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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-20059
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ARDENT SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2818132
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 WASHINGTON STREET 01581-1021
WESTBORO, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 366-3888
----------
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 [ ]
The number of shares outstanding of each of the registrant's classes of
common stock as of:
DATE CLASS OUTSTANDING SHARES
June 30, 1998 Common stock, $.01 par value 14,726,649
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ARDENT SOFTWARE, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
PAGE NUMBERING IN
SEQUENTIAL NUMBERING SYSTEM
---------------------------
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations
for the three and six months ended June 30, 1998
and June 29, 1997 4
Condensed Consolidated Statement of Comprehensive Income
(Loss) for the three and six months ended June 30, 1998 and
June 29, 1997 5
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1998 and June 29, 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
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Part I FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Ardent Software, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
June 30, Dec. 31,
ASSETS 1998 1997
------- -------
<S> <C> <C>
Current assets:
Cash and equivalents $19,434 $24,155
Accounts receivable - net 20,345 21,161
Prepaid expenses, deferred income taxes
and other current assets 8,575 7,546
------- -------
Total current assets 48,354 52,862
------- -------
Property and equipment - net 6,345 15,916
------- -------
Long-term assets:
Intangible assets - net 9,866 10,616
Other long-term assets 10,166 8,020
------- -------
Total long-term assets 20,032 18,636
------- -------
Total assets $74,731 $87,414
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ -- $ 7,357
Accounts payable 5,082 4,995
Accrued expenses and other current liabilities 18,800 14,103
Accrued merger and restructuring costs 4,063 1,068
Deferred revenue 16,922 13,248
------- -------
Total current liabilities 44,867 40,771
------- -------
Long-term liabilities:
Non-current debt and other long-term liabilities 6,758 21,190
------- -------
Stockholders' equity 26,062 28,409
Cost of treasury stock (2,956) (2,956)
------- -------
Total stockholders' equity 23,106 25,453
------- -------
Total liabilities and stockholders' equity $74,731 $87,414
======= =======
</TABLE>
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Ardent Software, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
June 30, June 29, June 30, June 29,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Software $17,460 $16,193 $32,252 $29,494
Services and other 11,777 11,519 22,695 22,012
------- ------- ------- -------
Total revenue 29,237 27,712 54,947 51,506
------- ------- ------- -------
Costs and expenses:
Cost of software 1,884 1,881 3,555 3,953
Cost of services and other 5,597 6,336 10,952 12,283
Selling and marketing 9,924 10,014 19,213 19,252
Product development 4,543 4,214 8,783 7,889
General and administrative 2,578 3,297 5,206 6,238
Merger costs -- -- 14,895 --
------- ------- ------- -------
Total costs and expenses 24,526 25,742 62,604 49,615
------- ------- ------- -------
Income (loss) from operations 4,711 1,970 (7,657) 1,891
Other income (expense) - net (76) (432) 78 (949)
------- ------- ------- -------
Income (loss) before provision for income taxes 4,635 1,538 (7,579) 942
Provision for (benefit from) income taxes 1,667 595 (1,190) 534
------- ------- ------- -------
Net income (loss) $ 2,968 $ 943 $(6,389) $ 408
======= ======= ======= =======
Basic income (loss) per common share $ 0.20 $ 0.07 $ (0.44) $ 0.03
======= ======= ======= =======
Basic shares used in calculation 14,618 13,570 14,412 13,713
======= ======= ======= =======
Diluted income (loss) per common share $ 0.18 $ 0.07 $ (0.44) $ 0.03
======= ======= ======= =======
Diluted shares used in calculation 16,753 14,251 14,412 14,211
======= ======= ======= =======
</TABLE>
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Ardent Software, Inc.
Condensed Consolidated Statement of Comprehensive Income (Loss)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
June 30, June 29, June 30, June 29,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) $2,968 $ 943 $(6,389) $408
Change in translation adjustment 249 266 158 154
------ ------ ------- ----
Comprehensive net income (loss) $3,217 $1,209 $(6,231) $562
====== ====== ======= ====
</TABLE>
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Ardent Software, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
------------------------
June 30, June 29,
1998 1997
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (6,389) $ 408
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 3,260 4,505
Amortization of restricted stock awards 14 14
Loss on disposal of assets 1,023 88
Deferred income taxes (2,937) 220
Increase (decrease)in cash from:
Current assets 1,910 5,637
Current liabilities 12,157 (2,681)
-------- -------
Cash provided by operating activities 9,038 8,191
-------- -------
Cash flows from investing activities:
Expenditures for property and equipment-net (946) (1,387)
Expenditures for capitalized software costs (1,669) (1,167)
Increase in cash surrender value of officers' life
insurance and deposits and other (1,815) (736)
-------- -------
Cash used in investing activities (4,430) (3,290)
-------- -------
Cash flows from financing activities:
Borrowings under line-of-credit arrangements 7,720 600
Repayments under line-of-credit arrangements (8,357) (2,212)
Sale of common stock 3,871 558
Repurchase of common stock -- --
Repayments under capital lease and other obligations (12,352) (235)
-------- -------
Cash used in financing activities (9,118) (1,289)
-------- -------
Effect of exchange rate changes on cash (211) (132)
-------- -------
Increase (decrease) in cash and equivalents (4,721) 3,480
Cash and equivalents, beginning of period 24,155 15,545
-------- -------
Cash and equivalents, end of period $ 19,434 $19,025
======== =======
</TABLE>
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial reporting.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements and should be read in conjunction with the audited financial
statements included in the Company's Annual Report to Stockholders for the
year ended December 31, 1997 and the Company's Registration Statement on
Form S-4, filed on December 31, 1997, related to the merger with Unidata,
Inc. ("Unidata").
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements have been prepared on the same basis as
the audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the interim periods presented. The operating results for
the interim periods presented are not necessarily indicative of the results
which would be expected for the full year.
On February 10, 1998, the Company merged with Unidata. The merger was
accounted for as a pooling-of-interests and, accordingly, the consolidated
financial statements have been restated to include the accounts of Unidata
for all fiscal periods presented.
2. Income (Loss) Per Common Share
Basic income (loss) per common share is computed using the weighted average
number of common shares outstanding during each period presented. Diluted
income (loss) per common share reflects the effect of the Company's
outstanding options (using the treasury stock method), except where such
items would be anti-dilutive.
3. Income Taxes
The Company provides for income taxes at the end of each interim period
based on the estimated effective tax rate for the full fiscal year,
adjusted for significant non-deductible costs. Cumulative adjustments to
the tax provision are recorded in the interim period in which a change in
the estimated annual effective rate is determined.
4. Litigation
The Company is a defendant, together with certain of its officers, in two
actions initially filed in October 1995 in the U.S. District Court in the
District of Massachusetts. Those actions have been consolidated through the
filing of a Consolidated Amended Complaint (the "Complaint"). The
plaintiffs allege in the Complaint that the Company and certain of its
officers, during July through October 1995, made certain untrue statements
and failed to disclose certain information regarding the Company's
prospective financial performance in violation of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder and that such
statements and omissions artificially inflated the market prices of the
Company's stock. The plaintiffs purport to bring the actions on behalf of
certain classes of stockholders and seek damages in unspecified amounts.
The Company has denied the allegations in its answer to the Complaint. The
discovery stage of the proceeding is
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now substantially complete. Although the Company's motion for summary
judgement has been denied, management of the Company believes that the
actions are without merit and plans to continue to oppose them vigorously.
The Company is a defendant in two actions filed against Unidata prior to
its merger into the Company, one in May 1996 in the U.S. District Court for
the Western District of Washington and one in September 1996 in the U.S.
District Court for the District of Colorado. The plaintiff, a company
controlled by a former stockholder of Unidata and a distributor of its
products in certain parts of Asia, alleges in both suits the improper
distribution of certain Unidata products in the plaintiff's exclusive
territory and asserts damages of approximately $30,000,000 under claims for
fraud, breach of contract, unfair competition, RICO violations, and
trademark and copyright infringement, among other relief. Unidata denied
the allegations against it in its answers to the complaints and the
proceedings are currently in their early stages. Management of the Company
believes that the actions against it are without merit and plans to oppose
them vigorously.
The Company is a defendant in an action brought in the U.S. District Court
for the Southern District of Ohio. The plaintiff, with whom the Company
entered into a joint venture in 1996 to develop the Object Studio product,
alleges in its complaint that the Company is obligated to support the joint
venture in amounts up to $1,400,000 per year for an aggregate present value
liability of up to $8,000,000. Although the Company has not yet answered
the complaint, it believes the allegations are without merit and intends to
oppose them vigorously and assert certain counterclaims against the
plaintiff.
5. Acquisition Costs
In connection with the merger with Unidata, the Company recorded a one-time
charge for merger costs of $14,895,000 in March, 1998. Included in these
costs were $3,910,000 for financial advisor, legal and accounting fees
related to the merger and $10,985,000 for costs associated with the
combining operations of the two companies including expenditures of
$6,209,000 for severance, benefits and other, $2,170,000 for closure of
facilities and $2,606,000 for the write-off of redundant assets. As of June
30, 1998, $3,183,000 remains unpaid, comprised principally of severance and
facility costs.
6. Comprehensive Income (Loss)
Effective January 1, 1998, the Company adopted the Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income,"
which requires the presentation of an additional primary financial
statement providing a prominent display of the components of items of other
comprehensive income. The only item that the Company currently records as
other comprehensive income is the change in cumulative translation
adjustment resulting from the changes in exchange rates and the effect of
those changes upon translation of the financial statements of the Company's
foreign operations. As of June 30, 1998 and December 31, 1997 the
cumulative translation adjustment was $3,000 and ($155,000), respectively.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
VMARK SOFTWARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
INTRODUCTION
On February 10, 1998, the Company completed the merger with Unidata, Inc. The
merger was accounted for as a pooling-of-interests, and the accompanying
financial statements have been restated to include the accounts of Unidata, Inc.
with those of the Company for all fiscal periods presented.
The discussion which follows analyzes the combined results of operations for the
three and six months ended June 30, 1998 and the comparable fiscal periods in
1997.
RESULTS OF OPERATIONS
The following table sets forth certain data as a percentage of total revenue for
the three and six months ended June 30, 1998 and the comparable fiscal periods
in 1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- -----------------------
June 30, June 29, June 30, June 29,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Software 59.7% 58.4% 58.7% 57.3%
Services and other 40.3 41.6 41.3 42.7
----- ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0
----- ----- ----- -----
Costs and expenses:
Costs of software 6.5 6.8 6.5 7.7
Costs of services and other 19.1 22.9 19.9 23.8
Selling and marketing 34.0 36.1 35.0 37.4
Product development 15.5 15.2 16.0 15.3
General and administrative 8.8 11.9 9.5 12.1
Merger costs -- -- 27.1 --
----- ----- ----- -----
Total costs and expenses 83.9 92.9 114.0 96.3
----- ----- ----- -----
Income (loss) from operations 16.1% 7.1% (14.0)% 3.7%
===== ===== ===== =====
</TABLE>
REVENUE
The Company's total revenue increased 6% to $29,237,000 in the second quarter of
1998 from $27,712,000 in the second quarter of 1997 and increased 7% to
$54,947,000 for the first six months of 1998 from $51,506,000 for the first six
months of 1997. This increase in revenue is primarily due to the increase in
sales of the data warehouse and object database product lines.
Software revenue for the second quarter and first six months of 1998 increased
by 8% and 9%, respectively, from the comparable periods in 1997. This increase
is due principally to the increase in DataStage revenue which represented
approximately 16% and 15% for the three and six months ended June 30, 1998
compared to 5% and 4% for the three and six months ended June 29, 1997. The
increase in the object database product, O2 System, also contributed to the
increase in software revenue. The object database product was acquired through
the
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acquisition of O2 Technology on December 31, 1997, and therefore was not
included in the 1997 results of operations.
Software revenue increased to 60% and 59% of total revenue in the second quarter
and first six months of 1998 compared to 58% and 57% for the same fiscal periods
in 1997.
Services and other revenue, consisting of consulting, training, and software
maintenance increased slightly by 2% and 3% for the quarter and six months ended
June 30, 1998, as compared to the quarter and six months ended June 30, 1997.
This increase is due primarily to the services revenue associated with the
DataStage and O2 System products. The combined service revenue attributable to
these two products represented 9% and 8% for the three and six months ended June
30, 1998, compared to less than 1% for the comparable periods in the prior year.
Services and other revenue decreased to 40% and 41% of total revenue in the
three months and six months ended June 30, 1998, compared to 42% and 43% for the
same fiscal periods in 1997.
COSTS OF SOFTWARE
Costs of software, which consists of amortization of technology licenses and
capitalized software, product royalties, product documentation, packaging, media
and production costs, remained flat at $1,884,000 for the second quarter of 1998
as compared to $1,881,000 for the comparable period in the prior year, and
decreased 10% to $3,555,000 for the six months ended June 30, 1998 from
$3,953,000 for the six months ended June 29, 1997. Cost of software as a
percentage of total revenue remained constant at 7% for the second quarter of
1998 and 1997. This percentage decreased slightly for the six months ended June
30, 1998 to 7% from 8% for the six months ended June 29, 1997. These relatively
flat levels of expense year over year are due to the fixed nature of these costs
and the minimal change in the mix of product revenue with associated royalties.
COSTS OF SERVICES AND OTHER
Costs of services and other, which consist of consulting, training, and other
customer support service costs decreased 12% to $5,597,000 for the second
quarter and decreased 11% to $10,952,000 for the first six months of 1998 as
compared to the same periods of the prior year. The profit margin associated
with services and other revenue increased to 52% from 44% for the first six
months of 1998 as compared to the first six months of 1997 and increased to 52%
for the second quarter of 1998 from 45% for the second quarter of 1997. This
decrease in costs, and the resulting increase in profit margins, is due to a
higher percentage of services and other revenue in 1998 being comprised of
customer maintenance support revenue which typically has a higher profit margin
than training and consulting services revenue. Maintenance represented
approximately 70% of services and other revenue in the six months ended June 30,
1998 compared to 60% in the six months ended June 29, 1997.
SELLING AND MARKETING
Selling and marketing expenses, which consist primarily of sales organization
costs and marketing programs, decreased to 34% and 35% of total revenue or
$9,924,000 and $19,213,000 in the quarter and six months ended June 30, 1998 as
compared to 36% and 37% of total revenue or $10,014,000 and $19,252,000 in the
comparable periods of the prior year. The relatively flat levels of spending
year over year is due to the increase in the investment in the DataStage product
offset by the decrease in selling and marketing programs for the relational
database technology and tools products. The selling and marketing resources have
been reallocated to the new technology, which represented 51% of spending for
selling and marketing in 1998 as compared to 5% in 1997.
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PRODUCT DEVELOPMENT
Product development expenses, which consist primarily of salaries and related
benefits of development personnel and facility costs, increased 8% to $4,543,000
in the second quarter of 1998 and increased 11% to $8,783,000 in the first six
months of 1998, as compared to the same fiscal periods of the prior year.
Product development expenses as a percentage of revenue were 16% for the first
quarter and the first six months of 1998, as compared to 15% for the same fiscal
periods in 1997. The increase in spending is due primarily to the development
efforts dedicated to the DataStage and O2 System products. The Company allocated
57% of its research and development funds into these new technologies in the
first six months of 1998 compared to 6% in the first six months of 1997.
Relational database technology and tools development represented 43% of research
and development costs in the first six months on 1998 as compared to 94% in
1997.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include the costs of finance, human
resources, legal, information systems, and administrative departments of the
Company. General and administrative expenses decreased 22% in the second quarter
of 1998 to $2,578,000 from $3,297,000 in the comparable period of 1997. General
and administrative expenses decreased 17% to $5,206,000 in the first six months
of 1998 from $6,238,000 for the six months ended June 29, 1997. This decrease is
due to the elimination of duplicate positions and facilities in conjunction with
the merger of the Company and Unidata.
MERGER COSTS
The Company recorded a one time charge of $14,895,000 associated with the merger
with Unidata in the quarter ended March 31, 1998. This amount included
$3,910,000 for financial advisor, legal, and accounting fees related to the
merger and $10,985,000 for costs associated with the combining operations of the
two companies including expenditures of $6,209,000 for severance, benefits and
other, $2,170,000 for closure of facilities and $2,606,000 for the write-off of
redundant assets. As of June 30, 1998, $3,183,000 remains unpaid comprised
principally of severance and facility costs.
INCOME TAXES
The Company recorded a provision for income taxes of $1,667,000 for the second
quarter of 1998 and a benefit of $1,190,000 for the first six months of 1998
compared to provisions of $595,000 and $534,000 for the same periods in 1997.
The effective tax rate recorded in the quarter ended June 30, 1998 was 36% which
is consistent with the statutory rate. The benefit for the six months ended June
30, 1998 represents an effective tax rate of 16%. This effective tax rate is
substantially less than the statutory rate due to certain non-deductible merger
charges incurred in the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through sales of equity
securities and positive cash flow from operations. At June 30, 1998 the Company
had $19,434,000 in cash and cash equivalents and $3,487,000 ($20,409,000
excluding deferred revenue, the satisfaction of which will have no significant
cash impact) in working capital. The Company has a working capital line of
credit with a bank under which the Company may borrow, on a secured basis, up to
the lesser of $12,500,000 or 80% of eligible domestic accounts receivable and
70-80% of eligible foreign accounts receivable, conditioned upon meeting certain
financial covenants, including maintaining specified levels of quarterly
earnings, tangible net worth and liquidity. The line of credit also limits the
Company's ability to pay dividends. At June 30, 1998, there was $6,720,000
outstanding under the Company's line of credit which has been classified under
long-term liabilities as the line of credit expires in March 2000. There was
approximately $1,500,000 available for borrowing under the line of credit at
June 30, 1998.
The Company believes that its available cash, anticipated cash generated from
operations based upon its operating plan and amounts available under its credit
facility will be sufficient to finance the Company's operations and meet its
foreseeable cash requirements at least for the next twelve months.
During the quarter, the Company transferred its rights to certain accounts
receivable to a finance company in exchange for cash payments from the finance
company. Total cash received by the Company in the quarter ended June 30, 1998
under these arrangements totaled approximately $3,000,000.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board (FASB) released Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income," and SFAS 131, "Disclosure About Segments of an Enterprise and Related
Information," both of which were adopted by the Company in the first quarter of
1998. SFAS 130 requires the Company to provide a prominent display of the
components of items of other comprehensive income. SFAS 131 requires the Company
to provide information about segments of its business based upon discrete
components of its businesses; such information will be provided in the Company's
Annual
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Report on Form 10-K.
In June 1998, the FASB released SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which the Company will be required to adopt
effective January 1, 2000. SFAS No. 133 establishes standards for reporting and
accounting for derivatives instruments, and conforms the requirements for
treatment of hedging activities across the different types of exposures hedged.
The Company has not yet completed its evaluation of SFAS No. 133, but does not
expect it to significantly affect the accounting and reporting of its current
hedging program.
EUROPEAN UNION CURRENCY CONVERSION
On January 1, 1999, eleven of the fifteen member countries are scheduled to
establish fixed conversion rates between their existing sovereign currencies and
the euro. The participating countries have agreed to adopt the euro as their
common legal currency on that date.
The Company has begun to assess the potential impact to the Company that may
result from the euro conversion. In addition to tax and accounting
considerations, the Company is assessing the potential impact from the euro
conversion in a number of areas, including the technological challenges to adapt
information technology, the competitive impact of cross-border price
transparency, the impact on currency exchange costs and currency exchange rate
risk, and the impact on existing contracts. At this early stage of its
assessment, the Company can not yet predict the anticipated impact of the euro
conversion on the Company.
YEAR 2000
The Company has conducted a review of its computer systems to identify those
areas that could be affected by the "Year 2000" issue. The Company presently
believes, with modification to the existing software, the "Year 2000" problem
will not pose significant operational problems and costs to complete this
process are not anticipated to be material to its financial position or results
of operations in any given year.
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CAUTIONARY STATEMENT
When used anywhere in this Form 10-Q and in future filings by the Company with
the Securities and Exchange Commission, in the Company's press releases and in
oral statements made with the approval of an authorized executive officer of the
Company, the words or phrases "will likely result", "are expected to", "will
continue", "is anticipated", "estimated", "project", "outlook" or similar
expressions (including confirmations by an authorized executive officer of the
Company of any such expressions made by a third party with respect to the
Company) are intended to identify "forward-looking statements," which speak only
as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Certain of
such risks and uncertainties are set forth below and in Part II of the Company's
Annual Report on Form 10-K for the year ended December 31, 1997. The Company
specifically declines any obligation to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.
FACTORS AFFECTING FUTURE RESULTS
The Company operates in a rapidly changing environment that involves a number of
risks, many of which are beyond the Company's control. The following discussion
highlights some of these risks.
The Company's future operating results may vary substantially from period to
period. The timing and amount of the Company's license fee revenues are subject
to a number of factors that make estimation of revenues and operating results
prior to the end of the quarter extremely uncertain. Quarterly fluctuations may
be caused by several factors including but not limited to timing of customer
orders, adjustments of delivery schedules to accommodate customer or regulatory
requirements, timing and level of international sales, mix of products sold, and
timing of level of expenditures for sales, marketing and new product
development. The Company generally ships its products upon receipt of orders and
maintains no significant backlog. The company has experienced a pattern of
recording 60 percent to 80 percent of its quarterly revenues in the third month
of the quarter, with a concentration of such revenues in the last two weeks of
that third month. The Company's operating expenses are based on projected annual
and quarterly revenue levels and a substantial portion of the Company's costs
and expenses, including costs of personnel and facilities, cannot be easily
reduced. As a result, if projected revenues are not achieved in the expected
time frame, the Company's results of operations for that quarter would be
adversely affected. Accordingly, the results of any one period may not be
indicative of the operating results for future periods.
The market price of the Company's common stock is highly volatile. Failure to
achieve revenue, earnings, and other operating and financial results as
forecasted or anticipated by analysts could result in an immediate adverse
effect on the market price of the Company's stock.
The Company currently derives a substantial portion of its total revenue from
its core database product, UniVerse and Unidata. The Company's future results
will depend, to a significant extent, on continued market acceptance of this
product as well as market acceptance of new products, such as DataStage and O2
System. Any factor adversely affecting the market for these products would have
a material adverse effect of the Company's business and financial results.
The market for the Company's products is characterized by ongoing technological
developments and changes in customer requirements and industry standards. If the
Company is unable to develop and introduce new products or enhancements in a
timely manner in response to changing market conditions or customer requirements
or if
13
<PAGE> 14
errors are found in products after commercial shipments, the Company's business
and results of operations will be adversely affected.
Approximately 36% of the Company's total revenue in the quarter ending June 30,
1998 was attributable to international sales made through international
subsidiaries. Because a substantial portion of the Company's total revenue is
derived from such international operations, which are conducted in foreign
currencies, changes in the value of those currencies relative to the United
States dollar may affect the Company's results of operations and financial
position. If, for any reason, exchange or price controls or other restrictions
on the conversion of foreign currencies were imposed, the Company's business
could be adversely affected. Other potential risks inherent in the Company's
international business generally include longer payment cycles, greater
difficulties in accounts receivable collection and the burdens of complying with
a wide variety of foreign laws and regulations.
The market for application development software is intensely competitive. The
Company competes with many companies offering alternative solutions to the needs
addressed by the Company's products. Many of these competitors may have greater
financial, marketing, or technical resources than the Company and may be able to
adapt more quickly to new or emerging technologies and standards or changes in
customer requirements or to devote greater resources to the promotion and sale
of their products than the Company.
14
<PAGE> 15
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant, together with certain of its officers, in two
actions initially filed in October 1995 in the U.S. District Court in the
District of Massachusetts. Those actions have been consolidated through the
filing of a Consolidated Amended Complaint (the "Complaint"). The
plaintiffs allege in the Complaint that the Company and certain of its
officers, during July through October 1995, made certain untrue statements
and failed to disclose certain information regarding the Company's
prospective financial performance in violation of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder and that such
statements and omissions artificially inflated the market prices of the
Company's stock. The plaintiffs purport to bring the actions on behalf of
certain classes of stockholders and seek damages in unspecified amounts.
The Company has denied the allegations in its answer to the Complaint. The
discovery stage of the proceeding is now substantially complete. Although
the Company's motion for summary judgement has been denied, management of
the Company believes that the actions are without merit and plans to
continue to oppose them vigorously.
The Company is a defendant in two actions filed against Unidata prior to
its merger into the Company, one in May 1996 in the U.S. District Court for
the Western District of Washington and one in September 1996 in the U.S.
District Court for the District of Colorado. The plaintiff, a company
controlled by a former stockholder of Unidata and a distributor of its
products in certain parts of Asia, alleges in both suits the improper
distribution of certain Unidata products in the plaintiff's exclusive
territory and asserts damages of approximately $30,000,000 under claims for
fraud, breach of contract, unfair competition, RICO violations, and
trademark and copyright infringement, among other relief. Unidata denied
the allegations against it in its answers to the complaints and the
proceedings are currently in their early stages. Management of the Company
believes that the actions against it are without merit and plans to oppose
them vigorously.
The Company is a defendant in an action brought in the U.S. District Court
for the Southern District of Ohio. The plaintiff, with whom the Company
entered into a joint venture in 1996 to develop the Object Studio product,
alleges in its complaint that the Company is obligated to support the joint
venture in amounts up to $1,400,000 per year for an aggregate present value
liability of up to $8,000,000. Although the Company has not yet answered
the complaint, it believes the allegations are without merit and intends to
oppose them vigorously and assert certain counterclaims against the
plaintiff.
ITEMS 2 - 3 NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of stockholders of the Company was held on April 30, 1998. Of
the 14,468,119 shares eligible to vote, 12,777,224 were represented at the
meeting. The following matters were approved at the meeting:
1) The re-election to the Board of Directors of James T. Dresher and Robert M.
Morrill, each for a term of three years expiring in 2000. Dresher received
favorable votes of 12,713,983 shares and Morrill received favorable votes
of 12,733,856.
15
<PAGE> 16
ITEM 5. NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) The Company did not file a report on Form 8-K during the quarter
ended June 30, 1998.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Ardent Software, Inc.
(Registrant)
/s/ Peter Gyenes
Dated: August 14, 1998 ------------------------------------------
Peter Gyenes
President and Chief Executive Officer
(principal executive officer)
/s/ Charles F. Kane
Dated: August 14, 1998 ------------------------------------------
Charles F. Kane
Vice President, Finance
and Chief Financial Officer
(principal finance and accounting officer)
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH.
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<ALLOWANCES> (4,572,000)
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<INCOME-PRETAX> (7,579,000)
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