<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 JULY 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, THIRD FLOOR
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.
8,853,614 shares of Common Stock, $0.001 par value, as of August 31, 1999
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UNIFY CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
July 31, 1999 and April 30, 1999................................ 3
Condensed Consolidated Statements of Income for
the three months ended July 31, 1999 and 1998................... 4
Condensed Consolidated Statements of Cash Flows
for the three months ended July 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................................................. 15
Item 6. Exhibits and Reports on Form 8-K.................................. 15
SIGNATURE ............................................................................. 16
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIFY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
July 31, April 30,
1999 1999
---------- ----------
ASSETS (unaudited) (1)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,993 $ 5,315
Short-term investments 3,663 6,072
Accounts receivable, net 8,636 9,156
Prepaid expenses and other current assets 663 732
---------- ----------
Total current assets 21,955 21,275
Property and equipment, net 1,290 1,417
Other assets 368 242
---------- ----------
Total assets $ 23,613 $ 22,934
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,059 $ 1,138
Amounts due to minority interest stockholders 517 608
Accrued compensation and related expenses 1,346 1,650
Other accrued liabilities 2,105 2,621
Deferred revenue 2,890 3,326
---------- ----------
Total current liabilities 7,917 9,343
Minority interest 313 265
Stockholders' equity:
Common stock 9 9
Additional paid-in capital 54,439 54,123
Notes receivable from stockholders (101) (125)
Cumulative other comprehensive income (682) (653)
Accumulated deficit (38,282) (40,028)
---------- ----------
Total stockholders' equity 15,383 13,326
---------- ----------
Total liabilities and stockholders' equity $ 23,613 $ 22,934
---------- ----------
---------- ----------
</TABLE>
(1) Derived from the audited consolidated financial statements for the year
ended April 30, 1999.
See accompanying notes to condensed consolidated financial statements.
3
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UNIFY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended July 31,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenues:
Software licenses $ 6,004 $ 4,242
Services 2,704 2,418
---------- ----------
Total revenues 8,708 6,660
---------- ----------
Cost of revenues:
Software licenses 229 226
Services 1,143 1,053
---------- ----------
Total cost of revenues 1,372 1,279
---------- ----------
Gross margin 7,336 5,381
---------- ----------
Operating expenses:
Product development 1,564 1,449
Selling, general and administrative 4,033 3,653
---------- ----------
Total operating expenses 5,597 5,102
---------- ----------
Income from operations 1,739 279
Other income, net 135 23
---------- ----------
Income before income taxes 1,874 302
Provision for income taxes (128) (44)
---------- ----------
Net income $ 1,746 $ 258
---------- ----------
---------- ----------
Net income per share
Basic $ 0.20 $ 0.03
---------- ----------
---------- ----------
Diluted $ 0.18 $ 0.03
---------- ----------
---------- ----------
Shares used in computing net income per share:
Basic 8,800 8,388
---------- ----------
---------- ----------
Diluted 9,618 8,524
---------- ----------
---------- ----------
</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>
Three Months Ended July 31,
---------------------------
1999 1998
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,746 $ 258
Reconciliation of net income to net cash provided by
(used in) operating activities:
Depreciation 266 276
Minority interest 48 (36)
Forgiveness of note receivable from stockholder,
net of interest accrual 24 (3)
Changes in operating assets and liabilities:
Accounts receivable 548 623
Prepaid expenses and other current assets 68 (60)
Accounts payable (83) 69
Amounts due to minority interest stockholders (105) (182)
Accrued compensation and related expenses (304) (411)
Other accrued liabilities (518) (180)
Deferred revenue (436) (594)
---------- ---------
Net cash provided by (used in) operating activities 1,254 (240)
---------- ---------
Cash flows from investing activities:
Purchases of available-for-sale securities (3,663) (1,250)
Sales of available-for-sale securities 6,072 1,561
Purchases of property and equipment (140) (212)
Other assets (126) 20
---------- ---------
Net cash provided by investing activities 2,143 119
---------- ---------
Cash flows from financing activities:
Principal payments under debt obligations - (19)
Proceeds from issuance of common stock, net 316 157
---------- ---------
Net cash provided by financing activities 316 138
---------- ---------
Effect of exchange rate changes on cash (35) 1
---------- ---------
Net increase in cash and cash equivalents 3,678 18
Cash and cash equivalents, beginning of period 5,315 5,279
---------- ---------
Cash and cash equivalents, end of period $ 8,993 $ 5,297
---------- ---------
---------- ---------
Supplemental schedule of noncash investing and financing activities:
Cash paid during the period for:
Interest $ 38 $ 26
---------- ---------
---------- ---------
Income taxes $ 123 $ 32
---------- ---------
---------- ---------
</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, 1999 as filed with the SEC.
2. EARNINGS PER SHARE
SFAS No. 128, EARNINGS PER SHARE, requires a dual presentation of basic and
diluted earnings per share ("EPS"). Basic EPS excludes dilution and is computed
by dividing net income attributable to common stockholders by the weighted
average of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock (e.g. common stock options) were exercised or converted into common
stock.
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 July 31,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
NET INCOME (NUMERATOR):
Net income, basic and diluted $ 1,746 $ 258
---------- ----------
---------- ----------
SHARES (DENOMINATOR):
Weighted average shares of common stock
outstanding, basic 8,800 8,388
Weighted average common equivalent shares
outstanding 818 136
---------- ----------
Weighted average shares of common stock
outstanding, diluted 9,618 8,524
---------- ----------
---------- ----------
PER SHARE AMOUNT:
Net income per share, basic $ 0.20 $ 0.03
Reduction in net income per share due to
weighted average common equivalent shares (0.02) -
---------- ----------
Net income per share, diluted $ 0.18 $ 0.03
---------- ----------
---------- ----------
ANTIDILUTIVE SHARES: - 433
---------- ----------
---------- ----------
</TABLE>
6
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UNIFY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. OTHER COMPREHENSIVE INCOME
The Company's total other comprehensive income for the periods shown was as
follows:
<TABLE>
<CAPTION>
Three Months Ended July 31,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net income $ 1,746 $ 258
Foreign currency translation (29) (34)
---------- ----------
Total other comprehensive income $ 1,717 $ 224
---------- ----------
---------- ----------
</TABLE>
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, 1999 as filed with the SEC.
RESULTS OF OPERATIONS
REVENUES
The Company's strategy is to aggressively market and enhance its Internet
products. The Company continues to support its extensive installed base of
client/server products, which the Company believes represents a significant
source of potential customers for its Internet products. The Company also
generates significant revenues from services, including customer maintenance,
consulting and training. The following table sets forth revenues from licenses
of its Internet and client/server products and from services for the periods
indicated:
8
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UNIFY CORPORATION
<TABLE>
<CAPTION>
Three Months Ended July 31,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
License revenues:
Internet products $ 3,817 $ 2,150
Client/server products 2,187 2,092
---------- ----------
Total license revenues 6,004 4,242
Services revenues 2,704 2,418
---------- ----------
Total revenues $ 8,708 $ 6,660
---------- ----------
---------- ----------
</TABLE>
Total revenues for the quarter ended July 31, 1999 increased 31% over the same
quarter of the prior year to $8.7 million. Internet license revenues of $3.8
million in the first quarter of fiscal 2000 were 78% higher as compared with the
same quarter of the prior year. This increase reflects continuing improved
customer acceptance of the Company's Internet products, particularly in vertical
application partner accounts. Client/server license revenues of $2.2 million
were stable as compared with the same quarter of the prior year. In light of the
age of these product lines and the Company's primary focus on developing and
marketing its Internet products, the Company continues to anticipate that
revenues from its client/server products may decline in the future. Service
revenues increased slightly in the first quarter of fiscal 2000 as compared to
the same quarter of the previous year, principally due to higher consulting
revenues which resulted from the Company's pursuit of new Internet consulting
opportunities during the quarter ended July 31, 1999.
International revenues were comparable at 53% and 52% of total revenues in the
quarters ended July 31, 1999 and 1998, respectively.
COST OF REVENUES
Cost of software licenses were stable in absolute dollars and represented 4% and
5% of license revenues for the quarters ended July 31, 1999 and 1998,
respectively. The decrease in cost of software licenses as a percentage of
license revenues in the fiscal 2000 quarter was due to economies of scale
associated with the growth in license revenues.
Cost of services were comparable at $1.1 million, or 42% and 44% of service
revenues for the quarters ended July 31, 1999 and 1998, respectively. Within
total services, the levels of customer maintenance and consulting and training
revenues and expenses were also stable in the first quarter of fiscal 2000 as
compared with the same quarter of the prior year. The rapid emergence of the
Internet has created new consulting opportunities. The Company plans to expand
its expertise in e-commerce and Internet application development solutions in
fiscal 2000 in order to capitalize on these opportunities and as a result it
expects that its consulting service costs may increase. Because there is
generally a delay between the time additional consulting personnel are hired and
when they become productive, the Company's results of operations may be
adversely affected by the expansion of the Company's consulting services.
9
<PAGE>
UNIFY CORPORATION
PRODUCT DEVELOPMENT
Product development expenses increased 8% to $1.6 million, or 18% of total
revenues, in the quarter ended July 31, 1999, as compared with $1.4 million, or
22% of total revenues, for the same quarter of the prior year. The decrease in
product development expenses as a percentage of total revenues was due to the
growth in first quarter fiscal 2000 license revenues as compared with the same
quarter 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 in fiscal 2000.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses for the quarter ended July
31, 1999 increased 10% to $4.0 million, or 46% of total revenues, as compared to
$3.7 million, or 55% of total revenues, for the same quarter of the prior year.
Fiscal 2000 SG&A expenses were higher in absolute dollars compared to the same
period of the prior year as the Company executed marketing programs to support
the launch of its new eWave family of Internet products and augmented its bad
debt reserves. These increases were partially offset by a decrease in sales
expense due to open sales positions. The decrease in SG&A expenses as a
percentage of total revenues was primarily attributable to the increase in first
quarter fiscal 2000 license revenues as compared with the same quarter of the
prior year. The Company expects that total SG&A expenses may 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 quarters ended July 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.
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.
10
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UNIFY CORPORATION
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; 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
$250,000 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 Internet and e-commerce 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 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.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1999, the Company had cash, cash equivalents and short-term
investments of $12.7 million, compared to $11.4 million at April 30, 1999.
Working capital increased to $14.0 million at July 31, 1999 from $11.9 million
at April 30, 1999.
11
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UNIFY CORPORATION
The Company's operating activities generated cash of $1.3 million during the
three months ended July 31, 1999, primarily from net income. Investing
activities during the period generated cash of $2.1 million, consisting
principally of net sales of available-for-sale securities. Cash provided by
financing activities during the period was $0.3 million, representing proceeds
from issuance of common stock under the Company's stock option and stock
purchase plans.
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.
DISCLOSURES ABOUT MARKET RATE RISK
INTEREST RATE RISK. The Company's exposure to market rate risk for changes in
interest rates relates primarily to its investment portfolio, which consists of
cash equivalents and short-term investments. Cash equivalents are highly liquid
investments with original maturities of three months or less and are stated at
cost. Cash equivalents are generally maintained in money market accounts which
have as their objective preservation of principal and which hold investments
with maturity dates of less than 90 days. The Company does not believe its
exposure to interest rate risk is material for these balances, which totaled
$9.0 million at July 31, 1999. The securities in the Company's short-term
investment portfolio are generally classified as available-for-sale and,
consequently, are recorded on the consolidated balance sheet at fair value with
unrealized gains or losses reported as a separate component of stockholders'
equity. Short-term investments totaled $3.7 million at July 31, 1999 and there
were no material realized or unrealized gains or losses on short-term
investments during the first quarter of fiscal 2000. Unify does not use
derivative financial instruments in its short-term investment portfolio, places
its investments with high quality issuers and, by policy, limits the amount of
credit exposure to any one issuer. The Company is averse to principal loss and
attempts to ensure the safety of its invested funds by limiting default, market
and reinvestment risk. Unify's short-term investments at July 31, 1999 consisted
of $3.7 million in high quality corporate bonds maturing within one year, which
the Company does not believe carry any material interest rate exposure. If
market interest rates were to change immediately and uniformly by ten percent
from levels at July 31, 1999, the fair value of the Company's cash equivalents
and short-term investments would change by an insignificant amount.
FOREIGN CURRENCY EXCHANGE RATE RISK. As a global concern, the Company faces
exposure to adverse movements in foreign currency exchange rates. These
exposures may change over time as business practices evolve and could have a
material adverse impact on the Company's business, operating results and
financial position. Historically, the Company's primary exposures have related
to local currency denominated sales and expenses in Europe, Japan and Australia.
For example, throughout calendar 1997 the U.S. dollar strengthened against the
major European currencies, which resulted in lower revenues and expenses
recorded for those regions when
12
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UNIFY CORPORATION
translated into U.S. dollars. Due to the substantial volatility of currency
exchange rates, among other factors, the Company cannot predict the effect of
exchange rate fluctuations on its future operating results. Although Unify takes
into account changes in exchange rates over time in its pricing strategy, it
does so only on an annual basis, resulting in substantial pricing exposure as a
result of foreign exchange volatility during the period between annual pricing
reviews. The Company also has currency exchange rate exposures on intercompany
accounts receivable owed to the Company as a result of local currency sales of
software licenses by the Company's international subsidiaries in the United
Kingdom, France and Japan. At July 31, 1999, the Company had $1.1 million, $0.3
million and $0.8 million in such receivables denominated in British pounds,
French francs and Japanese yen, respectively. The Company encourages prompt
payment of these intercompany balances in order to minimize its exposure to
currency fluctuations, but it engages in no hedging activities to reduce the
risk of such fluctuations. A hypothetical ten percent change in foreign currency
rates would have an insignificant impact on the Company's business, operating
results and financial position. The Company has not experienced material
exchange losses on intercompany balances in the past; however, due to the
substantial volatility of currency exchange rates, among other factors, it
cannot predict the effect of exchange rate fluctuations on its future business,
operating results and financial position.
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,
the Company's products are generally integrated with other systems involving
sophisticated computer hardware and software products that the Company cannot
adequately evaluate for Year 2000 compliance. 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 and partners 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 may face claims based on Year 2000 problems in other
companies' products or issues arising from the integration of multiple products
within an overall system.
Although the Company has not been a party to any litigation or arbitration
proceeding involving its products or services related to Year 2000 compliance
issues, the Company may in the future be required to defend its products or
services in such proceedings or to negotiate resolutions of claims based on Year
2000 issues. The costs of defending and resolving Year 2000 issues, regardless
of the merits of such disputes, and any liability the Company may have for such
Year 2000 related damages, could materially adversely affect the Company's
business, operating results, and financial condition.
13
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UNIFY CORPORATION
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 was substantially complete by the end of the
first quarter of fiscal 2000; the Company expects that testing of these systems
will be complete by the end of the second quarter of fiscal 2000. With regard to
the older equipment and software, primarily personal computers and related
software, the installment of upgrades and replacements was substantially
complete by the end of the first quarter of fiscal 2000. The Company expects
that the testing of new equipment and software will be complete by the end of
the second quarter of fiscal 2000. 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.
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
$850,000 and the cost of future Year 2000 compliance activities is estimated to
be approximately $100,000. Funding of these costs will come from existing cash
resources and anticipated future operating cash flows.
RISKS. See STATE OF READINESS. Also, 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 e-commerce and
Internet 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 the second quarter of fiscal 2000.
14
<PAGE>
UNIFY CORPORATION
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Kurt M. Garbe, Executive Vice President of Field Operations
at U.S. Web/CKS, joined the Company's board of directors
effective August 12, 1999.
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 July 31, 1999.
15
<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: September 10, 1999 Unify Corporation
(REGISTRANT)
By:
Gary Pado
--------------------------------------------
Gary Pado
Vice President, Finance and Chief Financial
Officer (Principal Financial and Accounting
Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF JULY 31, 1999 AND CONSOLIDATED
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JULY 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 8,993
<SECURITIES> 3,663
<RECEIVABLES> 10,274
<ALLOWANCES> (1,638)
<INVENTORY> 0
<CURRENT-ASSETS> 21,955
<PP&E> 6,691
<DEPRECIATION> (5,401)
<TOTAL-ASSETS> 23,613
<CURRENT-LIABILITIES> 7,917
<BONDS> 0
0
0
<COMMON> 54,448
<OTHER-SE> (39,065)
<TOTAL-LIABILITY-AND-EQUITY> 23,613
<SALES> 8,708
<TOTAL-REVENUES> 8,708
<CGS> 1,372
<TOTAL-COSTS> 6,969
<OTHER-EXPENSES> (171)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> 1,874
<INCOME-TAX> 128
<INCOME-CONTINUING> 1,746
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,746
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.18
</TABLE>
