<PAGE> 1
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 QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO
---------- ----------
COMMISSION FILE NUMBER 0-19682
CAYENNE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2784044
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8 New England Executive Park, Burlington, Massachusetts 01803
(Address of principal executive offices) (Zip Code)
(617) 273-9003
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Shares outstanding
Title of Class at November 8, 1996
-------------- -------------------
Common Stock, $.01 par value 17,687,406
<PAGE> 2
CAYENNE SOFTWARE, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
Part I. Financial Information
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
as of September 30, 1996 and June 30, 1996........................................ 3
Consolidated Statements of Operations
For the Three Months Ended September 30, 1996 and 1995............................ 4
Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 1996 and 1995............................ 5
Notes to Consolidated Financial Statements.......................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................... 8
Part II. Other Information
Item 1. Legal Proceedings.................................................................. 15
Item 4. Submission of Matters to a Vote of Security Holders................................ 15
Item 6. Exhibits and Reports on Form 8-K................................................... 16
Signatures.................................................................................. 19
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CAYENNE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................................... $ 8,756 $ 14,690
Trade accounts receivable, less allowance for sales returns and doubtful accounts of
$868 and $938 at September 30, and June 30, 1996, respectively .................. 11,276 12,445
Prepaid expenses and other current assets .......................................... 1,560 2,743
--------- ---------
Total current assets ......................................................... 21,592 29,878
Property and equipment, less accumulated depreciation and amortization ................ 2,575 2,723
Capitalized software costs, less accumulated amortization of
$227 and $186 at September 30, and June 30, 1996, respectively ..................... 573 614
Other assets .......................................................................... 654 884
--------- ---------
Total assets .......................................................................... $ 25,394 $ 34,099
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term debt .................................................................... $ 2,821 $ 3,852
Accounts payable ................................................................... 2,416 3,093
Accrued expenses ................................................................... 1,785 2,077
Accrued compensation and benefits .................................................. 2,829 3,317
Accrued restructuring costs ........................................................ 3,047 779
Income and other taxes payable ..................................................... 1,262 1,967
Obligations under capital lease .................................................... 599 580
Deferred revenue ................................................................... 11,716 13,714
--------- ---------
Total current liabilities .................................................... 26,475 29,379
Convertible long term debt ............................................................ -- 1,789
Obligations under capital lease ....................................................... 151 307
Stockholders' equity:
Common stock, $.01 par value; 52,400 shares authorized; 17,631 and 17,225 shares
issued and outstanding at September 30, and June 30, 1996, respectively .......... 176 172
Additional paid-in capital ......................................................... 102,757 100,301
Accumulated deficit ................................................................ (104,198) (97,338)
Accumulated translation adjustments ................................................ 33 (511)
--------- ---------
Stockholders' equity ............................................................. (1,232) 2,624
--------- ---------
Total liabilities and stockholders' equity ............................................ $ 25,394 $ 34,099
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 4
CAYENNE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1995
---- ----
<S> <C> <C>
Revenues:
Software license............................................................. $ 4,180 $ 6,612
Consulting and education services............................................ 2,164 2,698
Maintenance.................................................................. 6,854 7,127
----- -----
Total revenues......................................................... 13,198 16,437
Costs and expenses:
Cost of revenues
Cost of software licenses................................................. 812 1,253
Cost of consulting and education services and maintenance................. 2,467 3,537
Sales and marketing.......................................................... 5,812 8,580
Research and development..................................................... 2,778 4,270
General and administrative................................................... 1,775 2,017
Restructuring and other costs................................................ 6,300 --
----- -------
Total costs and expenses................................................ 19,944 19,657
Loss from operations............................................................ (6,746) (3,220)
Interest expense, net........................................................... 65 92
-------- -------
Loss before provision for income taxes.......................................... (6,811) (3,312)
Provision for income taxes...................................................... 49 159
-------- -------
Net loss.................................................................. $ (6,860) $(3,471)
======== =======
Net loss per common share....................................................... $(0.39) $(0.24)
====== ======
Weighted average number of common shares outstanding........................... 17,509 14,393
====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 5
CAYENNE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................................ $ (6,860) $ (3,471)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization ................................... 646 823
Changes in operating assets and liabilities
Trade accounts receivable .................................... 1,845 2,139
Prepaid expenses and other current assets .................... 566 (257)
Accrued expenses ............................................. (216) (598)
Accrued restructuring costs .................................. 2,269 (364)
Accounts payable ............................................. (681) 263
Accrued compensation and benefits ............................ (499) (1,018)
Income and other taxes payable ............................... (713) (313)
Deferred revenue ............................................. (1,952) (1,835)
-------- --------
Net cash used in operating activities ................................ (5,595) (4,631)
Cash flows from investing activities:
Purchases of property and equipment ............................. (454) (232)
-------- --------
Net cash used in investing activities ................................ (454) (232)
Cash flows from financing activities:
Proceeds from issuance of common stock, net ..................... 32 5,776
Proceeds from exercise of warrants .............................. 472 --
Proceeds from exercise of stock options ......................... 167 68
Proceeds from issuance of long-term debt ........................ -- 600
Proceeds from line of credit facility ........................... 1,321 --
Proceeds from factoring agreement ............................... 80 --
Proceeds from repayment of employee loans ....................... 200 --
Payments under factoring agreement .............................. (2,431) --
Payments under capital lease obligations ........................ (136) (6)
-------- --------
Net cash provided by (used in) financing activities .................. (295) 6,438
Effect of foreign exchange rates on cash and cash equivalents ........ 410 80
-------- --------
Net increase (decrease) in cash and cash equivalents ................. (5,934) 1,655
Cash and cash equivalents at beginning of period ..................... 14,690 13,272
-------- --------
Cash and cash equivalents at end of period ........................... $ 8,756 $ 14,927
======== ========
Supplemental disclosure of cash flow information:
Non-cash investing and financing activity:
Conversion of long term debt to common stock .................... $ 1,789 --
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries, and have been prepared by the
Company without audit in accordance with the Company's accounting policies, as
described in its latest annual report filed with the Securities and Exchange
Commission on Form 10-K. In the opinion of management, the accompanying
consolidated financial statements contain all adjustments, consisting only of
those of a normal recurring nature, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows at the dates
and for the periods indicated. While the Company believes that the disclosures
presented are adequate to make the information not misleading, these financial
statements should be read in conjunction with the financial statements and
related notes included in the Company's 1996 Annual Report.
2. Loss Per Common Share
Loss per common share is computed based on the weighted average number
of common shares and dilutive common share equivalents outstanding during each
period except in loss periods. Dilutive common equivalent shares consist of
warrants and stock options (calculated using the Treasury Stock Method) for all
periods presented and also include convertible preferred stock for the quarter
ended September 30, 1995. For the quarters ended September 30, 1996 and 1995,
common equivalent shares are excluded from the primary earnings per share
calculation as they are antidilutive. Fully diluted and primary earnings per
share are the same amounts for the quarters ended September 30, 1996 and 1995,
respectively.
3. Business Combination
On July 18, 1996, the Company completed its acquisition of Cadre
Technologies Inc. ("Cadre") under an Agreement and Plan of Merger dated March
25, 1996, by and among the Company, Cadre and B.C. Acquisition Corp., whereby
the Company agreed to acquire all of the outstanding capital stock of Cadre in
exchange for 4,716,442 shares of Cayenne common stock (the "merger"). The merger
has been accounted for as a pooling-of-interests beginning in the first quarter
of fiscal 1997. Accordingly, all financial data contained herein include the
accounts of Cadre for all periods presented. Additionally, effective upon the
merger, the Company changed its name to Cayenne Software, Inc. The Company
acquired Cadre to expand its product offerings to include structured analysis
and design and object-oriented technology and to expand its customer base.
During the quarter ended September 30, 1996, the Company incurred a
$6.3 million charge to operations to reflect costs associated with combining the
operations of the two companies, transaction fees, and other costs. The Board
of Directors of the Company approved a restructuring plan to terminate certain
specified employees and close certain facilities. Such plan was communicated to
the employees prior to the end of the quarter and such employees were
specifically identified and terminated. Included in the charge is $1.6 million
of employee related termination expenses, $1.4 million of legal, accounting,
investment banking and other professional fees, $1.3 million of facility closure
and consolidation expenses, and $2.0 million of other expenses associated with
the consolidation of the two companies and the name change.
4. Line of Credit
On June 6, 1996, the Company amended and restated its revolving credit
agreement with a bank to borrow up to $4 million increasing to $5 million upon
achievement of profitability. The Company extended the term of such agreement
through October 5, 1996 and revised certain financial and operating covenants as
well as the borrowing base thereunder. The Company has concluded further
negotiations with its lender to increase the credit facility to $5 million, to
extend its term to October 4, 1997 and to amend certain of the financial and
operating covenants and other provisions thereunder. The loans are contingent
upon meeting certain financial
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and operating covenants at the time of any borrowing and over the life of the
loans. The loans are secured by all of the assets of the Company and any
borrowing amounts are tied to a percentage of qualified accounts receivable
outstanding at the time of any borrowing. The financial covenants include the
attainment of certain specified levels of consolidated net income at the end of
each quarter including profitability of $1 million for the quarter ending June
30, 1997, and liquidity (generally defined as cash and cash equivalents plus
eligible domestic accounts receivable and eligible international accounts
receivable less any indebtedness to the bank) at the end of each month. The
Company was in compliance with all covenants as amended at September 30, 1996.
At September 30, 1996, the borrowing base under the revolving credit agreement
was approximately $2.8 million.
5. Forward Looking Statements
This Quarterly Report on Form 10-Q may contain forward-looking
statements. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the
Company's actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those set
forth in "Managements Discussion and Analysis of Final Condition and Results of
Operations" under the caption "Factors That May Affect Future Results."
6. Subsequent Events
On October 23, 1996, the Company's Board of Directors met and voted to
change the Company's fiscal year end from June 30th to December 31st. The change
in year end has been reported on Form 8-K which was filed with the Securities
and Exchange Commission on November 6, 1996.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Cayenne Software, Inc. is one of the largest global suppliers of
analysis and design solutions for commercial and technical application and
database development. Cayenne offers development teams a scalable,
workgroup-to-enterprise product family for object-oriented, data driven and
structured application development approaches.
During the quarter ended September 30, 1996, operating results were
significantly adversely affected by several factors. On July 18, 1996, the
Company completed its merger with Cadre Technologies, Inc. ("Cadre") which
resulted in a $6.3 million charge to operations to reflect costs associated with
the combining of operations of the two companies, transaction fees, and other
costs. Additionally, the Company continued to invest heavily in its
object-oriented and client/server based products. The Company's operating
results continue to be affected by the market trends of the Company's customers
moving from mainframe development towards client/server solutions and to
object-oriented solutions. Also, the increased revenue growth of the Company's
client/server and object-oriented products has not been rapid enough to offset
the impact of the foregoing market trends.
As the Company continues its migration toward providing customers a
more open and flexible set of solutions, it faces many challenges. The Company
has addressed some of these challenges during the past two fiscal years by
introducing additional products through internal development and acquisitions
targeted at the client/server and object-oriented markets. The Company plans to
continue to enhance its product offerings through development efforts, strategic
alliances and acquisitions to improve its competitive position. The actions
necessary to execute this transition have had an adverse effect on the Company's
operating results during the first quarter of fiscal 1997, and may continue to
adversely affect operating results.
As part of its sales and marketing efforts, the Company entered into a
strategic alliance with Project Technology, Inc., a provider of Shlaer
Mellor-based object technology for software development. This alliance provides
current Cayenne ObjectTeam for Shlaer Mellor customers an upgrade path to
Project Technology's BridgePoint tool set. Additionally, Cayenne announced the
availability of a Java code generator for ObjectTeam, the Company's
object-oriented modeling solution used in team-based application development
projects.
REVENUES
The Company's revenues are currently derived from three sources: (i)
fees for the perpetual license of the company's proprietary software products,
(ii) fees from sales of consulting and education services, and (iii) maintenance
fees for maintaining, supporting and providing periodic upgrades of the
Company's software products.
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The following table sets forth the amount of revenue derived by the
Company, by geographic segment and source, for each period indicated ($000s):
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1996 1995
------- -------
<S> <C> <C>
SOFTWARE LICENSE
United States ....................... $ 2,857 $ 3,584
Italy ............................... 432 715
United Kingdom ...................... 122 58
Rest of World ....................... 769 2,255
------- -------
4,180 6,612
CONSULTING AND EDUCATION SERVICES
United States ....................... 400 1,042
Italy ............................... 1,479 1,297
United Kingdom ...................... 192 232
Rest of World ....................... 93 127
------- -------
2,164 2,698
MAINTENANCE
United States ....................... 3,699 4,248
Italy ............................... 632 421
United Kingdom ...................... 1,065 914
Rest of World ....................... 1,458 1,544
------- -------
6,854 7,127
TOTAL ........................... $13,198 $16,437
======= =======
</TABLE>
SOFTWARE LICENSES. Software license revenue for the three months ended
September 30, 1996 amounted to $4.2 million compared to $6.6 million for the
comparable period of fiscal 1996. The $2.4 million or 36.8% decrease in license
revenues during the quarter resulted primarily from efforts by the Company's
customers to reduce expenses by migrating from mainframe toward client/server
solutions and decreased demand for structured analysis tools. Revenue from the
Company's newer client/server and object-oriented tools have yet to offset these
declines. Additionally, the contraction of federal programs led to industry
consolidation in the technical embedded market and reduced revenues from the
Company's Teamwork and related products. As a result, the Company's worldwide
revenue decreased from the comparable quarter of the prior fiscal year.
Client/server and object-oriented products accounted for 35.5% of new
license revenue for the three months ended September 30, 1996 compared to 22%
for the comparable period of the prior fiscal year. The Company expects this
trend to continue during fiscal 1997 as client/server and object-oriented
solutions continue to gain acceptance and installed customers elect to
follow market trends and migrate from mainframe towards client/server solutions
and to object-oriented solutions. License revenues in the United States and
Italy declined 20.3% and 39.6%, respectively, due to the aforementioned
migration trends. License revenue in the United Kingdom was not significant in
either period.
CONSULTING AND EDUCATION SERVICES. Consulting and education services
revenue for the three months ended September 30, 1996 amounted to $2.2 million
compared to $2.7 million for the comparable period of the prior fiscal year.
Consulting and education revenue in Italy increased by $0.2 million or 14%,
while
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
United States revenues declined by $0.6 million or 61.6%. Revenue in the United
Kingdom remained relatively flat compared to the comparable quarter of the the
prior fiscal year. The $0.5 million or 19.8% decrease in consulting and
education service revenues is attributable to reduced software license sales,
lower customer demand and reduced staffing in this area.
MAINTENANCE. Maintenance revenue for annual maintenance contracts is
deferred and recognized ratably over the term of the agreement. Maintenance
revenue for the three months ended September 30, 1996 amounted to $6.9 million
compared to $7.1 million for the comparable period of the prior fiscal year.
Maintenance revenue in Italy and the United Kingdom each increased by $0.2
million or 50.1% and 16.5% respectively. Increased maintenance revenue in Italy
and the United Kingdom resulted from increased penetration of international
markets in the prior year combined with an increased portion of the customer
base that renewed maintenance contracts. Maintenance revenue in the United
States declined $0.5 million or 12.9% due to industry consolidation in the
technical embedded market, the aforementioned migration to client/server and
object-oriented tools and fewer customers renewing their maintenance contracts
on mainframe and structured analysis tools.
COSTS AND EXPENSES
The following table sets forth the amount of expense by category for
the periods indicated ($000s):
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------
1996 1995
------- -------
<S> <C> <C>
Cost of revenues
Cost of software licenses $ 812 $ 1,253
Cost of consulting, education services
and maintenance 2,467 3,537
------- -------
Total cost of revenues 3,279 4,790
Sales and marketing 5,812 8,580
Research and development 2,778 4,270
General and administrative 1,775 2,017
Charge for restructuring costs 6,300 --
------- -------
Total costs and expenses $19,944 $19,657
======= =======
</TABLE>
COST OF REVENUES. The Company's cost of software licenses includes
product packaging, documentation, media and royalties to third parties, as well
as the amortization of capitalized software development costs. Costs of
consulting and education services and maintenance includes personnel, travel and
occupancy costs connected with providing such services.
Cost of software licenses were $0.8 million or 6.2% of revenue in the
first quarter of fiscal 1997 compared with $1.3 million or 7.6% of revenue in
the comparable period of fiscal 1996. The $.5 million decrease in 1997 expenses
reflects reduced sales of third party product for which the Company pays a
royalty to resell. Additionally, amortization related to the acquisition by the
Company of WindTunnel Software, Inc. in 1993 was $0 in the first quarter of 1997
as compared to $.1 million in the comparable period of the prior fiscal year.
This reduction is directly related to the
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Company's determination during the fourth quarter of 1996 that its WindTunnel
product was no longer consistent with the Company's objectives.
Cost of consulting, education services and maintenance were $2.5
million or 18.7% of revenue in the first quarter of fiscal 1997 compared with
$3.5 million or 21.5% of revenue in the comparable period of fiscal 1996. The
$1.0 million decrease in 1997 expenses is primarily attributable to reduced
staffing levels as a result of company efforts to better align staffing with
demand, attrition and the merger.
SALES AND MARKETING. Sales and marketing expenses were $5.8 million or
44% of revenue in the first quarter of fiscal 1997 compared with $8.6 million
or 52.2% of revenue in the comparable period of fiscal 1996. The $2.8 million
decrease in 1997 expenses primarily reflects reduced marketing expenses
including trade show attendance and advertising together with reduced staffing
in North America and international subsidiary operations as a result of
attrition and the merger.
RESEARCH AND DEVELOPMENT. Research and development expenses were $2.8
million or 21% of revenue in the first quarter of fiscal 1997 compared with $4.3
million or 26% of revenue in the comparable period of fiscal 1996. The $1.5
million decrease in 1997 expenses primarily reflects reduced staffing as a
result of attrition and the merger. Additionally, during the fourth quarter of
fiscal 1996, and in conjunction with the merger, the Company reviewed its
product strategy and determined that several products including WindTunnel were
no longer consistent with the Company's objectives. These efforts shifted
resources toward further development of the Company's client/server and
object-oriented products consistent with the Company's objectives.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$1.8 million or 13.4% of revenue in the first quarter of fiscal 1997 compared
with $2.0 million or 12.3% of revenue in the comparable period of fiscal 1996.
The $0.2 million decrease in 1997 expenses primarily reflects lower levels of
staffing which were the result of the merger and the elimination of redundant
positions.
RESTRUCTURING AND OTHER COSTS. On July 18, 1996, the Company acquired
Rhode Island-based Cadre in a merger transaction accounted for as a pooling of
interests. The Company acquired all of the outstanding capital stock of Cadre in
exchange for 4,716,442 shares of its common stock. In conjunction with the
merger, and to reflect costs associated with combining the operations of the two
companies, transaction fees, and other costs, the Company recorded a charge of
$6.3 million during the three months ended September 30, 1996. Included in the
charge is $1.6 million of employee related termination expenses for
approximately 45 employees, $1.3 million of legal, accounting, investment
banking and other professional fees, $1.4 million of facility closure and
consolidation expenses, and $2.0 million of other expenses associated with the
consolidation of the two companies and the company name change.
EFFECT OF INTERNATIONAL OPERATIONS ON INCOME (LOSS) FROM OPERATIONS
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1996 1995
------- -------
<S> <C> <C>
United States $(3,836) $ 160
Italy (75) 21
United Kingdom (742) (622)
Rest of World (2,093) (2,779)
------- -------
$(6,746) $(3,220)
======= =======
</TABLE>
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
In addition to factors listed above, the operations of the Company's
international subsidiaries significantly affected results of operations in the
three months ended September 30, 1996 and 1995.
The loss from operations -- United States and Rest of World --increased
126.4% for the three month period ended September 30, 1996 to $5.9 million
compared to the corresponding period of the prior fiscal year due to the
aforementioned restructuring charge of approximately $5.6 million in the United
States and $0.2 million in Rest of World. There was no similar charge in the
comparable period of fiscal 1996. These expenses were somewhat offset by the
previously mentioned reduced spending in the sales and marketing, research and
development and general and administrative areas.
The Company's Italian subsidiary reported a loss from operations of
$0.1 million for the three months ended September 30, 1996 compared to a small
profit in the corresponding period in the prior fiscal year principally due to
restructuring charges of approximately $0.1 million recorded during the period.
The loss from operations in the Company's United Kingdom subsidiary
increased 19.3% for the three months ended September 30, 1996 to $0.7 million
compared to the corresponding period in the prior fiscal year principally due to
restructuring charges of approximately $0.4 million recorded during the period.
This charge was somewhat offset by increased revenues and a reduction in base
operating expenses.
INTEREST EXPENSE, NET. Interest expense, net for the quarter ended
September 30, 1996 decreased slightly compared to the same period of the prior
fiscal year primarily due to lower interest rates on outstanding balances.
PROVISION FOR INCOME TAXES. Due to operating losses in the quarters
ended September 30, 1996 and 1995, the tax provision for those periods is
composed only of foreign withholding taxes.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company's principal source of liquidity
included cash and cash equivalents aggregating $8.8 million and a secured bank
line of credit in the amount of $5 million discussed below. Cash and cash
equivalents decreased by $5.9 million compared to June 30, 1996. For the quarter
ended September 30, 1996, cash flows were principally affected by the merger
with Cadre discussed below, a $2.4 million pay down of short term debt, a $0.7
million payment of foreign withholding and other taxes and a loss from
operations. These cash outflows were somewhat offset by proceeds of $0.5
million in connection with the exercise of warrants by certain stockholders and
$1.3 million of proceeds from the Company's credit facility. The Company's
principal long-term cash commitments are for office space and operating leases.
On September 30, 1996, the Company had no material commitments for
capital expenditures.
On June 6, 1996, the Company amended and restated its revolving credit
agreement with a bank to borrow up to $4 million increasing to $5 million upon
achievement of profitability. The Company extended the term of such agreement
through October 5, 1996 and revised certain of the financial and operating
covenants as well as the borrowing base thereunder. The Company has concluded
further negotiations with its lender to increase the credit facility to $5
million, to extend its term to October 4, 1997 and to amend certain of the
financial and operating covenants and other provisions thereunder. The loans are
contingent upon meeting certain financial and operating covenants at the time of
any borrowing and over the life of the loans. The loans are secured by all of
the assets of the Company and any borrowing amounts are tied to a percentage of
qualified accounts receivable outstanding at the time of any borrowing. The
financial covenants include the attainment of certain specified levels of
consolidated net income at the end of each quarter including profitability of $1
million for the quarter ending June 30, 1997
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
and liquidity (generally defined as cash and cash equivalents plus eligible
domestic accounts receivable and eligible international accounts receivable less
any indebtedness to the bank) at the end of each month. The Company was in
compliance with all covenants as amended at September 30, 1996. At September 30,
1996, the borrowing base under the revolving credit agreement was approximately
$2.8 million.
On July 18, 1996, the Company completed its acquisition of Cadre under
an agreement and plan of merger dated March 25, 1996, by and among the Company,
Cadre and B.C. Acquisition Corp., whereby the Company agreed to acquire all of
the outstanding capital stock of Cadre in exchange for 4,716,442 share of
Cayenne common stock (the "merger"). The merger has been accounted for as a
pooling of interests beginning in the first quarter of fiscal 1997.
Cash expenditures for restructuring activities were approximately $4
million during the quarter ended September 30, 1996, including approximately
$0.5 million related to a restructuring effected by Cadre prior to the merger.
The Company currently estimates that cash expenditures for restructuring actions
for the remainder of fiscal 1997 will be $2.0 to $2.5 million. The Company
believes that it has adequately provided for all restructuring actions taken to
date.
With its amended credit facility, the Company anticipates that existing
cash balances and funds generated from operations will provide sufficient cash
resources to finance its current operations and projected capital expenditures
through June 1997. Thereafter, the Company's cash requirements will depend upon
the results of future operations, including the impact of the Cadre
acquisition, which cannot be foreseen. There can be no assurance that the
Company will be able to meet its loan covenants, achieve its operating plan and
return to profitability, and failure to do so may have a material adverse impact
on the Company's business and operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or statements
made by its employees may contain "forward-looking" information, as that term is
defined in the Private Securities Litigation Reform Act of 1995 (the "Act"). The
Company cautions investors that there can be no assurance that actual results or
business conditions will not differ materially from those projected or suggested
in such forward-looking statements as a result of various factors including but
not limited to the following:
The Company's future operating results are dependant on its liability
to develop, produce, and market new and innovative products and services
including without limitation, achieving continued product market acceptance of
its client/server and object-oriented products and services and maintaining
relationships with software and hardware vendors and consultants. There are
numerous risks inherent in this complex
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
process, including rapid technological change and the requirements that the
Company bring to market in a timely fashion new products and services which meet
customers' changing needs.
Historically the Company has generated a disproportionate amount of its
operating revenues toward the end of each quarter, making precise prediction of
revenues and earnings particularly difficult and resulting in risk of variance
of actual results from those forecast an any time. In addition, the company's
operating results historically have varied from fiscal period to fiscal period;
accordingly, the Company's financial results in any particular fiscal period are
not necessarily indicative of results for future periods.
The Company operates in a highly competitive environment and in a
highly competitive industry, which include significant pricing pressures and
intense competition for skilled employees. From time to time, the Company may
experience unanticipated intense competitive pressure, possibly causing
operating results to vary from those expected.
The Company offers its products and services directly and through
indirect distribution channels. Changes in the financial condition of, or the
Company's relationship with, distributors and other indirect channel partners
could cause actual operating results to vary from those expected.
The Company does business worldwide. Global and/or regional economic
factors and potential changes in laws and regulations affecting the Company's
business, including without limitation, currency fluctuation, changes in
monetary policy and tariffs, and federal, state and international laws could
impact the Company's financial condition or future results of operations.
The market price of the Company's securities could be subject to
fluctuation in response to quarter to quarter variations in operating results,
changes in analysts' earnings estimates, market conditions in the information
technology industry, as well as general economic conditions and other factors
external to the Company.
<PAGE> 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not aware of any material litigation or claim pending or
threatened against the Company or any of its subsidiaries.
Item 4 Submission of Matters to a Vote of Security Holders
On July 18, 1996, the Company held a special meeting of stockholders (the
"Special Meeting"). The Special Meeting was to approve and adopt the Agreement
and Plan of Merger dated March 25, 1996, (the "Merger Agreement"), by and among
Bachman Information Systems, Inc. ("Bachman"), Cadre Technologies Inc.
("Cadre"), and B.C. Acquisition Corp., a wholly-owned subsidiary of Bachman, and
to approve the issuance of Bachman Common Stock as contemplated by the Merger
Agreement. The second matter voted upon by the stockholders was approval to
change Bachman's name to Cayenne Software, Inc. upon the consummation of the
merger. The third matter voted upon by the stockholders was approval to increase
the number of authorized shares of Bachman Common Stock by 26.2 million shares.
The fourth matter voted upon by the stockholders was approval to adjourn the
Special Meeting if and to the extent adjournment is proposed by Bachman's
management, in order to afford management time to solicit additional proxies, if
necessary, in support of one or more of the Proposals.
Voting on the matters considered by the Shareholders was as follows:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non Vote
--- ------- ------- --------
<S> <C> <C> <C> <C>
Approval of merger with Cadre Technologies, Inc. 6,112,231 79,647 10,805 --
Approval to Change name from Bachman 9,605,763 89,805 18,465 28,097
Information Systems, Inc. to Cayenne Software, Inc.
Approval to increase the number of authorized 8,468,638 1,219,284 26,111 28,097
shares by 26.2 million shares
Approval to adjourn the Special Meeting 5,974,778 456,517 43,325 --
</TABLE>
<PAGE> 16
PART II. OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K
(a) Documents listed below, except for documents identified by footnotes,
are being filed as exhibits herewith. Documents identified by
footnotes are not being filed herewith and, pursuant to Rule 12b-32 of
the General Rules and Regulations promulgated by the Commission under
the Securities Exchange Act of 1934 (the "Act") reference is made to
such documents as previously filed as exhibits with the Commission. The
Company's file number under the Act is 0-19682.
2.1(4) Asset Purchase Agreement among CSI Acquisition Corporation,
Cayenne and Cooperative Solutions, Inc. dated November 16, 1993
2.2(5) Agreement and Plan of Merger by and among Cayenne, BI Acquisition
Corp. and WindTunnel Software, Inc. dated April 27, 1993
2.3(11) Agreement and Plan of Merger among Cayenne, BC Acquisition Corp.
and Cadre Technologies Inc. dated as of March 25, 1996
3.1(12) Amendment to Restated Articles of Organization of Cayenne
3.2(2) Restated Articles of Organization of Cayenne
3.3(1) Amended and Restated By-Laws of Cayenne
4.1(1) Specimen Certificate for Common Stock of Cayenne
4.2(8) Statement of Rights and Preferences of Series A Convertible
Preferred Stock
4.3(8) Form of Warrant Agreement dated as of November 21, 1994 by and
among Cayenne and purchasers of Series A Convertible Preferred
Stock
4.4(7) Warrant Agreement dated as of October 28, 1994 by and between
Cayenne and Silicon Valley Bank
10.1(1) General License and Maintenance Agreement dated January 30, 1987
between Cayenne and American Telephone & Telegraph
Communications, Inc.
10.2(1) Lease with New England Mutual Life Insurance Company
10.3(3) Lease dated August 12, 1992 between Cayenne and Spaulding
Investment Co.
10.4(2) Agreement for Partial Sale of Going Concern dated as of October
25, 1992 between Pro Systems and Bachman France S.A.R.L.
10.5(2) Sale and Purchases Agreement relating to Bachman Information
Systems Limited, dated November 16, 1991 among Abacus Trustees
(Jersey) Limited, Cayenne and others, as amended by Amendment
Consent dated February 18, 1992
10.6(2) Agreement dated as of November 1, 1991, between Cayenne and
Bachman Italia S.r.l., as amended by letter dated December 9,
1991 and as further amended by amendment dated December 31, 1991
10.7(3) Fiscal Year 1993 Bonus Pool Plan
10.8(1) Amended and Restated 1986 Incentive and Nonqualified Stock Option
Plan of Cayenne
10.9(2) 1992 Stock Purchase Plan
10.10(1) Savings/Retirement Plan and Trust of Cayenne
10.11(6) Employment agreement dated as of January 1, 1994 by and between
Cayenne and Charles W. Bachman
10.12(6) Employment agreement dated as of August 4, 1993 by and between
Cayenne and Charles W. Bachman
10.12(6) Employment Agreement dated as of August 4, 1993 by and between
Cayenne and Peter J. Boni
10.13(6) 1994 Bonus Pool Plan of Cayenne, as amended.
10.14(7) 1995 Bonus Pool Plan of Cayenne, as amended.
10.15(7) Revolving Credit Agreement and Warrant Agreement dated as of
October 28, 1994 by and between Cayenne and Silicon Valley Bank
10.16(8) Series A Convertible Preferred Stock Purchase Agreement dated
as of November 21, 1994
<PAGE> 17
PART II. OTHER INFORMATION (CONTINUED)
by and among Cayenne and purchasers of Series A Convertible
Preferred Stock
10.17(8) Registration Rights Agreement dated as of November 21, 1994 by
and among Cayenne and Purchasers of Series A Convertible
Preferred Stock.
10.18(9) Form of Common Stock Purchase Agreement dated as of September 15,
1995 by and among Cayenne and certain purchasers of Common Stock
10.19(9) Form of Registration Rights Agreement dated as of September 15,
1995 by and among Cayenne and certain purchasers of Common Stock
10.20(10) 1996 Bonus Plan of Cayenne
10.21(12) Amendment No. 1 to Employment Agreement dated as of August 4,
1993 by and between Cayenne and Peter J. Boni
10.22(12) Amendment and Restated Revolving Credit Agreement dated as of
June 6, 1996 by and between Cayenne and Silicon Valley bank
27.1 Financial Data Schedules
- --------------------------------------------------------------------------------
(1) Incorporated by reference to the exhibits filed with Cayenne's
Registration Statement on Form S-1, File No. 33-43401, as amended.
(2) Incorporated by reference to the exhibits filed with Cayenne's
Registration Statement on Form S-1, File No. 33-45841, as amended.
(3) Incorporated by reference to the exhibits filed with Cayenne's Annual
Report on Form 10-K for the year ended June 30, 1992, File No. 0-19682.
(4) Incorporated by reference to the exhibit filed with Cayenne's Current
Report on Form 8-K dated November 16, 1993, as amended.
(5) Incorporated by reference to Cayenne's Registration Statement on Form
S-4, File No. 33-62650, as amended.
(6) Incorporated by reference to the exhibits filed with Cayenne's
Quarterly Report on Form 10-Q dated May 13, 1994.
(7) Incorporated by reference to the exhibits filed with Cayenne's
Quarterly Report on Form 10-Q dated November 11, 1994.
(8) Incorporated by reference to the exhibits filed with Cayenne's
Quarterly Report on Form 10-Q dated February 13, 1995, as amended.
(9) Incorporated by reference to the exhibits filed with Cayenne's Annual
Report on Form 10-K, as amended, for the year ended June 30, 1995, File
No. 0-19682
(10) Incorporated by reference to the exhibits filed with Cayenne's
Quarterly Report on Form 10-Q dated February 13, 1996.
(11) Incorporated by reference to exhibits filed with Cayenne's Registration
Statement on Form S-4, File No. 333-6087, as amended.
(12) Incorporated by reference to exhibits filed with Cayenne's Annual
Report on Form 10-K dated September 27, 1996.
<PAGE> 18
PART II. OTHER INFORMATION (CONTINUED)
(b) REPORTS ON FORM 8-K:
A Current Report on Form 8-K was filed by the Company on August 1,
1996. The Company reported that on July 18, 1996, it completed its acquisition
of Cadre Technologies, Inc. pursuant to an Agreement and Plan of Merger dated
March 25, 1996 by and among the Company, B.C. Acquisition Corp., a wholly-owned
subsidiary of the Company, and Cadre Technologies Inc. The Merger Agreement
provided that upon the terms and subject to the conditions specified therein
that, effective on the closing, Acquisition Corp. would be merged with and into
Cadre, the separate corporate existence of Acquisition Corp. would cease, and
Cadre would continue as the surviving corporation in the merger and as a
wholly-owned subsidiary of the Company.
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cayenne Software, Inc.
Dated: November 14, 1996 By: /S/ Frederick H. Phillips
---------------------------
Frederick H. Phillips
Vice President, Finance and Administration,
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 20
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
EXHIBITS
TO
QUARTERLY REPORT ON FORM 10-Q
-------------------------------
CAYENNE SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<PAGE> 21
EXHIBIT
NUMBER DESCRIPTION PAGE
2.1(4) Asset Purchase Agreement among CSI Acquisition Corporation,
Cayenne and Cooperative Solutions, Inc. dated November 16,
1993
2.2(5) Agreement and Plan of Merger by and among Cayenne, BI
Acquisition Corp. and WindTunnel Software, Inc. dated April
27, 1993
2.3(11) Agreement and Plan of Merger among Cayenne, BC Acquisition
Corp. and Cadre Technologies Inc. dated as of March 25, 1996
3.1(12) Amendment to Restated Articles of Organization of Cayenne
3.2(2) Restated Articles of Organization of Cayenne
3.3(1) Amended and Restated By-Laws of Cayenne
4.1(1) Specimen Certificate for Common Stock of Cayenne
4.2(8) Statement of Rights and Preferences of Series A Convertible
Preferred Stock
4.3(8) Form of Warrant Agreement dated as of November 21, 1994 by and
among Cayenne and purchasers of Series A Convertible Preferred
Stock
4.4(7) Warrant Agreement dated as of October 28, 1994 by and between
Cayenne and Silicon Valley Bank
10.1(1) General License and Maintenance Agreement dated January 30,
1987 between Cayenne and American Telephone & Telegraph
Communications, Inc.
10.2(1) Lease with New England Mutual Life Insurance Company
10.3(3) Lease dated August 12, 1992 between Cayenne and Spaulding
Investment Co.
10.4(2) Agreement for Partial Sale of Going Concern dated as of
October 25, 1992 between Pro Systems and Bachman France
S.A.R.L.
10.5(2) Sale and Purchases Agreement relating to Bachman Information
Systems Limited, dated November 16, 1991 among Abacus Trustees
(Jersey) Limited, Cayenne and others, as amended by Amendment
Consent dated February 18, 1992
10.6(2) Agreement dated as of November 1, 1991, between Cayenne and
Bachman Italia S.r.l., as amended by letter dated December 9,
1991 and as further amended by amendment dated December 31,
1991
10.7(3) Fiscal Year 1993 Bonus Pool Plan
10.8(1) Amended and Restated 1986 Incentive and Nonqualified Stock
Option Plan of Cayenne
10.9(2) 1992 Stock Purchase Plan
10.10(1) Savings/Retirement Plan and Trust of Cayenne
10.11(6) Employment agreement dated as of January 1, 1994 by and
between Cayenne and Charles W. Bachman
10.12(6) Employment agreement dated as of August 4, 1993 by and between
Cayenne and Charles W. Bachman
10.12(6) Employment Agreement dated as of August 4, 1993 by and between
Cayenne and Peter J. Boni
10.13(6) 1994 Bonus Pool Plan of Cayenne, as amended.
<PAGE> 22
10.14(7) 1995 Bonus Pool Plan of Cayenne, as amended.
10.15(7) Revolving Credit Agreement and Warrant Agreement dated as of
October 28, 1994 by and between Cayenne and Silicon Valley
Bank
10.16(8) Series A Convertible Preferred Stock Purchase Agreement dated
as of November 21, 1994 by and among Cayenne and purchasers of
Series A Convertible Preferred Stock
10.17(8) Registration Rights Agreement dated as of November 21, 1994 by
and among Cayenne and Purchasers of Series A Convertible
Preferred Stock.
10.18(9) Form of Common Stock Purchase Agreement dated as of September
15, 1995 by and among Cayenne and certain purchasers of Common
Stock
10.19(9) Form of Registration Rights Agreement dated as of September
15, 1995 by and among Cayenne and certain purchasers of Common
Stock
10.20(10) 1996 Bonus Plan of Cayenne
10.21(12) Amendment No. 1 to Employment Agreement dated as of August 4,
1993 by and between Cayenne and Peter J. Boni
10.22(12) Amendment and Restated Revolving Credit Agreement dated as of
June 6, 1996 by and between Cayenne and Silicon Valley bank
27.1 Financial Data Schedules
- --------------------------------------------------------------------------------
(1) Incorporated by reference to the exhibits filed with Cayenne's
Registration Statement on Form S-1, File No. 33-43401, as amended.
(2) Incorporated by reference to the exhibits filed with Cayenne's
Registration Statement on Form S-1, File No. 33-45841, as amended.
(3) Incorporated by reference to the exhibits filed with Cayenne's Annual
Report on Form 10-K for the year ended June 30, 1992, File No. 0-19682.
(4) Incorporated by reference to the exhibit filed with Cayenne's Current
Report on Form 8-K dated November 16, 1993, as amended.
(5) Incorporated by reference to Cayenne's Registration Statement on Form
S-4, File No. 33-62650, as amended.
(6) Incorporated by reference to the exhibits filed with Cayenne's
Quarterly Report on Form 10-Q dated May 13, 1994.
(7) Incorporated by reference to the exhibits filed with Cayenne's
Quarterly Report on Form 10-Q dated November 11, 1994.
(8) Incorporated by reference to the exhibits filed with Cayenne's
Quarterly Report on Form 10-Q dated February 13, 1995, as amended.
(9) Incorporated by reference to the exhibits filed with Cayenne's Annual
Report on Form 10-K, as amended, for the year ended June 30, 1995, File
No. 0-19682
(10) Incorporated by reference to the exhibits filed with Cayenne's
Quarterly Report on Form 10-Q dated February 13, 1996.
<PAGE> 23
(11) Incorporated by reference to exhibits filed with Cayenne's Registration
Statement on Form S-4, File No. 333-6087, as amended.
(12) Incorporated by reference to exhibits filed with Cayenne's Annual
Report on Form 10-K dated September 27, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS OF CAYENNE SOFTWARE, INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S FORMS 10-Q FOR
THE QUARTER ENDED SEPTEMBER 30, 1996 AND 10-K FOR THE YEAR ENDED JUNE 30, 1996.
</LEGEND>
<CIK> 0000880229
<NAME> CAYENNE SOFTWARE, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 8,756
<SECURITIES> 0
<RECEIVABLES> 12,144
<ALLOWANCES> 868
<INVENTORY> 0
<CURRENT-ASSETS> 21,592
<PP&E> 21,326
<DEPRECIATION> 18,751
<TOTAL-ASSETS> 25,394
<CURRENT-LIABILITIES> 26,475
<BONDS> 0
<COMMON> 176
0
0
<OTHER-SE> (1,408)
<TOTAL-LIABILITY-AND-EQUITY> 25,394
<SALES> 4,180
<TOTAL-REVENUES> 13,198
<CGS> 812
<TOTAL-COSTS> 3,279
<OTHER-EXPENSES> 16,665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65
<INCOME-PRETAX> (6,811)
<INCOME-TAX> 49
<INCOME-CONTINUING> (6,860)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,860)
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
