<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 JANUARY 31, 1998
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.
8,347,591 shares of Common Stock, $0.001 par value, as of February 28, 1998
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
UNIFY CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
January 31, 1998 and April 30, 1997............................3
Condensed Consolidated Statements of Operations for
the three and nine months ended January 31, 1998
and 1997.......................................................4
Condensed Consolidated Statements of Cash Flows
for the nine months ended January 31, 1998 and 1997............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
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIFY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
January 31, April 30,
1998 1997
----------- ----------
<S> <C> <C>
ASSETS (unaudited) (1)
Current assets:
Cash and cash equivalents $ 7,089 $ 9,513
Short-term investments 3,143 7,133
Accounts receivable, net 5,340 4,557
Prepaid expenses and other current assets 649 526
-------- --------
Total current assets 16,221 21,729
Property and equipment, net 2,134 2,415
Other assets 89 294
-------- --------
Total assets $ 18,444 $ 24,438
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 63 $ 2,378
Accounts payable 1,081 1,586
Amounts due to minority interest stockholders 800 830
Accrued compensation and related expenses 1,694 1,972
Other accrued liabilities 3,323 3,797
Deferred revenue 3,560 3,531
-------- --------
Total current liabilities 10,521 14,094
Long-term debt, net of current portion 32 58
Minority interest 240 324
Stockholders' equity:
Common stock 8 8
Additional paid-in capital 53,472 52,965
Notes receivable from stockholders (214) (207)
Cumulative translation adjustments (746) (767)
Accumulated deficit (44,869) (42,037)
-------- --------
Total stockholders' equity 7,651 9,962
-------- --------
Total liabilities and stockholders' equity $ 18,444 $ 24,438
-------- --------
-------- --------
</TABLE>
(1) Derived from audited financial statements.
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
UNIFY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
Three Months Ended Jan. 31, Jan. 31,
--------------------------- -------------------------
1998 1997 1998 1997
-------- -------- --------- ----------
<S> <C> <C> <C> <C>
Revenues:
Software licenses $ 4,154 $ 2,841 $ 11,017 $ 11,667
Services 2,348 2,502 6,883 7,249
Amnesty license arrangement - (2,812) - -
-------- -------- --------- ---------
Total revenues 6,502 2,531 17,900 18,916
-------- -------- --------- ---------
Cost of revenues:
Software licenses 111 287 474 930
Services 1,051 1,123 3,275 3,415
-------- -------- --------- ---------
Total cost of revenues 1,162 1,410 3,749 4,345
-------- -------- --------- ---------
Gross margin 5,340 1,121 14,151 14,571
-------- -------- --------- ---------
Operating expenses:
Product development 1,358 2,151 4,332 5,525
Selling, general and administrative 3,926 7,105 12,782 18,572
-------- -------- --------- ---------
Total operating expenses 5,284 9,256 17,114 24,097
-------- -------- --------- ---------
Income (loss) from operations 56 (8,135) (2,963) (9,526)
Other income, net 72 195 273 309
-------- -------- --------- ---------
Income (loss) before income taxes 128 (7,940) (2,690) (9,217)
Provision for income taxes (52) (34) (142) (146)
-------- -------- --------- ---------
Net income (loss) $ 76 $ (7,974) $ (2,832) $ (9,363)
-------- -------- --------- ---------
-------- -------- --------- ---------
Net income (loss) per share, basic
and diluted $ 0.01 $ (1.01) $ (0.35) $ (1.39)
-------- -------- --------- ---------
-------- -------- --------- ---------
Shares used in computing net income
(loss) per share:
Basic 8,282 7,888 8,179 6,721
-------- -------- --------- ---------
-------- -------- --------- ---------
Diluted 8,418 7,888 8,179 6,721
-------- -------- --------- ---------
-------- -------- --------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
UNIFY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended January 31,
-----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,832) $ (9,363)
Reconciliation of net loss to net cash used in
operating activities:
Depreciation 798 970
Provision for losses on accounts receivable 57 -
Loss on disposal of property and equipment - 758
Minority interest (84) (97)
Liquidation of Benelux subsidiary 136 -
Imputed interest on stockholder line of credit - 194
Changes in operating assets and liabilities:
Accounts receivable (867) (416)
Prepaid expenses and other current assets (129) 378
Accounts payable (522) (121)
Amounts due to minority interest stockholders (26) (379)
Accrued compensation and related expenses (276) 574
Other accrued liabilities (473) 992
Deferred revenue 37 (732)
--------- ---------
Net cash used in operating activities (4,181) (7,242)
--------- ---------
Cash flows from investing activities:
Purchases of available-for-sale securities (5,309) (11,149)
Sales of available-for-sale securities 9,300 3,968
Purchases of property and equipment (518) (912)
Other assets 234 (75)
--------- ---------
Net cash provided by (used in) investing activities 3,707 (8,168)
--------- ---------
Cash flows from financing activities:
Principal payments under debt obligations (2,341) (220)
Proceeds from issuance of common stock, net 507 23,862
Collection of notes receivable from stockholders, net of
interest accrual (7) 61
--------- ---------
Net cash (used in) provided by financing activities (1,841) 23,703
--------- ---------
Effect of exchange rate changes on cash (109) 128
--------- ---------
Net (decrease) increase in cash and cash equivalents (2,424) 8,421
Cash and cash equivalents, beginning of period 9,513 3,028
--------- ---------
Cash and cash equivalents, end of period $ 7,089 $ 11,449
--------- ---------
--------- ---------
Supplemental schedule of noncash investing and financing activities:
Conversion of redeemable preferred stock and accrued dividends
to common stock $ - $ 26,726
--------- ---------
--------- ---------
Cash paid during the period for:
Interest $ 321 $ 66
--------- ---------
--------- ---------
Income taxes $ 116 $ 109
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
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, 1998 and April 30, 1997, the results
of operations for the three and nine months ended January 31, 1998 and 1997,
and the cash flows for the nine months ended January 31, 1998 and 1997. The
results for interim periods are not necessarily indicative of the results to be
expected for the entire fiscal 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, which are included in the Company's Annual Report on
Form 10-K for the year ended April 30, 1997 as filed with the SEC.
2. LONG-TERM DEBT
At April 30, 1997, the Company had a line of credit provided by certain
stockholders. The Company retired the full $2.2 million balance due under this
credit facility upon its expiration in July 1997.
3. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, EARNINGS PER SHARE. In
accordance with the provisions of this statement, the Company adopted SFAS No.
128 in the third quarter of fiscal 1998 and has restated earnings per share
data for prior periods to conform with the provisions of SFAS No. 128.
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for the periods shown:
6
<PAGE>
UNIFY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Jan. 31, Jan. 31,
---------------------- ------------------------
1998 1997 1998 1997
------- --------- --------- ---------
<S> <C> <C> <C> <C>
INCOME (LOSS) (NUMERATOR):
Net income (loss), basic and diluted $ 76 $ (7,974) $ (2,832) $ (9,363)
------- --------- --------- ---------
------- --------- --------- ---------
SHARES (DENOMINATOR):
Weighted average shares of common
stock outstanding 8,314 8,038 8,229 6,961
Weighted average common shares
subject to repurchase outstanding (32) (150) (50) (240)
------- --------- --------- ---------
Average shares outstanding, basic 8,282 7,888 8,179 6,721
--------- --------- ---------
--------- --------- ---------
Weighted average common shares
subject to repurchase outstanding 32
Weighted average common share equiva-
lents for stock options outstanding 104
-------
Average shares outstanding, diluted 8,418
-------
-------
PER SHARE AMOUNT:
Net income (loss) per share, basic and
diluted $ 0.01 $ (1.01) $ (0.35) $ (1.39)
------- --------- --------- ---------
------- --------- --------- ---------
</TABLE>
Options to purchase 793,847 shares of common stock at prices ranging from
$2.38 to $4.20 per share were outstanding during the three months ended January
31, 1998 but were not included in the computation of diluted earnings per share
because the options' exercise prices were greater than the average market price
of the common shares during that period. The options, which expire on various
dates through January 2002, were still outstanding as of January 31, 1998.
4. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued two new SFASs.
SFAS No. 130, REPORTING COMPREHENSIVE INCOME, requires that an enterprise
report, by major components and as a single total, the change in its net assets
from nonowner sources during the period. SFAS No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, establishes annual and
interim reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
Adoption of these statements will not impact the Company's consolidated
financial position, results of operations or cash flows. Both statements are
effective for fiscal years beginning after December 15, 1997, with earlier
application permitted.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, SOFTWARE REVENUE RECOGNITION. This
statement provides guidance on applying generally accepted accounting
principles in recognizing revenues on software transactions. SOP 97-2
supercedes SOP 91-1 and is effective for transactions entered into for fiscal
years beginning after December 15, 1997.
7
<PAGE>
UNIFY CORPORATION
SOP 97-2 addresses software revenue recognition matters primarily at a
conceptual level. Based on its reading and interpretation of this statement,
the Company believes it is currently in compliance with the provisions of SOP
97-2. However, detailed implementation guidelines for this statement have not
yet been issued. Once issued, such detailed implementation guidelines could
lead to unanticipated changes in the Company's current revenue accounting
practices and these changes could be material to the Company's revenues and
operating results.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE DISCUSSION IN THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING
STATEMENTS THAT HAVE BEEN MADE PURSUANT TO THE PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS ARE
BASED ON CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS ABOUT THE SOFTWARE
INDUSTRY AND CERTAIN ASSUMPTIONS MADE BY THE COMPANY'S MANAGEMENT. WORDS SUCH
AS "ANTICIPATES", "EXPECTS", "INTENDS", "PLANS", "BELIEVES", "SEEKS",
"ESTIMATES", VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES
OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-
LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED
TO, THOSE SET FORTH HEREIN UNDER "VOLATILITY OF STOCK PRICE AND GENERAL RISK
FACTORS AFFECTING QUARTERLY RESULTS"AND IN THE COMPANY'S ANNUAL REPORT ON FORM
10-K UNDER "BUSINESS - RISK FACTORS." UNLESS REQUIRED BY LAW, THE COMPANY
UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS,
WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. HOWEVER,
READERS SHOULD CAREFULLY REVIEW THE RISK FACTORS SET FORTH IN OTHER REPORTS OR
DOCUMENTS THE COMPANY FILES FROM TIME TO TIME WITH THE SEC, PARTICULARLY THE
COMPANY'S ANNUAL REPORTS ON FORM 10-K, QUARTERLY REPORTS ON FORM 10-Q AND ANY
CURRENT REPORTS ON FORM 8-K.
The following discussion should be read in conjunction with the unaudited
Condensed Consolidated Financial Statements and Notes thereto in Part I, Item 1
of this Quarterly Report on Form 10-Q and with the audited Consolidated
Financial Statements and Notes thereto, together with Management's Discussion
and Analysis of Financial Condition and Results of Operations, which are
included in the Company's Annual Report on Form 10-K for the year ended April
30, 1997 as filed with the SEC.
RESULTS OF OPERATIONS
REVENUES
The Company recognizes software license revenue when a noncancelable 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, with pricing for graphical products
generally based upon the number of developers or end users, as applicable.
Customer
8
<PAGE>
UNIFY CORPORATION
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 the Company believes 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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Jan. 31, Jan. 31,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
License revenues:
Graphical $ 2,022 $ 623 $ 5,287 $ 4,566
Character 2,132 2,218 5,730 7,101
-------- -------- -------- --------
Total license revenues 4,154 2,841 11,017 11,667
Services revenues 2,348 2,502 6,883 7,249
Amnesty license arrangement - (2,812) - -
-------- -------- -------- --------
Total revenues $ 6,502 $ 2,531 $ 17,900 $ 18,916
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Total revenues for the three and nine months ended January 31, 1998 increased
157% and decreased 5%, respectively, over the same periods of the prior year.
Graphical license revenues for those periods were 225% and 16% higher,
respectively, than the same periods of the prior year. The increase in
graphical license revenues for the quarter ended January 31, 1998 was primarily
because there were four Unify VISION sales totaling $1.0 million in that
quarter, whereas there were no Unify VISION sales of similar size in the same
quarter of the prior year. The increase in graphical license revenues for the
nine months ended January 31, 1998 was primarily attributable to the strong
third quarter fiscal 1998 performance compared to the same period of the prior
year. Because of factors such as those described in "Volatility of Stock Price
and General Risk Factors Affecting Quarterly Results," especially continuing
longer sales cycles associated with enterprise-level sales transactions, there
can be no assurance that the Company will be able to maintain the same level of
graphical license revenues as recorded for the quarter ended January 31, 1998.
Character license revenues for the three and nine months ended January 31, 1998
decreased 4% and 19%, respectively, over the same periods of the prior year,
principally because of the general decline in demand for character products and
the Company's continued focus on its graphical products. Service revenues for
the three and nine months ended January 31, 1998 decreased 6% and 5%,
respectively, over the same periods of the prior year primarily because of a
10% decline in the total value of maintenance contracts obtained during the
third and fourth quarters of fiscal 1997 which was associated with lower total
license revenues in those quarters as compared to the same quarters of the
prior year.
International revenues increased to 61% of total revenues in the quarter
ended January 31, 1998 from 21% of total revenues in the same quarter of the
prior year. International revenues for the third quarter of fiscal 1997 were
lower primarily due to the reversal of the $2.8 million amnesty license
arrangement in that quarter. International revenues decreased to 54% of total
9
<PAGE>
UNIFY CORPORATION
revenues in the nine months ended January 31, 1998 from 62% of total revenues
in the same period of the prior year. U.S. sales were stronger in the fiscal
1998 period due to management focus on this region while a single international
sale totaling $1.2 million improved international performance in the fiscal
1997 period.
The Company made significant changes in the management and structure of its
sales and marketing organizations and released Unify VISION 3.0 and
VISION/Web during the second half of fiscal 1997. As a result, the Company
began to experience new opportunities to compete for larger, enterprise-level
sales transactions which were accompanied by significantly longer sales
cycles. 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.
COST OF REVENUES
Cost of software licenses for the three and nine months ended January 31,
1998 decreased to 3% and 4% of license revenues, respectively, as compared to
10% and 8% of license revenues for the same periods of the prior year. The
decreases in cost of software licenses in absolute dollars and as a percentage
of license revenues in both of the fiscal 1998 periods were due to continuing
efficiencies achieved in the U.S. and Japan.
Cost of services for the three and nine months ended January 31, 1998 were
comparable in absolute dollars and as a percentage of service revenues compared
to the same periods of the prior year, reflecting somewhat lower maintenance
revenues offset by slightly lower maintenance costs in the fiscal 1998 periods.
As the Company increases its emphasis on providing comprehensive application
development solutions in the remainder of fiscal 1998 and in fiscal 1999, it
expects that consulting service costs may increase.
PRODUCT DEVELOPMENT
Product development expenses for the quarter ended January 31, 1998 decreased
to $1.4 million, or 21% of total revenues, as compared to $2.2 million, or 40%
of total revenues (excluding the amnesty license arrangement), for the same
quarter of the prior year. Product development expenses for the nine months
ended January 31, 1998 decreased to $4.3 million, or 24% of total revenues, as
compared to $5.5 million, or 29% of total revenues, for the same period of the
prior year. The declines in product development expenses in absolute dollars
were attributable to a decrease in contract staffing in the first nine months
of fiscal 1998 from the level of staffing required in the first nine months of
fiscal 1997 to complete Unify VISION 3.0 and VISION/Web in a timely manner and
to the purchase of third party source code for $0.5 million in the third
quarter of fiscal 1997. 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.
10
<PAGE>
UNIFY CORPORATION
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses for the quarter ended
January 31, 1998 decreased to $3.9 million, or 60% of total revenues, as
compared to $7.1 million, or 133% of total revenues (excluding the amnesty
license arrangement), for the same quarter of the prior year. SG&A expenses
for the nine months ended January 31, 1998 decreased to $12.8 million, or 71%
of total revenues, as compared to $18.6 million, or 98% of total revenues, for
the same period of the prior year. Fiscal 1998 SG&A expenses decreased in
absolute dollars compared to the same periods of the prior year as the Company
continued to manage expenses and realign staff. Third quarter fiscal 1997 SG&A
expenses included charges totaling $1.9 million for bad debt, staff
realignments and related asset write-offs. The Company expects
that total SG&A expenses will fluctuate from quarter to quarter principally
because of variability in marketing program spending and sales commission
expense.
PROVISION FOR INCOME TAXES
The Company recorded tax provisions for the three and nine months ended
January 31, 1998 and 1997 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 substantial net operating loss
carryforwards.
VOLATILITY OF STOCK PRICE AND GENERAL RISK FACTORS AFFECTING QUARTERLY RESULTS
The Company's common stock price has been and is likely to continue to be
subject to significant volatility. A variety of factors could cause the price
of the Company's common stock to fluctuate, perhaps substantially, including:
announcements of developments related to the Company's business; fluctuations
in the Company's or its competitors' quarterly operating results and order
levels; general conditions in the computer industry or the worldwide economy;
announcements of technological innovations; new products or product
enhancements by the Company or its competitors; changes in financial estimates
by securities analysts; developments in patent, copyright or other intellectual
property rights; and developments in the Company's relationships with its
customers, distributors and suppliers. In addition, in recent years the stock
market in general, and the market for shares of equity securities of many high
technology companies in particular, has experienced extreme price fluctuations
which have often been unrelated to the operating performance of those
companies. Such fluctuations may adversely affect the market price of the
Company's common stock.
The Company's quarterly operating results have varied significantly in the
past, and the Company expects that its operating results are likely to vary
significantly from time to time in the future. Such variations result from,
among other factors, the following: 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 and its competitors; ability of the Company to attract and retain key
employees, especially in the sales organization; seasonality; changes in
pricing policies by the Company or
11
<PAGE>
UNIFY CORPORATION
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; 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 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. In addition, the Company expanded
its North American direct sales force early in fiscal 1998 and the rate at
which new sales people become productive could also cause material fluctuations
in the Company's quarterly operating results.
Because of 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 maintenance services, is lengthy and varies substantially from
customer to customer. In particular, with the fiscal 1997 release of Unify
VISION 3.0 and VISION/Web the Company has experienced 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 the end of a fiscal
quarter, the Company generally recognizes a substantial portion of its revenues
at the end of a quarter. As the Company's expense levels are based in
significant part on the Company's expectations as to future revenues and are
therefore relatively fixed in the short term, if revenue levels fall below
expectations operating results are likely to be disproportionately adversely
affected.
The Company also expects that its operating results will be affected by
seasonal trends. The Company believes that it is likely it will experience
relatively higher revenues in fiscal quarters ending April 30 and relatively
lower revenues in fiscal quarters ending July 31 as a result of efforts by its
direct sales force to meet fiscal year-end sales quotas. The Company also
anticipates that it may experience relatively weaker demand in fiscal quarters
ending July 31 and October 31 as a result of reduced business activity in
Europe during the summer months.
In particular, because of the foregoing factors and because of longer sales
cycles associated with Unify VISION 3.0 and VISION/Web, the operating results
of the Company for the quarter ending April 30, 1998 are subject to significant
uncertainty. The Company has incurred net losses in five of the last eight
fiscal quarters and in each of the last five fiscal years. Although the
Company recorded a small operating profit for the quarter ended January 31,
1998, there can be no assurance regarding the Company's continued
profitability.
12
<PAGE>
UNIFY CORPORATION
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1998, the Company had cash, cash equivalents and short-term
investments of $10.2 million, compared to $16.6 million at April 30, 1997.
Working capital decreased to $5.7 million at January 31, 1998 from $7.6 million
at April 30, 1997.
The Company's operating activities used cash of $4.2 million during the nine
months ended January 31, 1998, primarily for operating losses and increases in
accounts receivable. Investing activities during the period generated cash of
$3.7 million, consisting principally of net sales of short term investments of
$4.0 million offset by equipment purchases of $0.5 million. Cash used in
financing activities during the period was $1.8 million, representing primarily
the retirement of the $2.2 million stockholder line of credit which expired in
July 1997 offset by proceeds from issuance of common stock of $0.5 million.
The Company believes that current cash, cash equivalents 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, that it will be on
terms satisfactory to the Company.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued two new SFASs.
SFAS No. 130, REPORTING COMPREHENSIVE INCOME, requires that an enterprise
report, by major components and as a single total, the change in its net assets
from nonowner sources during the period. SFAS No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, establishes annual and
interim reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
Adoption of these statements will not impact the Company's consolidated
financial position, results of operations or cash flows. Both statements are
effective for fiscal years beginning after December 15, 1997, with earlier
application permitted.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, SOFTWARE REVENUE RECOGNITION. This
statement provides guidance on applying generally accepted accounting
principles in recognizing revenues on software transactions. SOP 97-2
supercedes SOP 91-1 and is effective for transactions entered into for fiscal
years beginning after December 15, 1997.
SOP 97-2 addresses software revenue recognition matters primarily at a
conceptual level. Based on its reading and interpretation of this statement,
the Company believes it is currently in compliance with the provisions of SOP
97-2. However, detailed implementation guidelines for this statement have not
yet been issued. Once issued, such detailed implementation guidelines could
lead to unanticipated changes in the Company's current revenue accounting
practices and these changes could be material to the Company's revenues and
operating results.
13
<PAGE>
UNIFY CORPORATION
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Todd Wille, Vice President, Finance and Administration and Chief
Financial Officer, resigned his position effective March 31, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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, 1998.
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: March 13, 1998 Unify Corporation
(REGISTRANT)
By:
Todd Wille
-------------------------------------------
Todd Wille
Vice President, Finance and Administration
and Chief Financial Officer (Principal
Financial and Accounting Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's condensed consolidated balance sheet as of January 31, 1998 and
condensed consolidated statement of operations for the nine months ended January
31, 1998 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-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 7,089
<SECURITIES> 3,143
<RECEIVABLES> 5,731
<ALLOWANCES> 391
<INVENTORY> 0
<CURRENT-ASSETS> 16,221
<PP&E> 6,647
<DEPRECIATION> 4,513
<TOTAL-ASSETS> 18,444
<CURRENT-LIABILITIES> 10,521
<BONDS> 0
0
0
<COMMON> 53,480
<OTHER-SE> (45,829)
<TOTAL-LIABILITY-AND-EQUITY> 18,444
<SALES> 17,900
<TOTAL-REVENUES> 17,900
<CGS> 3,749
<TOTAL-COSTS> 20,863
<OTHER-EXPENSES> (377)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> (2690)
<INCOME-TAX> (142)
<INCOME-CONTINUING> (2832)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2832)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
