184)
<INCOME-TAX> 342
<INCOME-CONTINUING> (2,526)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,526)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-K OF INPRISE CORPORATION
FOR THE YEAR ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS. THE AMOUNTS HAVE BEEN RESTATED TO INCLUDE THE
OPERATIONS OF VISIGENIC SOFTWARE, INC. FOR THE PERIOD THEN ENDED. THE AMOUNTS
SHOWN ARE IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
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<TOTAL-ASSETS> 225,745
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0
0
<COMMON> 488
<OTHER-SE> 116,386
<TOTAL-LIABILITY-AND-EQUITY> 225,745
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<TOTAL-REVENUES> 170,977
<CGS> 24,170
<TOTAL-COSTS> 35,904
<OTHER-EXPENSES> 268,147
<LOSS-PROVISION> 860
<INTEREST-EXPENSE> 257
<INCOME-PRETAX> (127,586)
<INCOME-TAX> 642
<INCOME-CONTINUING> (128,228)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (128,228)
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<EPS-DILUTED> (2.87)
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF INPRISE CORPORATION
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS. THE AMOUNTS HAVE BEEN RESTATED TO
INCLUDE THE OPERATIONS OF VISIGENIC SOFTWARE, INC. FOR THE PERIOD THEN ENDED.
THE AMOUNTS SHOWN ARE IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
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0
0
<COMMON> 462
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<INCOME-PRETAX> (83,418)
<INCOME-TAX> 274
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<CHANGES> 0
<NET-INCOME> (83,692)
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF INPRISE CORPORATION
FOR THE SIX ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS. THE AMOUNTS HAVE BEEN RESTATED TO
INCLUDE THE OPERATIONS OF VISIGENIC SOFTWARE, INC. FOR THE PERIOD THEN ENDED.
THE AMOUNTS SHOWN ARE IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS.
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<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
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0
0
<COMMON> 420
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<TOTAL-LIABILITY-AND-EQUITY> 267,062
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<INCOME-TAX> (51)
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF INPRISE CORPORATION
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS. THE AMOUNTS HAVE BEEN RESTATED TO
INCLUDE THE OPERATIONS OF VISIGENIC SOFTWARE, INC. FOR THE PERIOD THEN ENDED.
THE AMOUNTS SHOWN ARE IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
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0
0
<COMMON> 412
<OTHER-SE> 180,540
<TOTAL-LIABILITY-AND-EQUITY> 269,590
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<TOTAL-REVENUES> 41,549
<CGS> 7,524
<TOTAL-COSTS> 10,782
<OTHER-EXPENSES> 68,691
<LOSS-PROVISION> 555
<INTEREST-EXPENSE> 546
<INCOME-PRETAX> (36,030)
<INCOME-TAX> (553)
<INCOME-CONTINUING> (35,477)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,477)
<EPS-PRIMARY> (0.82)
<EPS-DILUTED> (0.82)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-K OF INPRISE CORPORATION
FOR THE YEAR ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS. THE AMOUNTS HAVE BEEN RESTATED TO INCLUDE THE
OPERATIONS OF VISIGENIC SOFTWARE, INC. FOR THE PERIOD THEN ENDED. THE AMOUNTS
SHOWN ARE IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 84,127
<SECURITIES> 26,142
<RECEIVABLES> 65,417
<ALLOWANCES> 22,790
<INVENTORY> 1,599
<CURRENT-ASSETS> 167,563
<PP&E> 214,950
<DEPRECIATION> 95,667
<TOTAL-ASSETS> 297,343
<CURRENT-LIABILITIES> 80,223
<BONDS> 0
0
0
<COMMON> 420
<OTHER-SE> 202,117
<TOTAL-LIABILITY-AND-EQUITY> 297,343
<SALES> 233,939
<TOTAL-REVENUES> 251,821
<CGS> 32,914
<TOTAL-COSTS> 44,394
<OTHER-EXPENSES> 198,106
<LOSS-PROVISION> 533
<INTEREST-EXPENSE> 279
<INCOME-PRETAX> 13,627
<INCOME-TAX> 3,316
<INCOME-CONTINUING> 10,311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,311
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.22
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