<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, 1999
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)
100 CENTURY CENTER COURT, SUITE 302
SAN JOSE, CALIFORNIA 95112
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE: (408) 451-2000
(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.
8,640,863 shares of Common Stock, $0.001 par value, as of February 28, 1999
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<PAGE>
UNIFY CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
January 31, 1999 and April 30, 1998.................. 3
Condensed Consolidated Statements of Operations for
the three and nine months ended January 31, 1999
and 1998............................................. 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended January 31, 1999 and 1998.. 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. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNIFY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
January 31, April 30,
1999 1998
---------- ----------
ASSETS (unaudited) (1)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,255 $ 5,279
Short-term investments 4,300 5,460
Accounts receivable, net 7,567 5,568
Prepaid expenses and other current assets 678 779
-------- --------
Total current assets 18,800 17,086
Property and equipment, net 1,552 1,925
Other assets 76 88
-------- --------
Total assets $ 20,428 $ 19,099
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ - $ 18
Accounts payable 989 1,041
Amounts due to minority interest stockholders 626 756
Accrued compensation and related expenses 1,390 1,889
Other accrued liabilities 2,923 3,076
Deferred revenue 3,063 3,745
-------- --------
Total current liabilities 8,991 10,525
Long-term debt, net of current portion - 4
Minority interest 237 275
Stockholders' equity:
Common stock 9 8
Additional paid-in capital 53,862 53,474
Notes receivable from stockholders (149) (216)
Cumulative translation adjustments (594) (521)
Accumulated deficit (41,928) (44,450)
-------- --------
Total stockholders' equity 11,200 8,295
-------- --------
Total liabilities and stockholders' equity $ 20,428 $ 19,099
-------- --------
-------- --------
</TABLE>
(1) Derived from the audited consolidated financial statements for the year
ended April 30, 1998.
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 Nine Months Ended
January 31, January 31,
------------------- -----------------
1999 1998 1999 1998
------ ------ ------- -------
<S> <C> <C> <C> <C>
Revenues:
Software licenses $5,343 $4,154 $14,311 $11,017
Services 2,734 2,348 7,626 6,883
------ ------ ------- -------
Total revenues 8,077 6,502 21,937 17,900
------ ------ ------- -------
Cost of revenues:
Software licenses 172 111 634 474
Services 1,088 1,051 3,215 3,275
------ ------ ------- -------
Total cost of revenues 1,260 1,162 3,849 3,749
------ ------ ------- -------
Gross margin 6,817 5,340 18,088 14,151
------ ------ ------- -------
Operating expenses:
Product development 1,457 1,358 4,390 4,332
Selling, general and administrative 3,933 3,926 11,192 12,782
------ ------ ------- -------
Total operating expenses 5,390 5,284 15,582 17,114
------ ------ ------- -------
Income (loss) from operations 1,427 56 2,506 (2,963)
Other income, net 53 72 176 273
------ ------ ------- -------
Income (loss) before income taxes 1,480 128 2,682 (2,690)
Provision for income taxes (72) (52) (160) (142)
------ ------ ------- -------
Net income (loss) $1,408 $ 76 $ 2,522 $(2,832)
------ ------ ------- -------
------ ------ ------- -------
Net income (loss) per share:
Basic $ 0.17 $ 0.01 $ 0.30 $ (0.35)
------ ------ ------- -------
------ ------ ------- -------
Diluted $ 0.15 $ 0.01 $ 0.28 $ (0.35)
------ ------ ------- -------
------ ------ ------- -------
Shares used in computing net
income (loss) per share:
Basic 8,523 8,282 8,494 8,179
------ ------ ------- -------
------ ------ ------- -------
Diluted 9,355 8,418 9,088 8,179
------ ------ ------- -------
------ ------ ------- -------
</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>
Nine Months Ended January 31,
-----------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,522 $(2,832)
Reconciliation of net income (loss) to net cash used
in operating activities:
Depreciation 826 798
Provision for losses on accounts receivable 481 57
Minority interest (38) (84)
Compensation expense recorded on forgiveness
of notes receivable from stockholders 75 -
Liquidation of Benelux subsidiary - 136
Changes in operating assets and liabilities:
Accounts receivable (2,316) (867)
Prepaid expenses and other current assets 113 (129)
Accounts payable (81) (522)
Amounts due to minority interest stockholders (212) (26)
Accrued compensation and related expenses (521) (276)
Other accrued liabilities (166) (473)
Deferred revenue (760) 37
------- -------
Net cash used in operating activities (77) (4,181)
------- -------
Cash flows from investing activities:
Purchases of available-for-sale securities (2,300) (5,309)
Sales of available-for-sale securities 3,460 9,300
Purchases of property and equipment (450) (518)
Other assets 12 234
------- -------
Net cash provided by investing activities 722 3,707
------- -------
Cash flows from financing activities:
Principal payments under debt obligations (22) (2,341)
Proceeds from issuance of common stock, net 547 507
Repurchase of common stock (159) -
Accrual of interest on notes receivable from stockholders (8) (7)
------- -------
Net cash provided by (used in) financing activities 358 (1,841)
------- -------
Effect of exchange rate changes on cash (27) (109)
------- -------
Net increase (decrease) in cash and cash equivalents 976 (2,424)
Cash and cash equivalents, beginning of period 5,279 9,513
------- -------
Cash and cash equivalents, end of period $ 6,255 $ 7,089
------- -------
------- -------
Cash paid during the period for:
Interest $ 108 $ 321
------- -------
------- -------
Income taxes $ 68 $ 116
------- -------
------- -------
</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, such financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
which the Company considers necessary for a fair presentation. 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, 1998 as filed with
the SEC.
2. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations for the periods
indicated (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
------------------- --------------------
1999 1998 1999 1998
------ ------ ------ -------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) (NUMERATOR):
Net income (loss), basic and diluted $1,408 $ 76 $2,522 $(2,832)
------ ------ ------ -------
------ ------ ------ -------
SHARES (DENOMINATOR):
Weighted average shares of common
stock outstanding, basic 8,523 8,282 8,494 8,179
Weighted average common equivalent
shares outstanding 832 136 594 -
------ ------ ------ -------
Weighted average shares of common
stock outstanding, diluted 9,355 8,418 9,088 8,179
------ ------ ------ -------
------ ------ ------ -------
PER SHARE AMOUNT:
Net income (loss) per share, basic $ 0.17 $ 0.01 $ 0.30 $ (0.35)
Reduction in net income per share
due to weighted average common
equivalent shares (0.02) - (0.02) -
------ ------ ------ -------
Net income (loss) per share, diluted $ 0.15 $ 0.01 $ 0.28 $ (0.35)
------ ------ ------ -------
------ ------ ------ -------
ANTIDILUTIVE SHARES: - 794 22 -
------ ------ ------ -------
------ ------ ------ -------
</TABLE>
3. COMPREHENSIVE INCOME
Effective May 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This
statement requires that all items
6
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UNIFY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
recognized under accounting standards as components of comprehensive income
be reported in an annual financial statement that is displayed with the same
prominence as other annual financial statements. This statement also requires
that an entity classify items of other comprehensive income by their nature
in an annual financial statement. For example, other comprehensive income
includes foreign currency translation adjustments. Annual financial
statements for prior periods will be reclassified, as required. The Company's
total comprehensive income (loss) was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
----------------- --------------------
1999 1998 1999 1998
------ ---- ------ -------
<S> <C> <C> <C> <C>
Net income (loss) $1,408 $ 76 $2,522 $(2,832)
Foreign currency translation (32) (42) (73) 21
------ ---- ------ -------
Total comprehensive income (loss) $1,376 $ 34 $2,449 $(2,811)
------ ---- ------ -------
------ ---- ------ -------
</TABLE>
4. STOCK REPURCHASE PROGRAM
In September 1998, the Company announced that its Board of Directors had
authorized the repurchase of up to 500,000 of its outstanding common shares.
At January 31, 1999, a total of 52,500 common shares had been reacquired
under this program at an average price of $3.04 per share.
5. NOTE RECEIVABLE FROM STOCKHOLDER
In November 1998, the Company entered into a new employment agreement
with one if its officers which was effective May 1, 1998. Under the terms of
this new agreement, the Company's note receivable from this officer in the
principal amount of $195,000 will be forgiven at the rate of $25,000 per
quarter, contingent upon the officer's continued employment with the Company.
Accordingly, $75,000 in debt forgiveness was recorded as a charge to
compensation expense in the third quarter of fiscal 1999.
6. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities. This statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. The Company
has not yet determined the impact of SFAS No. 133 on the Company's financial
statements.
7
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UNIFY CORPORATION
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, 1998 as filed with the SEC.
RESULTS OF OPERATIONS
REVENUES
The Company's strategy focuses on the marketing and enhancement of its
graphical product, Unify VISION. In February 1999, the Company released Unify
VISION 5.0 which enables customers to deliver e-commerce applications by
integrating Microsoft Internet and Windows client/server applications with
UNIX application services. Unify continues to support its installed base of
character products, which the Company believes represents a significant
source of potential customers for Unify VISION. The Company also generates a
significant portion of its 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 (in thousands):
8
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UNIFY CORPORATION
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
------------------- ---------------------
1999 1998 1999 1998
------ ------ -------- -------
<S> <C> <C> <C> <C>
License revenues:
Graphical $3,139 $2,022 $ 8,008 $ 5,287
Character 2,204 2,132 6,303 5,730
------ ------ ------- -------
Total license revenues 5,343 4,154 14,311 11,017
Services revenues 2,734 2,348 7,626 6,883
------ ------ ------- -------
Total revenues $8,077 $6,502 $21,937 $17,900
------ ------ ------- -------
------ ------ ------- -------
</TABLE>
Total revenues for the three and nine months ended January 31, 1999
increased 24% and 23%, respectively, over the same periods of the prior year.
License revenues from graphical products for the three and nine months ended
January 31, 1999 were 55% and 51% higher, respectively, than for the same
periods of the prior year, reflecting increased customer acceptance of Unify
VISION. Because of factors such as those described in "Volatility of Stock
Price and General Risk Factors Affecting Quarterly Results," there can be no
assurance that the Company will be able to maintain the same level of
graphical product license revenues as recorded for the quarter ended January
31, 1999. License revenues from character products were stable at
approximately $2.2 million in each of the quarters ended January 31, 1999 and
1998. Character license revenues of $6.3 million for the nine months ended
January 31, 1999 increased 10% over the same period of the prior year due to
the timing of certain larger orders. Service revenues for the three and nine
months ended January 31, 1999 increased 16% and 11%, respectively, over the
same periods of the prior year principally due to an increase in customer
maintenance contracts associated with higher license revenues in the fiscal
1999 periods.
International revenues decreased to 48% and 52% of total revenues in the
three and nine months ended January 31, 1999 from 61% and 54% of total
revenues in the three and nine months ended January 31, 1998. The decrease in
international revenues as a percentage of total revenues for the three months
ended January 31, 1999 is primarily attributable to the faster growth of U.S.
revenues during the period. U.S. revenues increased 68% in the third quarter
of fiscal 1999 compared to the same period of the prior year due to improved
acceptance of the Company's graphical products in that market. International
revenues as a percentage of total revenues were similar in the nine months
ended January 31, 1999 and 1998 as both U.S. and European revenues for that
period increased 28% while revenues in the rest of the world were stable. The
revenue increases in absolute dollars in the U.S. and in Europe in the nine
months ended January 31, 1999 were due to improved penetration of Unify
VISION in Value Added Reseller ("VAR") accounts as a result of a renewed
focus on those accounts.
COST OF REVENUES
Cost of software licenses represented 3% of software licenses for the
three months ended January 31, 1999 and 1998 and 4% of software license
revenues for the nine months ended January 31, 1999 and 1998.
9
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UNIFY CORPORATION
Cost of services for the three and nine months ended January 31, 1999 in
absolute dollars were comparable to the same periods of the prior year as
headcount in the U.S. customer maintenance organization stabilized in the
third quarter of fiscal 1999. Cost of services for the three and nine months
ended January 31, 1999 decreased as a percentage of service revenues to 40%
and 42%, respectively, from 45% and 48% in the same periods of the prior year
primarily due to more efficient utilization of service personnel.
PRODUCT DEVELOPMENT
Product development expenses for the quarters ended January 31, 1999 and
1998 were comparable at $1.5 million and $1.4 million, respectively, and
represented 18% and 21% of total revenues for those periods. Product
development expenses for the nine months ended January 31, 1999 and 1998 were
also stable at $4.4 million and $4.3 million, respectively, and represented
20% and 24% of total revenues for those periods. The decreases in product
development expenses as a percentage of total revenues were due to the growth
in total revenues during the fiscal 1999 periods as compared to the same
periods 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.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses for the quarter
ended January 31, 1999 and 1998 were comparable at $3.9 million and
represented 49% and 60% of total revenues for those periods. SG&A expenses
for the nine months ended January 31, 1999 decreased to $11.2 million, or 51%
of total revenues, as compared to $12.8 million, or 71% of total revenues,
for the same period of the prior year. Fiscal 1999 SG&A expenses were
comparable or decreased in absolute dollars compared to the same periods of
the prior year primarily due to a cost control program which began in the
second quarter of fiscal 1998 and included lower headcount and a flattening
of the management structure in sales, marketing and finance. The decreases in
SG&A expenses as a percentage of total revenues were attributable to the
decreases in absolute dollars as well as to the increase in fiscal 1999 total
revenues as compared to the same periods of the prior year. The Company
expects that total SG&A expenses will fluctuate from quarter to quarter
primarily 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, 1999 and 1998 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 significant
federal or state income tax provisions as the Company had substantial net
operating loss carryforwards.
10
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UNIFY CORPORATION
YEAR 2000 COMPLIANCE
INTRODUCTION
Many of the world's computer systems currently record years in a
two-digit format. Such computer systems will be unable to properly interpret
dates beyond the year 1999, which could lead to business disruption (the
"Year 2000" issue).
STATE OF READINESS
The Company believes that its current products are fully Year 2000
compliant. All current Unify products use four-digit years for all internal
manipulations and representations. The Company has informed its customers
that it will be phasing out support for certain older versions of Unify
products that are not Year 2000 compliant by December 15, 1999. However,
there can be no assurance that the Company's products will function properly
with other potentially non-compliant products, including third party software
and hardware. Additionally, there can be no assurance that the Company's
products contain or will contain all features and functionality considered
necessary by customers, distributors, resellers and system integrators to be
Year 2000 compliant. If Unify's products cannot manage and manipulate data
related to the Year 2000, the result could be a material adverse effect on
the Company's business.
The Company sought to identify all significant internal applications and
business processes that would require modification to ensure Year 2000
compliance during fiscal 1996 and believes that, with the exception of its
accounting systems and certain older equipment and software, all appropriate
modification and testing of those applications and processes were completed
by the end of fiscal 1997. With regard to its accounting systems, the
reprogramming necessary for Year 2000 compliance has been identified and is
underway; the Company expects that reprogramming and testing of these systems
will be complete by the end of fiscal 1999. With regard to the older
equipment and software, primarily personal computers and related software,
upgrades and replacements have been identified and are in the process of
being ordered and installed. The Company expects that installation and
testing of new equipment and software will be complete by the end of fiscal
1999. However, no assurance can be given that the Company will not experience
unanticipated material costs caused by undetected errors or defects in its
internal systems.
An assessment of the readiness of significant suppliers and service
providers with which the Company electronically interacts is ongoing. To
date, the Company is not aware of any significant supplier or service
provider with a Year 2000 issue that would materially impact the Company's
business, operating results or financial condition. However, the Company has
no means of ensuring that suppliers and service providers will be Year 2000
compliant. The inability of suppliers and service providers to complete their
Year 2000 resolution process in a timely fashion could materially and
adversely impact the Company.
11
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UNIFY CORPORATION
COSTS
The costs incurred in addressing the Year 2000 issue are being expensed
as incurred in compliance with generally accepted accounting principles. The
total cost to date of these Year 2000 compliance activities is approximately
$550,000 and the cost of future Year 2000 compliance activities is estimated
to be approximately $350,000. Funding of these costs will come from existing
cash resources and future operating cash flows.
RISKS
The Company believes that the purchasing patterns of customers and
potential customers may be affected by the Year 2000 issue in a variety of
ways. Many companies are expending significant resources to correct their
current software systems for Year 2000 compliance. These expenditures may
result in reduced funds available to purchase enterprise application software
products such as those offered by the Company. The impact of the foregoing on
the Company's business, operating results and financial condition is not
determinable.
CONTINGENCY PLANS
The Company currently expects that the Year 2000 issue will not pose
significant internal operational problems. However, a delay in implementing
new information systems, or a failure to fully identify all Year 2000
dependencies in Unify's internal systems or in the systems of the Company's
suppliers and service providers could have material adverse consequences,
including delays in the delivery of products. Therefore, the Company is
developing contingency plans for continuing operations should these types of
problems arise. The Company believes that its contingency plans will be
complete and tested by the end of fiscal 1999.
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 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
12
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UNIFY CORPORATION
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;
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; 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.
Due to the foregoing factors, quarterly revenues and operating results
are difficult to forecast. Revenues are also difficult to forecast because
the market for client/server and Internet 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. 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, in general, 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 and channel sales forces 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.
Due to the foregoing factors, the operating results of the Company for
the quarter ending April 30, 1999 are subject to significant uncertainty. The
Company has incurred net losses in three of the last eight fiscal quarters
and in each of the last five fiscal years. Although the Company recorded
operating profits in each of the five quarters ended January 31, 1999, there
can be no assurance regarding the Company's continued profitability.
13
<PAGE>
UNIFY CORPORATION
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1999, the Company had cash, cash equivalents and
short-term investments of $10.6 million, compared to $10.7 million at April
30, 1998. Working capital increased to $9.8 million at January 31, 1999 from
$6.6 million at April 30, 1998.
The Company's operating activities used cash of $0.1 million during the
nine months ended January 31, 1999. Investing activities during the period
generated cash of $0.7 million, consisting principally of net sales of short
term investments of $1.2 million offset by equipment purchases of $0.5
million. Cash provided by financing activities during the period was $0.4
million, representing primarily proceeds of $0.5 million from the issuance of
common stock offset by the acquisition of $0.2 million in common stock under
the Company's stock repurchase program.
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.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The address and telephone number on the cover of this Form
10-Q reflect a new principal executive office for the
Company.
On February 1, 1999, John Davis joined the Company as Vice
President, Business Development.
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, 1999.
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 10, 1999 Unify Corporation
(REGISTRANT)
By:
/s/ Gary Pado
---------------------------------------
Gary Pado
Vice President, Finance, 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, 1999 AND
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
JANUARY 31, 1999 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-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 6,255
<SECURITIES> 4,300
<RECEIVABLES> 8,526
<ALLOWANCES> (959)
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<CURRENT-ASSETS> 18,800
<PP&E> 6,581
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