<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 QUARTERLY PERIOD ENDED OCTOBER 31, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER 001-11807
___________________________
UNIFY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2710559
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
181 METRO DRIVE, THIRD FLOOR
SAN JOSE, CALIFORNIA 95110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE: (408) 467-4500
(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
--------- ----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
8,042,930 shares of Common Stock, $.001 par value, as of November 30, 1996
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UNIFY CORPORATION
FORM 10-Q
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
October 31, 1996 and April 30, 1996............... 3
Condensed Consolidated Statements of Operations for
the three and six months ended October 31, 1996
and 1995.......................................... 4
Condensed Consolidated Statements of Cash Flows
for the six months ended October 31, 1996
and 1995.......................................... 5
Notes to Condensed Consolidated Financial
Statements........................................ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..... 8
PART II. OTHER INFORMATION
Item 5. Other Information................................... 14
Item 6. Exhibits and Reports on Form 8-K.................... 14
SIGNATURE........................................................ 15
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIFY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
October 31, April 30,
1996 1996
----------- ----------
(unaudited) *
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,654 $ 3,028
Short-term investments 8,170 -
Accounts receivable, net 10,147 5,270
Prepaid expenses and other current assets 695 1,012
----------- ----------
Total current assets 31,666 9,310
Property and equipment, net 3,416 3,358
Other assets 239 329
----------- ----------
Total assets $ 35,321 $ 12,997
----------- ----------
----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 2,217 $ -
Current portion of long-term debt 218 255
Accounts payable 1,376 1,866
Amounts due to minority interest shareholders 1,413 1,392
Accrued compensation and related expenses 2,582 1,655
Other accrued liabilities 3,362 2,675
Deferred revenue 3,785 4,650
----------- ----------
Total current liabilities 14,953 12,493
Long-term debt, net of current portion 133 2,456
Minority interest 493 495
Redeemable preferred stock - 26,726
Shareholders' equity (deficit):
Common stock 8 2
Additional paid-in capital 52,383 2,188
Notes receivable from shareholders (202) (265)
Cumulative translation adjustments (776) (816)
Accumulated deficit (31,671) (30,282)
----------- ----------
Total shareholders' equity (deficit) 19,742 (29,173)
----------- ----------
Total liabilities and shareholders' equity (deficit) $ 35,321 $ 12,997
----------- ----------
----------- ----------
</TABLE>
* Derived from audited financial statements.
See accompanying notes to condensed consolidated financial statements.
3
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UNIFY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Oct. 31, Six Months Ended Oct. 31,
--------------------------- -------------------------
1996 1995 1996 1995
---------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Software licenses $ 4,847 $ 4,777 $ 11,376 $ 8,395
Services 2,498 2,484 5,009 4,978
--------- --------- ---------- ---------
Total revenues 7,345 7,261 16,385 13,373
--------- --------- ---------- ---------
Cost of revenues:
Software licenses 287 509 643 1,058
Services 1,164 960 2,292 2,029
--------- --------- ---------- ---------
Total cost of revenues 1,451 1,469 2,935 3,087
--------- --------- ---------- ---------
Gross margin 5,894 5,792 13,450 10,286
--------- --------- ---------- ---------
Operating expenses:
Product development 1,683 1,532 3,374 2,933
Selling, general and administrative 5,800 4,611 11,467 8,822
--------- --------- ---------- ---------
Total operating expenses 7,483 6,143 14,841 11,755
--------- --------- ---------- ---------
Loss from operations (1,589) (351) (1,391) (1,469)
Other income, net 67 33 114 237
--------- --------- ---------- ---------
Loss before income taxes (1,522) (318) (1,277) (1,232)
Provision for income taxes (54) (44) (112) (109)
--------- --------- ---------- ---------
Net loss $(1,576) $ (362) $ (1,389) $ (1,341)
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Net loss per share $ (0.20) $ (0.06) $ (0.19) $ (0.24)
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Shares used in per share computations 7,917 5,627 7,292 5,690
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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UNIFY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended October 31,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,389) $ (1,341)
Reconciliation of net loss to net cash used for operating
activities:
Depreciation 668 475
Amortization of capitalized software - 469
Minority interest (2) (321)
Imputed interest on note payable to preferred shareholders 145 -
Changes in assets and liabilities:
Accounts receivable (4,929) (141)
Prepaid expenses and other current assets 200 (229)
Accounts payable (497) (162)
Amounts due to minority interest shareholders (120) (585)
Accrued compensation and related expenses 926 100
Other accrued liabilities 843 (520)
Deferred revenue (651) (522)
----------- -----------
Net cash used for operating activities (4,806) (2,777)
----------- -----------
Cash flows from investing activities:
Purchases of available-for-sale securities (10,141) -
Sales of available-for-sale securities 1,971 -
Purchases of property and equipment (701) (372)
Other assets 74 (72)
----------- -----------
Net cash used for investing activities (8,797) (444)
----------- -----------
Cash flows from financing activities:
Borrowings under shareholder line of credit - 500
Principal payments under debt obligations (162) (144)
Proceeds from issuance of common stock, net 23,281 5
Collection of notes receivable from shareholders, net of
interest accrual 63 -
Additional investment in subsidiary by minority
interest shareholders - 591
----------- -----------
Net cash provided by financing activities 23,182 952
----------- -----------
Effect of exchange rate changes on cash 47 (145)
----------- -----------
Net increase (decrease) in cash and cash equivalents 9,626 (2,414)
Cash and cash equivalents at beginning of period 3,028 3,776
----------- -----------
Cash and cash equivalents at end of period $ 12,654 $ 1,362
----------- -----------
----------- -----------
Supplemental schedule of noncash financing activities:
Conversion of redeemable preferred stock to common stock $ 26,726 $ -
----------- -----------
----------- -----------
Cancellation of common stock and shareholder's receivable $ - $ (432)
----------- -----------
----------- -----------
Cash paid during the period for:
Interest $ 45 $ 32
----------- -----------
----------- -----------
Income taxes $ 93 $ 180
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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UNIFY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements have been prepared by
Unify Corporation (the "Company") pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). While the interim financial
information contained in this filing is unaudited, the financial statements
presented reflect all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for a fair presentation of
the financial position as of October 31, 1996 and April 30, 1996, the results
of operations for the three and six months ended October 31, 1996 and 1995,
and the cash flows for the six months ended October 31, 1996 and 1995. The
results for interim periods are not necessarily indicative of the results to
be expected for the entire year. These financial statements should be read
in conjunction with the consolidated financial statements and notes thereto,
together with management's discussion and analysis of financial condition and
results of operations, included in the Company's Final Prospectus (the "Final
Prospectus") dated June 14, 1996 as filed with the SEC pursuant to Rule
424(b).
2. PER SHARE INFORMATION
Net loss per share is computed using the weighted average number of
common shares outstanding and redeemable preferred stock (using the as if
converted method, even if antidilutive). Pursuant to certain SEC Staff
Accounting Bulletins, common and common equivalent shares issued at prices
below the initial public offering ("IPO") price during the 12 month period
prior to the offering have been included in the calculation, even if
antidilutive, as if they were outstanding for all periods presented using the
treasury stock method and the IPO price.
3. SHORT-TERM INVESTMENTS
The Company's investments are classified as available-for-sale under the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
investments are carried at cost, which approximates fair value. Material
unrealized gains or losses are reported as a separate component of
shareholders' equity. Realized gains and losses and declines in value judged
to be other than temporary on available-for-sale securities are included in
net interest income. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in net interest income.
The investments included in the Company's current assets under the
caption "Short-Term Investments" at October 31, 1996 consist entirely of
corporate debt securities and there were no material realized or unrealized
gains or losses for the three and six months ended October 31, 1996. All
short-term investments held at October 31, 1996 mature within one year.
6
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UNIFY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. CONCENTRATION OF CREDIT RISK
Accounts receivable of $10.1 million at October 31, 1996 included
amounts due from two customers in the People's Republic of China which
totaled $4.1 million or 40% of total accounts receivable.
5. INITIAL PUBLIC OFFERING OF COMMON STOCK
In June 1996, the Company completed an initial public offering of
2,187,000 shares of common stock at $12 per share with net proceeds to the
Company of $23.3 million. In connection with the IPO, all of the outstanding
preferred stock and accrued dividends automatically converted into 2,876,136
and 690,161 shares of common stock, respectively, and warrants to purchase
185,825 out of a total of 190,459 shares of common stock were exercised.
6. RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation." The new standard defines
a fair value method of accounting for stock options and other equity
instruments, such as stock purchase plans. Under this method, compensation
cost is measured based on the fair value of the stock award when granted and
is recognized as an expense over the service period, which is usually the
vesting period. This standard will be effective for the Company beginning in
fiscal 1997 and requires measurement of the awards made beginning in fiscal
1996.
The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but requires
disclosure in a note to the financial statements of the pro forma net income
(loss) and earnings (loss) per share as if the company had applied the new
method of accounting. The Company intends to implement these disclosure
requirements for its employee stock plans beginning in fiscal 1997. Based on
the Company's current use of equity instruments, adoption of the new standard
will not impact reported net income (loss) or net income (loss) per share,
and will have no effect on the Company's cash flows.
7
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UNIFY CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL RISK FACTORS AFFECTING QUARTERLY RESULTS
The following discussion should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto
included in Part 1, Item 1 of this Quarterly Report and with the audited
consolidated financial statements and notes thereto and management's
discussion and analysis of financial condition and results of operations
contained in the Final Prospectus.
The Company's common stock price has been and in the future will be
likely to be subject to significant volatility. For any given quarter, a
shortfall in the Company's announced revenues or earnings from the levels
expected by securities analysts could have an immediate and adverse effect on
the trading price of the Company's common stock. The Company may not learn
of, nor be able to confirm, revenue or earnings shortfalls until late in the
quarter or following quarter end. The Company participates in a very dynamic
high technology industry, which can result in significant fluctuations in the
Company's common stock price at any time.
The Company's operating results are subject to quarterly and other
fluctuations due to a variety of factors, including the size and timing of
significant orders and their fulfillment, demand for the Company's products,
the number, timing and significance of product enhancements and new product
announcements by the Company or its competitors, seasonality, changes in
pricing policies by the Company or its competitors, changes in the level of
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, the results of international expansion, currency
fluctuations, and general domestic and international economic and political
conditions. The Company typically receives a number of orders ranging in
size from several hundred thousand dollars to approximately $1 million in any
fiscal quarter. Because a significant portion of the Company's revenues have
been, and the Company believes will increasingly be, derived from such large
orders, the timing of such orders and their fulfillment has caused and is
expected to continue to cause material fluctuations in the Company's
operating results, particularly on a quarterly basis.
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 application development software is rapidly
evolving, and the Company's sales cycle, 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 shipment 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 regarding future revenues and are therefore relatively fixed in
the short term, if revenue levels fall below expectations, net income
is likely to be disproportionately
8
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UNIFY CORPORATION
adversely affected. The Company is increasing its sales, marketing and
product development expenditures, and operating results will be materially
adversely affected if the Company does not achieve revenue growth. The
Company currently expects a net loss for the quarter ending January 31, 1997
due to the foregoing factors. There can be no assurance that the Company
will be able to achieve or 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.
This report contains forward looking statements regarding, among other
matters, the Company's future strategy, projected financial results, product
development plans, and sales and marketing strategy. The forward looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward looking statements address
matters which are subject to a number of risks and uncertainties. In
addition to the general risks associated with the development of complex
technology, as noted above, future results of the Company will depend on a
variety of factors. Reference is made to the Final Prospectus and the
Company's filings with the SEC for further discussion of risks and
uncertainties regarding the Company's business.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED OCTOBER 31, 1996 AND 1995
REVENUES
The Company recognizes software license revenue when a non-cancelable
license agreement has been executed, the product has been shipped, all
significant contractual obligations have been satisfied and collection of the
resulting receivable is deemed probable by management. Software licenses
include both development and run-time licenses. Maintenance revenues are
recognized ratably over the maintenance period. Payments for maintenance
fees are generally received in advance and are nonrefundable. Revenues from
consulting and training services are recognized as the services are performed.
The Company's strategy is to aggressively market and enhance Unify VISION.
The Company continues to support its extensive installed base of Unify ACCELL
and DataServer products, which represents a significant source of potential
Unify VISION customers. The Company also generates significant revenues from
services, including customer maintenance, consulting and training. The
following table sets forth revenues from licenses of the Company's Unify
VISION and Unify ACCELL and DataServer products and services revenues for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Oct. 31, Six Months Ended Oct. 31,
--------------------------- -------------------------
1996 1995 1996 1995
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
License revenues:
Unify VISION $ 1,749 $ 1,012 $ 3,943 $ 1,552
Unify ACCELL and DataServer 3,098 3,765 7,433 6,843
---------- ----------- ---------- ---------
Total license revenues 4,847 4,777 11,376 8,395
Services revenues 2,498 2,484 5,009 4,978
---------- ----------- ---------- ---------
Total revenues $ 7,345 $ 7,261 $ 16,385 $ 13,373
---------- ----------- ---------- ---------
---------- ----------- ---------- ---------
</TABLE>
9
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UNIFY CORPORATION
Total revenues and software license revenues for the quarter ended
October 31, 1996 were $7.3 million and $4.8 million, respectively, which
approximated total revenues and software license revenues for the same
quarter of the prior year. License revenues from Unify VISION increased 73%
over the same quarter of the prior year to $1.7 million, reflecting increased
customer demand for Unify VISION. License revenues from Unify ACCELL and
DataServer decreased 18% over the same quarter of the prior year to $3.1
million, due to the absence of large character orders and to customer
migration from character to graphical client/server solutions. Services
revenues remained constant at $2.5 million in both periods.
International revenues increased to 59% of total revenues in the quarter
ended October 31, 1996 from 54% in the same quarter of the prior year. The
increase in international revenues was due to slightly lower U. S. sales
which were offset by stronger Pacific Rim sales.
Unify VISION 3.0 began shipping to commercial customers in September
1996 and general availability of its companion product, VISION/Web, is
scheduled by the end of calendar 1996. While the announcement and release of
these graphical products have generally created opportunities to compete for
larger, enterprise-level sales transactions, the Company is experiencing
lengthening sales cycles as a result. The Company believes that it will
continue to experience extended customer evaluation and decision-making
processes for large, complex Unify VISION and VISION/Web sales transactions
over the next several quarters.
COST OF REVENUES
Cost of software licenses consists primarily of product documentation,
packaging and production costs in the U.S. and Japan, costs related to funded
development contracts, and royalties paid for licensed technology costs.
Cost of software licenses for the quarter ended October 31, 1996 decreased to
$0.3 million, or 6% of software license revenues, as compared to $0.5
million, or 11% of software license revenues, for the same quarter of the
prior year. There was no amortization of capitalized software development
costs for the quarter ended October 31, 1996, as compared to $0.2 million for
the same quarter of the prior year.
Cost of services consists primarily of employee, facilities and travel
costs incurred in providing customer support under software maintenance
contracts and consulting and training services. Cost of services for the
quarter increased to $1.2 million, or 47% of services revenues, as compared
to $1.0 million, or 39% of services revenues, for the same quarter of the
prior year. This increase occurred primarily in consulting services where
employee and travel costs rose due to higher staffing levels as compared to
the same quarter of the prior year.
PRODUCT DEVELOPMENT
Product development expenses consist primarily of employee and facilities
costs incurred in the development and testing of new products and in the porting
of new and existing products to additional hardware platforms and operating
systems. Product development expenses for the quarter ended October 31, 1996
increased to $1.7 million, or 23% of total revenues, as compared to $1.5
million, or 21% of total revenues, for the same quarter of the prior year. The
increase in product development expenses in absolute dollars was primarily the
result of increased staffing required to complete Unify VISION 3.0 and
VISION / Web. The Company believes that
10
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UNIFY CORPORATION
substantial investment in product development is critical to maintaining
technological leadership and therefore intends to continue to increase
product development expenditures in absolute dollars over comparable periods
in the prior year.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses consist primarily
of salaries, bonuses and commissions, promotional and travel expenses,
professional services, facilities, and bad debt expense. SG&A for the
quarter ended October 31, 1996 increased to $5.8 million, or 79% of total
revenues, as compared to $4.6 million, or 64% of total revenues for the same
quarter of the prior year. The increase in SG&A expenses was primarily due to
the recruitment of several key sales and marketing employees, additional
professional services costs incurred as a result of becoming a publicly
traded company and an increased level of general bad debt reserves recorded
in the quarter ended October 31, 1996. The Company expects to continue to
increase SG&A expenditures in absolute dollars over comparable periods in the
prior year.
OTHER INCOME, NET
Other income, net, consists of the minority interest in the Company's
Japanese joint venture, interest income earned by the Company on its cash,
cash equivalents and short-term investments offset by interest expense, and
exchange gains and losses. Other income was $67,000 for the quarter ended
October 31, 1996 and $33,000 for the same quarter of the prior year.
PROVISION FOR INCOME TAXES
The Company recorded tax provisions for the quarters ended October 31,
1996 and 1995 which related primarily to foreign income tax withholding on
software license royalties paid to the Company by certain foreign licensees.
For the same periods, the Company recorded no federal or state income tax
provisions as the Company had available federal net operating loss
carryforwards of approximately $10.7 million as of April 30, 1996.
COMPARISON OF SIX MONTHS ENDED OCTOBER 31, 1996 AND 1995
REVENUES
Total revenues for the six months ended October 31, 1996 increased by
23%, from $13.4 million to $16.4 million, over the same period of the prior
year. Software license revenues increased by 36%, from $8.4 million to $11.4
million, over the same period of the prior year. License revenues from Unify
VISION increased 154% over the same period of the prior year to $3.9 million,
reflecting increased customer demand for Unify VISION. License revenues from
Unify ACCELL and DataServer increased 9% to $7.4 million, reflecting
essentially stable demand for these more mature products. Services revenues
remained constant at $5.0 million in both periods.
Revenues for the quarter ended July 31, 1996 (and therefore for the
six months ended October 31, 1996) reflected the impact of several
significant contracts relating to the Company's
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UNIFY CORPORATION
ongoing efforts to generate revenues from customers based in the People's
Republic of China ("China"). Unify VISION and Unify ACCELL and DataServer
license revenues included a $1.2 million and a $2.6 million order,
respectively, from two separate China based end-users. The Company expects
to continue to devote significant efforts toward the development of revenues
from China. However, there can be no assurances of the timing or amount of
additional license revenues, if any, which the Company can derive from
customers in China. Business with customers in China is impacted by a number
of additional risks, including, but not limited to, whether China maintains
its "most favored nation" trade status with the United States. In addition,
the extent to which the current trade discussions between the United States
and China favorably affected the orders received by the Company during the
six months ended October 31, 1996 and the impact which future discussions may
have on future business by the Company in China cannot be determined.
In part based upon the transactions with customers in China,
international revenues increased to 68% of total revenues in the six months
ended October 31, 1996 from 61% in the same period of the prior year.
COST OF REVENUES
Cost of software licenses for the six months ended October 31, 1996
decreased to $0.6 million, or 6% of software license revenues, as compared to
$1.1 million, or 13% of software license revenues, for the same period of the
prior year. There was no amortization of capitalized software development
costs for the six months ended October 31, 1996, as compared to $0.5 million
for the same period of the prior year.
Cost of services for the six month period increased to $2.3 million or
46% of services revenues, as compared to $2.0 million or 41% of services
revenues, for the same period of the prior year. This increase occurred
primarily in consulting services where employee and travel costs rose due to
higher staffing levels as compared to the same period of the prior year.
PRODUCT DEVELOPMENT
Product development expenses for the six months ended October 31, 1996
increased to $3.4 million, or 21% of total revenues, as compared to $2.9
million, or 22% of total revenues, for the same period of the prior year.
The increase in product development expenses in absolute dollars was
primarily the result of increased staffing required to complete Unify VISION
3.0 and VISION/Web.
SELLING, GENERAL AND ADMINISTRATIVE
SG&A expenses for the six months ended October 31, 1996 increased to
$11.5 million, or 70% of total revenues, as compared to $8.8 million, or 66%
of total revenues, for the same period of the prior year. The increase in
SG&A expenses was primarily due to the recruitment of several key sales and
marketing employees, increased commission expense related to higher revenues,
additional professional services costs incurred as a result of becoming a
publicly traded company and an increased level of general bad debt reserves
recorded in the quarter ended October 31, 1996.
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UNIFY CORPORATION
OTHER INCOME, NET
Other income was $0.1 million for the six months ended October 31, 1996
and $0.2 million for the same period of the prior year.
PROVISION FOR INCOME TAXES
The Company recorded tax provisions for the six months ended October 31,
1996 and 1995 which related primarily to foreign income tax withholding on
software license royalties paid to the Company by certain foreign licensees.
For the same periods, the Company recorded no federal or state income tax
provisions as the Company had available federal net operating loss
carryforwards of approximately $10.7 million as of April 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
In June 1996, the Company completed an initial public offering of
2,187,000 shares of common stock at $12.00 per share with net proceeds to the
Company of $23.3 million.
As of October 31, 1996, the Company had cash, cash equivalents and
short-term investments of $20.8 million, compared to $3.0 million as of April
30, 1996. Working capital increased to $16.7 million at October 31, 1996
from a deficit of $3.2 million at April 30, 1996.
The Company's operating activities used cash of $4.8 million during the
six months ended October 31, 1996, primarily for operating losses and
increases in accounts receivable. The increase in accounts receivable
reflects the two large China orders with extended payment terms that were
received during the period as well as a high percentage of sales transactions
occurring near the end of the period.
Investing activities during the period used cash of $8.8 million,
consisting principally of net purchases of short term investments of $8.2
million and property and equipment purchases of $0.7 million.
Cash provided by financing activities during the period was $23.2
million, representing primarily net proceeds from the Company's IPO.
The Company has a $2.2 million line of credit provided by certain
shareholders of the Company, with the full amount outstanding as of October
31, 1996. This facility expires in July 1997 and bears interest at 3.75% per
annum.
The Company believes that current cash balances and investments,
anticipated cash generated from operations, and unused borrowing capacity
will be sufficient to meet its cash requirements during the next 12 months.
Thereafter, depending on its rate of growth and profitability, the Company
may require additional equity or debt financing to meet its working capital
or capital equipment requirements. There can be no assurance that additional
financing will be available when required or, if available, with terms
satisfactory to the Company.
13
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UNIFY CORPORATION
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
James Fleming, Vice President, Worldwide Sales and Paul Bach,
Vice President, U.S. Commercial Sales, resigned their positions
effective October 1996 and November 1996, respectively.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11.01 Statement Regarding Computation of Net
Loss Per Share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K reporting a change in independent accountants was
filed on September 6, 1996.
14
<PAGE>
UNIFY CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: December 16, 1996 Unify Corporation
(REGISTRANT)
By:
Susan Salvesen
----------------------------------------
Susan Salvesen
Vice President, Finance and Administration
and Chief Financial Officer (Principal
Financial and Accounting Officer)
15
<PAGE>
EXHIBIT 11.01
UNIFY CORPORATION
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Oct. 31, Six Months Ended Oct. 31,
--------------------------- ---------------------------
1996 1995 1996 1995
----------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Net loss $ (1,576) $ (362) $ (1,389) $ (1,341)
----------- --------- ----------- ------------
----------- --------- ----------- ------------
Weighted average common shares out-
standing during the period 7,917 1,104 3,726 1,196
Weighted average preferred shares and
dividends outstanding on an as if
converted basis - 3,423 3,566 3,394
Common share equivalents for stock options
and warrants issued at prices below the
IPO price during the twelve month
period prior to the offering - 1,100 - 1,100
----------- --------- ----------- ------------
Total shares used in per share computation 7,917 5,627 7,292 5,690
----------- --------- ----------- ------------
----------- --------- ----------- ------------
Net loss per share $ (0.20) $ (0.06) $ (0.19) $ (0.24)
----------- --------- ----------- ------------
----------- --------- ----------- ------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 1996 AND CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED OCTOBER 31, 1996 FOUND ON
PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 12,654
<SECURITIES> 8,170
<RECEIVABLES> 10,942
<ALLOWANCES> 795
<INVENTORY> 0
<CURRENT-ASSETS> 31,666
<PP&E> 9,580
<DEPRECIATION> 6,164
<TOTAL-ASSETS> 35,321
<CURRENT-LIABILITIES> 14,953
<BONDS> 0
0
0
<COMMON> 52,391
<OTHER-SE> (32,649)
<TOTAL-LIABILITY-AND-EQUITY> 35,321
<SALES> 16,385
<TOTAL-REVENUES> 16,385
<CGS> 2,935
<TOTAL-COSTS> 17,776
<OTHER-EXPENSES> (397)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 283
<INCOME-PRETAX> (1,277)
<INCOME-TAX> 112
<INCOME-CONTINUING> (1,389)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,389)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
