<PAGE>
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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 JANUARY 31, 1997
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.
8,078,253 shares of Common Stock, $.001 par value, as of February 28, 1997
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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
January 31, 1997 and April 30, 1996............. 3
Condensed Consolidated Statements of Operations for
the three and nine months ended January 31, 1997
and 1996 ....................................... 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended January 31, 1997 and
1996............................................ 5
Notes to Condensed Consolidated Financial
Statements...................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations... 8
PART II. OTHER INFORMATION
Item 5. Other Information ................................. 16
Item 6. Exhibits and Reports on Form 8-K................... 16
SIGNATURE.......................................................... 17
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIFY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
January 31, April 30,
1997 1996
----------- --------
<S> <C> <C>
ASSETS (unaudited) *
Current assets:
Cash and cash equivalents $ 11,449 $ 3,028
Short-term investments 7,181 --
Accounts receivable, net 5,475 5,270
Prepaid expenses and other current assets 462 1,012
-------- -------
Total current assets 24,567 9,310
Property and equipment, net 2,556 3,358
Other assets 239 329
-------- -------
Total assets $ 27,362 $ 12,997
-------- -------
-------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 2,217 $ --
Current portion of long-term debt 203 255
Accounts payable 1,726 1,866
Amounts due to minority interest shareholders 1,079 1,392
Accrued compensation and related expenses 2,207 1,655
Other accrued liabilities 3,483 2,675
Deferred revenue 3,611 4,650
-------- -------
Total current liabilities 14,526 12,493
Long-term debt, net of current portion 90 2,456
Minority interest 398 495
Redeemable preferred stock -- 26,726
Shareholders' equity (deficit):
Common stock 8 2
Additional paid-in capital 52,964 2,188
Notes receivable from shareholders (204) (265)
Cumulative translation adjustments (775) (816)
Accumulated deficit (39,645) (30,282)
-------- --------
Total shareholders' equity (deficit) 12,348 (29,173)
-------- --------
Total liabilities and shareholders' equity (deficit)$ 27,362 $ 12,997
-------- --------
-------- --------
</TABLE>
* Derived from audited financial statements.
See accompanying notes to condensed consolidated financial statements.
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UNIFY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Jan. 31, Ended Jan. 31,
------------------ -------------------
1997 1996 1997 1996
------- ------ ------ -----
<S> <C> <C> <C> <C>
Revenues:
Software licenses $ 2,841 $ 5,749 $ 11,667 $ 14,144
Services 2,502 2,333 7,249 7,311
Amnesty license arrangement (2,812) -- -- --
------- ------ ------ -----
Total revenues 2,531 8,082 18,916 21,455
------- ------ ------ -----
Cost of revenues:
Software licenses 287 456 930 1,514
Services 1,123 1,148 3,415 3,177
------- ------ ------ -----
Total cost of revenues 1,410 1,604 4,345 4,691
------- ------ ------ -----
Gross margin 1,121 6,478 14,571 16,764
------- ------ ------ -----
Operating expenses:
Product development 2,151 1,464 5,525 4,397
Selling, general and administrative 5,185 4,984 16,652 13,806
Bad debt, staff realignments and related
asset write-offs 1,920 -- 1,920 --
------- ------ ------ -----
Total operating expenses 9,256 6,448 24,097 18,203
------- ------ ------ -----
Income (loss) from operations (8,135) 30 (9,526) (1,439)
Other income (expense), net 195 (2) 309 235
------- ------ ------ -----
Income (loss) before income taxes (7,940) 28 (9,217) (1,204)
Provision for income taxes (34) (14) (146) (123)
------- ------ ------ -----
Net income (loss) $ (7,974) $ 14 $ (9,363) $ (1,327)
------- ------ ------ -----
------- ------ ------ -----
Net income (loss) per share $ (0.99) $ 0.00 $ (1.24) $ (0.23)
------- ------ ------ -----
------- ------ ------ -----
Shares used in per share computations 8,038 6,238 7,555 5,692
------- ------ ------ -----
------- ------ ------ -----
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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UNIFY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended January 31,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (9,363) $ (1,327)
Reconciliation of net loss to net cash used
for operating activities:
Depreciation 970 722
Loss on disposal of property and equipment 758 --
Amortization of capitalized software -- 521
Minority interest (97) (351)
Imputed interest on shareholder line of credit 194 --
Changes in assets and liabilities:
Accounts receivable (416) (1,543)
Prepaid expenses and other current assets 378 (52)
Accounts payable (121) 304
Amounts due to minority interest shareholders (379) (379)
Accrued compensation and related expenses 574 382
Other accrued liabilities 992 68
Deferred revenue (732) (979)
--------- ---------
Net cash used for operating activities (7,242) (2,634)
--------- ---------
Cash flows from investing activities:
Purchases of available-for-sale securities (11,149) --
Sales of available-for-sale securities 3,968 --
Purchases of property and equipment (912) (821)
Other assets (75) (57)
--------- ---------
Net cash used for investing activities (8,168) (878)
--------- ---------
Cash flows from financing activities:
Borrowings under shareholder line of credit -- 1,000
Principal payments under debt obligations (220) (219)
Proceeds from issuance of common stock, net 23,862 30
Collection of notes receivable from shareholders,
net of interest accrual 61 --
Additional investment in subsidiary by minority interest
shareholders -- 591
--------- ---------
Net cash provided by financing activities 23,703 1,402
--------- ---------
Effect of exchange rate changes on cash 128 (170)
--------- ---------
Net increase (decrease) in cash and cash equivalents 8,421 (2,280)
--------- ---------
Cash and cash equivalents at beginning of period 3,028 3,776
--------- ---------
Cash and cash equivalents at end of period $ 11,449 $ 1,496
--------- ---------
--------- ---------
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 $ 66 $ 52
--------- ---------
--------- ---------
Income taxes $ 109 $ 184
--------- ---------
--------- ---------
</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 January 31, 1997 and April 30, 1996, the results
of operations for the three and nine months ended January 31, 1997 and 1996,
and the cash flows for the nine months ended January 31, 1997 and 1996. 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 income per share is computed using the weighted average number of
common shares outstanding, dilutive common equivalent shares from stock
options and warrants (using the treasury stock method) and redeemable
preferred stock (using the as if converted method, even if antidilutive).
Net loss per share computations exclude common equivalent shares from stock
options and warrants. 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 January 31, 1997 consist entirely of
corporate debt securities and there were no material realized or unrealized
gains or losses for the three and nine months ended January 31, 1997. All
short-term investments held at January 31, 1997 mature within one year.
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UNIFY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. AMNESTY LICENSE ARRANGEMENT REVENUES AND OTHER OPERATING EXPENSES
The Company determined in the third quarter of fiscal 1997 that it would
be unable to collect payments pursuant to an amnesty license arrangement with
a customer in the People's Republic of China ("China"), for which revenues
were recorded in the first quarter of fiscal 1997. Amnesty license
arrangement revenues of $2.8 million were consequently reversed in the third
quarter of fiscal 1997.
In the third quarter of fiscal 1997, the Company recorded bad debt and
other operating expenses of $1.9 million. Of this amount, $1.1 million
represented bad debt expense for the write-off of a receivable from a
separate customer based in China, on which payment was in default. The
Company also recorded charges totaling $0.8 million for staff realignments
and related asset retirements, including expenses for closing down the
operations of its Benelux subsidiary.
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 $12.00 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
183,790 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-based 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 net income (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-based 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 is likely to continue 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, realignments of the
Company's organizational structure, changes in the level of the Company's
operating expenses, changes in the Company's sales incentive plans, ability
of the Company to retain key employees, budgeting cycles of the Company's
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, the results of
international expansion, currency fluctuations, and general domestic and
international economic and political conditions. Because a significant
portion of the Company's revenues have been, and the Company believes will
continue to be, derived from orders ranging in size from several hundred
thousand dollars to approximately $1 million, the timing of such large 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. The recent release of a new version of Unify
VISION and the initial release of VISION/Web have created new opportunities
to compete for larger, enterprise-level sales transactions. These
transactions have even longer sales cycles than the Company has experienced
in the past. 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
8
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UNIFY CORPORATION
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 adversely affected.
The Company currently expects a significant net loss for the quarter
ending April 30, 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 possible 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 JANUARY 31, 1997 AND 1996
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 deployment licenses. Customer 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 its
graphical products, Unify VISION and VISION/Web. The Company continues to
support its extensive installed base of Unify ACCELL and DataServer character
products, which represents a significant source of potential customers for
Unify VISION and VISION/Web. The Company also generates significant revenues
from services, including customer maintenance, consulting and training. The
following table sets forth revenues from licenses of its graphical and
character products and from services for the periods indicated:
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UNIFY CORPORATION
<TABLE>
<CAPTION>
Three Months Ended Jan. 31, Nine Months Ended Jan. 31,
--------------------------- ----------------------------
1997 1996 1997 1996
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
License revenues:
Graphical $ 623 $ 1,426 $ 4,566 $ 2,978
Character 2,218 4,323 7,101 11,166
-------- -------- -------- ---------
Total license revenues 2,841 5,749 11,667 14,144
Services revenues 2,502 2,333 7,249 7,311
Amnesty license arrangement (2,812) -- -- --
-------- -------- -------- ---------
Total revenues $ 2,531 $ 8,082 $ 18,916 $ 21,455
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
Total revenues for the quarter ended January 31, 1997 decreased 69% over
the same quarter of the prior year to $2.5 million. Graphical license
revenues decreased 56% over the same quarter of the prior year to $623,000
and were primarily from existing customers. Character license revenues
decreased 49% over the same quarter of the prior year to $2.2 million, in
part because of the absence of any single large order in the quarter.
Service revenues remained relatively constant at $2.5 million and $2.3
million in the third quarters of fiscal 1997 and 1996, respectively. The
Company determined in the third quarter of fiscal 1997 that it would be
unable to collect payments due pursuant to an amnesty license arrangement for
the use of unauthorized copies of Unify ACCELL and Dataserver products with a
customer based in the People's Republic of China ("China"), for which
revenues were recorded in the first quarter of fiscal 1997. Collection was
deemed probable at the time revenue was recorded, in part based on the
favorable discussions regarding protections against unauthorized copying of
software which were occurring between the United States and China. The
Company believes that the subsequent deterioration of these discussions
contributed to its inability to collect payments due pursuant to this
arrangement. The amnesty license arrangement revenues of $2.8 million were
reversed in the third quarter of fiscal 1997.
Excluding reversal of the amnesty license arrangement, international
revenues increased to 63% of total revenues in the quarter ended January 31,
1997 from 56% in the same quarter of the prior year. Total revenues as
compared to the same quarter of the prior year declined in nearly every
geographic region but most significantly in North America, which operated
without a senior sales executive during the quarter ended January 31, 1997.
The Company hired an experienced senior sales executive for North America in
February 1997.
Unify VISION 3.0 began shipping to commercial customers in September 1996
and general availability of its companion product, VISION/Web, occurred in
January 1997. While the announcement and release of these graphical products
have created new opportunities to compete for larger, enterprise-level sales
transactions, the Company is experiencing lengthening sales cycles as a
result. The Company expects 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. The
Company also expects that in the near term it is likely that a significant
portion of Unify VISION and VISION/Web sales to new customers may be for
pilot programs and therefore modest in size.
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UNIFY CORPORATION
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 January 31, 1997 decreased to $0.3
million, or 10% of license revenues (excluding reversal of the amnesty license
arrangement), as compared to $0.5 million, or 8% of license revenues, for the
same quarter of the prior year. There was no amortization of capitalized
software development costs for the quarter ended January 31, 1997, as compared
to $0.1 million for the same quarter of the prior year. Cost of software
licenses increased as a percentage of license revenues despite the decrease in
absolute dollars due to the significant decline in third quarter 1997 license
revenues as compared to the same period 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 remained constant at $1.1
million in the third quarters of fiscal 1997 and 1996, with higher costs in
consulting services because of increased fiscal 1997 staffing levels offset by
lower costs in support services related to efficiencies achieved in Japan. Cost
of services decreased to 45% of service revenues for the third quarter of fiscal
1997 from 49% of service revenues in the same quarter of the prior year because
of the slight increase in service revenues in the fiscal 1997 period.
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 January 31, 1997
increased to $2.2 million, or 40% of total revenues (excluding reversal of the
amnesty license arrangement), as compared to $1.5 million, or 18% of total
revenues, for the same quarter of the prior year. The increase in product
development expenses in absolute dollars was because of the purchase of third
party source code for $0.5 million and increased staffing required to
complete VISION / Web during the fiscal 1997 quarter. The increase in product
development expenses as a percentage of total revenues was because of the
significant decline in third quarter 1997 license revenues as compared to the
same period of the prior year. The Company believes that substantial
investment in product development is critical to maintaining technological
leadership and therefore intends to continue to devote significant resources to
product development. The level of product development expenditures may vary
over the next several quarters as the Company reevaluates operating expense
levels.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses consist primarily of
salaries, bonuses and commissions, promotional and travel expenses, professional
services and facilities. SG&A for the quarter ended January 31, 1997 increased
to $5.2 million, or 97% of total revenues (excluding reversal of the amnesty
license arrangement), as compared to $5.0 million, or 62% of total revenues, for
the same quarter of the prior year. The increase in SG&A expenses
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UNIFY CORPORATION
in absolute dollars was primarily because of the recruitment of several key
sales employees and additional professional services costs incurred as a result
of becoming a publicly traded company, partially offset by lower sales
commission expense relating to the significant decline in third quarter license
revenues as compared to the same period of the prior year. The increase in SG&A
expenses as a percentage of total revenues was because of the significant
decline in third quarter 1997 license revenues as compared to the same period of
the prior year. The level of SG&A expenditures may vary over the next several
quarters as the Company reevaluates operating expense levels.
BAD DEBT, STAFF REALIGNMENTS AND RELATED ASSET WRITE-OFFS
See Note 4 of Notes to Condensed Consolidated Financial Statements for a
description of these charges.
INCOME (LOSS) FROM OPERATIONS
The Company's management is currently in the process of realigning its
organizational structure with the objective of improving sales and marketing
effectiveness and reviewing operating expense levels in light of near term
revenue expectations. The Company expects to incur additional charges related
to these realignments and to record a significant operating loss in the fourth
quarter of fiscal 1997.
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 $195,000 for the quarter ended January 31,
1997 and $2,000 for the same quarter of the prior year, with the fiscal 1997
increase due primarily to interest income on net proceeds from the Company's
IPO.
PROVISION FOR INCOME TAXES
The Company recorded tax provisions for the quarters ended January 31, 1997
and 1996 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 NINE MONTHS ENDED JANUARY 31, 1997 AND 1996
REVENUES
Total revenues for the nine months ended January 31, 1997 decreased 12% over
the same period of the prior year to $18.9 million. Total license revenues
decreased 18% over the same period of the prior year to $11.7 million.
Graphical license revenues increased 53% over the
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UNIFY CORPORATION
same period of the prior year to $4.6 million, reflecting stable demand for
Unify VISION from the Company's installed base of customers and a single $1.2
million order from a customer based in China which was subsequently written off
(see Note 4 of Notes to Condensed Consolidated Financial Statements). Character
license revenues decreased 36% to $7.1 million, in part because of the absence
of any single large order during that period. In addition, the Company operated
without a senior sales executive in North America during the quarter ended
January 31, 1997, which negatively impacted both graphical and character license
revenues. The Company hired an experienced senior sales executive for North
America in February 1997. Service revenues remained constant at approximately
$7.3 million in both periods.
International revenues increased to 62% of total revenues in the nine
months ended January 31, 1997 from 59% in the same period of the prior year.
Total revenues declined in every geographic region except the Pacific Rim, but a
17% decline in North American revenues combined with $1.2 million in first
quarter revenues from China increased international revenues as a percentage of
total revenues in the first nine months of fiscal 1997 as compared to the same
period of the prior year.
COST OF REVENUES
Cost of software licenses for the nine months ended January 31, 1997
decreased to $0.9 million, or 8% of license revenues, as compared to $1.5
million, or 11% of license revenues, for the same period of the prior year.
There was no amortization of capitalized software development costs for the nine
months ended January 31, 1997, as compared to $0.5 million for the same period
of the prior year.
Cost of services for the nine month period increased to $3.4 million, or 47%
of service revenues, as compared to $3.2 million, or 43% of service revenues,
for the same period of the prior year. Since service revenues were constant
during these periods, the fiscal 1997 increases in absolute dollars and
percentage of service revenues resulted from higher costs in consulting services
because of increased staffing levels which were partially offset by lower costs
in support services related to efficiencies achieved in Japan.
PRODUCT DEVELOPMENT
Product development expenses for the nine months ended January 31, 1997
increased to $5.5 million, or 29% of total revenues, as compared to $4.4
million, or 20% of total revenues, for the same period of the prior year. The
increase in product development expenses in absolute dollars was primarily
because of increased staffing required to complete Unify VISION 3.0 and
VISION/Web and the purchase of third party source code for $0.5 million during
the nine months ended January 31, 1997. The increase in product development
expenses as a percentage of total revenues was the result of lower license
revenues and higher product development expenses in the first nine months of
fiscal 1997 as compared to the same period of the prior year.
SELLING, GENERAL AND ADMINISTRATIVE
SG&A expenses for the nine months ended January 31, 1997 increased to $16.7
million, or 88% of total revenues, as compared to $13.8 million, or 64% of
total revenues, for the same
13
<PAGE>
UNIFY CORPORATION
period of the prior year. The increase in SG&A expenses was primarily because
of the recruitment of several key sales and marketing employees during the first
half of fiscal 1996 and additional professional services costs incurred as a
result of becoming a publicly traded company, partially offset by lower sales
commission expense relating to the decline in license revenues compared to the
same period of the prior year. The increase in SG&A as a percentage of total
revenues is attributable to the fiscal 1997 increase in SG&A expenses in
absolute dollars combined with the decline in license revenues compared to the
same period of the prior year.
BAD DEBT, STAFF REALIGNMENTS AND RELATED ASSET WRITE-OFFS
See Note 4 of Notes to Condensed Consolidated Financial Statements for a
description of these charges.
OTHER INCOME, NET
Other income was $0.3 million for the nine months ended January 31, 1997 and
$0.2 million for the same period of the prior year, with the increase consisting
principally of interest income on net proceeds from the Company's IPO.
PROVISION FOR INCOME TAXES
The Company recorded tax provisions for the nine months ended January 31,
1997 and 1996 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 January 31, 1997, the Company had cash, cash equivalents and
short-term investments of $18.6 million, compared to $3.0 million as of April
30, 1996. Working capital increased to $10.0 million at January 31, 1997 from
a deficit of $3.2 million at April 30, 1996.
The Company's operating activities used cash of $7.2 million during the
nine months ended January 31, 1997, primarily for operating losses.
Investing activities during the period used cash of $8.2 million, consisting
principally of net purchases of short term investments of $7.2 million and
equipment purchases of $0.9 million. Cash provided by financing activities
during the period was $23.7 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 January
31, 1997. This facility expires in July 1997 and bears interest at 3.75% per
annum.
14
<PAGE>
UNIFY CORPORATION
The Company believes that current cash balances and short-term investments
will be sufficient to meet its cash requirements during the next 12 months.
Thereafter, depending on its operating results, 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.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Richard Medeiros joined the Company as Vice President,
Americas Sales, in February 1997.
Carla Schneiderman joined the Company as Vice President,
Worldwide Marketing and Business Development, in
February 1997.
Roel Pieper, Chief Executive Officer and President of
Tandem Computers, joined the Company's Board of Directors
in February 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11.01 Statement Regarding
Computation of Net Income (Loss)
Per Share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the
quarter ended January 31, 1997.
16
<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: March 14, 1997 Unify Corporation
(REGISTRANT)
By:
Susan Salvesen
------------------------------------------
Susan Salvesen
Vice President, Finance and Administration
and Chief Financial Officer (Principal
Financial and Accounting Officer)
17
<PAGE>
EXHIBIT 11.01
UNIFY CORPORATION
STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Jan. 31, Nine Months Ended Jan. 31,
--------------------------- --------------------------
1997 1996 1997 1996
----------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Net income (loss) $ (7,974) $ 14 $ (9,363) $ (1,327)
---------- ------- ---------- ---------
---------- ------- ---------- ---------
Weighted average common shares out-
standing during the period 8,038 1,114 3,989 1,169
Weighted average preferred shares and
dividends outstanding on an as if
converted basis - 3,480 3,566 3,423
Common share equivalents for stock options
and warrants outstanding using the
treasury stock method - 544 - -
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 8,038 6,238 7,555 5,692
---------- ------- ---------- ---------
---------- ------- ---------- ---------
Net income (loss) per share $ (0.99) $ 0.00 $ (1.24) $ (0.23)
---------- ------- ---------- ---------
---------- ------- ---------- ---------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JANUARY 31, 1997 AND
THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS
ENDED JANUARY 31, 1997 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> 9-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 11449
<SECURITIES> 7181
<RECEIVABLES> 6181
<ALLOWANCES> 706
<INVENTORY> 0
<CURRENT-ASSETS> 24567
<PP&E> 8455
<DEPRECIATION> 5899
<TOTAL-ASSETS> 27362
<CURRENT-LIABILITIES> 14526
<BONDS> 0
0
0
<COMMON> 52972
<OTHER-SE> (40624)
<TOTAL-LIABILITY-AND-EQUITY> 27362
<SALES> 18916
<TOTAL-REVENUES> 18916
<CGS> 4345
<TOTAL-COSTS> 28442
<OTHER-EXPENSES> (683)
<LOSS-PROVISION> 1920
<INTEREST-EXPENSE> 374
<INCOME-PRETAX> (9217)
<INCOME-TAX> 146
<INCOME-CONTINUING> (9363)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9363)
<EPS-PRIMARY> (1.24)
<EPS-DILUTED> (1.24)
</TABLE>
