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 October 31, 1999
TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ----- ACT OF 1934
For the transition period _______ to _________
Commission file number 1-111898
--------
JETFORM CORPORATION
-----------------------------------
(exact name of registrant as specified in its charter)
Canada N/A
----------- -------
(state or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
560 Rochester Street
Ottawa, Ontario K1S 5K2, Canada
-----------------------------------------
(Address of principal executive offices)
(613) 230-3676
--------------------------
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 Exchange Act during the preceding 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of the issuer's Common Shares outstanding on December 4, 1999:
19,450,219
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as at October 31, 1999, and 3
April 30, 1999
Consolidated Statements of Operations for the three and six month 4
periods ended October 31, 1999, and October 31, 1998
Consolidated Statements of Comprehensive Income for the three and 5
six month periods ended October 31, 1999 and October 31, 1998
Consolidated Statements of Cash Flows for the three and six 6
month periods ended October 31, 1999, and October 31, 1998
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
This Quarterly Report on Form 10-Q ("Report"), contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933.
Discussions containing such forward-looking statements may be found in Item 2 of
Part I and Item 1 of Part II hereof, as well as within this Report generally. In
addition, when used in the Report, the words "believes", "anticipates",
"expects", and similar expressions are intended to identify forward-looking
statements. Such statements are subject to a number of risks and uncertainties.
Actual results in the future could differ materially from those described in the
forward-looking statements as a result of changes in technology, changes in
industry standards, new product introduction by competitors, increased
participation in the enterprise software market by major corporations and other
matters set forth in this Report. The Company does not undertake any obligation
to publicly release the results of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
<PAGE>
JETFORM CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands of Canadian dollars except share amounts)
October 31, April 30,
1999 1999
--------------- ------------
ASSETS
Current assets
Cash and cash equivalents.....................$ 38,978 $ 47,262
Accounts receivable (Note 2).................. 30,830 29,274
Term accounts receivable (Note 2)............. 9,883 13,486
Unbilled receivables.......................... 2,325 3,455
Inventory..................................... 1,062 1,139
Investment tax credits recoverable............ 1,310 1,310
Prepaid expenses and deferred charges......... 2,935 3,727
Asset held for sale .......................... -- 3,417
------------ ------------
87,323 103,070
Term accounts receivable (Note 2)............ 2,840 6,090
Investment tax credits recoverable........... 3,585 3,218
Fixed assets (Note 3)........................ 17,361 18,620
Other assets (Note 3)........................ 26,439 25,871
-------------- ------------
$ 137,548 $ 156,869
============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable............................ $ 4,372 $ 7,874
Accrued liabilities......................... 15,271 15,656
Unearned revenue............................ 13,340 12,463
Current portion of Delrina obligation (Note 5) 8,015 22,023
------------ ------------
40,998 58,016
Deferred income taxes (Note 6)............. 170 164
Accrued liabilities (Note 7) .............. 2,302 3,225
Term loan (Note 4)......................... 10,000 9,998
Delrina obligation (Note 5)................ -- 536
-------------- ------------
53,470 71,939
-------------- ------------
Shareholders' equity
Capital stock (Issued and outstanding -- 19,450,800
Common Shares and 450,448 Preference Shares at
October 31, 1999; 19,421,428 Common Shares and
450,448 Preference Shares at April 30, 1999)... 247,297 247,119
Cumulative translation adjustment.............. (564) (1,052)
Deficit................................... (162,655) (161,137)
-------------- ------------
84,078 84,930
-------------- ------------
$ 137,548 $ 156,869
============== ============
(the accompanying notes are an integral part of these consolidated
financial statements)
<PAGE>
JETFORM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands of Canadian dollars except share and per share amounts)
Three months ended Six months ended
October 31, October 31,
-------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Revenues
Product $ 14,687 $ 20,160 $ 26,625 $ 42,029
Service 10,386 11,491 21,496 22,264
--------- --------- --------- ---------
25,073 31,651 48,121 64,293
--------- --------- --------- ---------
Costs and expenses
Cost of product 2,661 2,353 4,772 4,291
Cost of service 3,101 4,615 6,491 8,811
Sales and marketing 11,078 12,245 22,542 24,520
General and administra-
tive 2,764 2,630 5,334 5,207
Research and development 3,926 3,741 7,668 7,097
Depreciation and amorti-
zation 2,562 3,028 5,097 5,807
Gain on sale of assets -- -- (1,813) --
--------- --------- --------- ---------
26,092 28,612 50,091 55,733
--------- --------- --------- ---------
Operating income (loss) (1,019) 3,039 (1,970) 8,560
Interest and other income 340 843 836 2,086
--------- --------- --------- ---------
Income (loss) before taxes (679) 3,882 (1,134) 10,646
Provision for income taxes
(Note 6) 208 599 384 1,622
--------- --------- --------- ---------
Net income (loss) $ (887) $ 3,283 $ (1,518) $ 9,024
========== ========== ========== ==========
Basic income (loss) per share
Net income (loss)
per share $ (0.04) $ 0.17 $ (0.08) $ 0.46
Weighted average
number of shares 19,901,248 19,779,343 19,892,394 19,788,190
Fully diluted income
(loss) per share
Net income (loss)
per share $ (0.04) $ 0.16 $ (0.08) $ 0.44
Weighted average
number of shares 19,901,248 20,402,294 19,892,394 20,581,259
(the accompanying notes are an integral part of these consolidated
financial statements)
<PAGE>
JETFORM CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands of Canadian dollars)
Three months ended Six months ended
October 31, October 31,
-------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Net income (loss)...... $ (887) $ 3,283 $ (1,518) $ 9,024
Cumulative translation
adjustment........... (1,298) -- 488 --
--------- --------- --------- ---------
comprehensive income
(loss)............... $ (2,185) $ 3,283 $ (1,030) $ 9,024
========== ========= ========== ==========
(the accompanying notes are an integral part of these consolidated
financial statements)
<PAGE>
JETFORM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of Canadian dollars)
<TABLE>
<CAPTION>
Three months ended Six months ended
October 31, October 31,
---------------------------- -----------------------------
1999 1998 1999 1998
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Cash provided from (used in):
Operating activities
Net income (loss) $ (887) $ 3,283 $ (1,518) $ 9,024
Items not involving cash:
Depreciation and amortization 3,208 3,759 6,750 7,178
Other non cash items 1,298 -- 459 --
Net change in operating components of
working capital 1,883 (2,929) 5,089 (11,809)
------------- ------------- ------------- --------------
5,502 4,113 10,780 4,393
------------- ------------- ------------- --------------
Investing activities
Purchase of fixed assets (985) (2,374) (2,154) (4,155)
Increase in other assets (1,175) (1,242) (2,546) (2,846)
------------- ------------- ------------- --------------
(2,160) (3,616) (4,700) (7,001)
------------- ------------- ------------- --------------
Financing activities
Proceeds from issuance of shares 38 515 178 2,579
Repayment of long term debt (7,852) (12,118) (14,542) (25,870)
------------- ------------- ------------- --------------
(7,814) (11,603) (14,364) (23,291)
------------- ------------- ------------- --------------
Decrease in cash and cash equivalents (4,472) (11,106) (8,284) (25,899)
Cash and cash equivalents, beginning of period 43,450 76,811 47,262 91,604
------------- ------------- ------------- --------------
Cash and cash equivalents, end of period $ 38,978 $ 65,705 $ 38,978 $ 65,705
============= ============= ============= ==============
</TABLE>
(the accompanying notes are an integral part of these consolidated
financial statements)
<PAGE>
JETFORM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
These consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in the United States
("U.S. GAAP"), and include all assets, liabilities, revenues and expenses of
JetForm Corporation ("JetForm") and its wholly-owned subsidiaries: JetForm
Corporation (a Delaware corporation), JetForm Pacific Pty Limited ("JetForm
Pacific"), JetForm Scandinavia AB ("JetForm Nordic"), JetForm France SA
("JetForm France"), JetForm UK Limited ("JetForm UK"), JetForm Deutschland GmbH
("JetForm Germany"), JetForm Japan K.K. ("JetForm Japan") and JetForm
Technologies Limited ("JetForm Ireland"). JetForm and its wholly-owned
subsidiaries are collectively referred to herein as the "Company" The unaudited
interim consolidated financial statements reflect all adjustments which are, in
the opinion of the Company's management, necessary to a fair statement of
results for these interim periods.
2. ACCOUNTS RECEIVABLE
Accounts receivable and term accounts receivable are net of an allowance for
doubtful accounts of $2.5 million at October 31, 1999 and $1.9 million at April
30, 1999.
The Company records revenues from irrevocable commitments to purchase products
which do not conform to the Company's customary trade terms at the amount
receivable less deemed interest ("Term Accounts Receivable"). The Company uses a
discount rate equal to its current net cost of borrowing at the time the revenue
is recorded. Under an irrevocable commitment to purchase product the customer
commits to pay a minimum amount over a specified period of time in return for
the right to use or resell up to a specific number of copies of a delivered
product.
The Company records Term Accounts Receivable as non-current to the extent that
management estimates payment will be received more than one year from the
balance sheet date. Payment of these Term Accounts Receivable is generally due
the earlier of: (i) delivery of the Company's products by the customer to its
customers or end users; and (ii) specific dates in the license agreement
("Minimum Payment Dates"). As at October 31, 1999 and April 30, 1999 total Term
Accounts Receivable with Minimum Payment Dates exceeding one year were
approximately $2.8 million and $6.1 million, respectively.
The Company's customer base consists of large numbers of geographically diverse
customers dispersed across many industries. As a result, concentration of credit
risk with respect to trade receivables is not significant.
3. FIXED ASSETS AND OTHER ASSETS
The Consolidated Balance Sheet includes the following amounts:
October 31, 1999 April 30, 1998
------------------- -------------------
(in thousands of Canadian dollars)
Accumulated depreciation and
amortization included in fixed
assets $ 19,213 $ 16,027
=================== ===================
Accumulated amortization
included in other assets $ 19,438 $ 17,600
=================== ===================
4. FINANCIAL INSTRUMENTS AND CREDIT FACILITIES
The Company has entered into receivables purchase agreements with third party
purchasers. Under the agreements, the Company has the option to sell certain
accounts receivable on a recourse basis. The purchasers have recourse in the
event of a trade dispute as defined in the receivables purchase agreements and
upon the occurrence of other specified events. As at October 31, 1999 and April
30, 1999, the outstanding balance of accounts receivable sold under these
agreements were approximately US$7.6 million and US$6.9 million, respectively.
The Company believes that none of the receivables sold are at risk of recourse.
The Company has a committed $20 million credit facility with the Royal Bank of
Canada. The credit facility is made up of (i) a $10 million term loan facility
which bears interest at a rate of 1.5% over the bankers acceptance rate of the
Bank from time to time and is payable on February 1, 2001; and (ii) a $10
million revolving line of credit which bears interest at the prime rate of the
Bank from time to time. As at October 31, 1999, the Company had drawn down the
$10 million term loan facility and fixed the interest rate until January 20,
2000 at 6.8%. The Company had no borrowings against its revolving line of credit
as at October 31, 1999. The Company has granted as collateral for the $20
million credit facility a general security agreement over JetForm's assets,
including a pledge of the shares of certain subsidiaries.
JetForm hedges its U.S. dollar net asset or liability position to reduce its
exposure to currency fluctuations. To achieve this objective, JetForm primarily
enters into foreign exchange forward contracts with major Canadian chartered
banks, and therefore, does not anticipate non-performance by these
counterparties. JetForm does not enter into foreign exchange forward contracts
for speculative or trading purposes. Gains and losses on these forward exchange
contracts are recognized and included in income as realized and offset against
foreign exchange gains and losses on the underlying net asset or liability
position.
5. DELRINA OBLIGATION
On September 10, 1996, the Company acquired certain assets, including title to
intellectual property, related to the forms software group (the "Delrina
Assets") of Delrina Corporation ("Delrina"), a subsidiary of Symantec
Corporation of Cupertino, California, USA.
Under the asset purchase agreement, the Company will make unequal quarterly
payments to Delrina, from September 27, 1996 to June 27, 2000. On February 12,
1998, the Company and Delrina re-negotiated certain terms of the Delrina Asset
Purchase Agreement whereby the Company agreed to accelerate payment of its
obligation in consideration for a reduction in the effective interest rate,
resulting in a reduction in imputed interest charges. In addition, the amended
agreement provided that the Company may issue its Common Shares to Delrina in
satisfaction of a portion of its payment obligations provided that: (i) the
total market value of the Company's Common Shares held by Delrina immediately
following such issuance does not exceed US$14.0 million; and (ii) the Company
continues to meet certain registration requirements in respect of such issued
Common Shares. As at October 31, 1999, the Company believes that Delrina held no
Common Shares of the Company.
The current estimated fair value of the Delrina obligation is approximately the
same as that recorded in these consolidated financial statements.
6. INCOME TAXES
As at October 31, 1999, the Company had deferred tax assets of $56.8 million,
the principal components of which were temporary differences associated with the
acquisition of in process research and development and operating loss carry
forwards. The Company has provided for a valuation allowance of $49.2 million.
7. PROVISION FOR RESTRUCTURING COSTS
On March 17, 1999, the Corporation announced a restructuring plan directed
at reducing costs. The key restructuring actions included:
- Consolidation of management responsibilities and reduction in
headcount.
- Closure of redundant facilities.
- Reduction in the carrying value of certain capital assets primarily
related to past acquisitions.
- Cancellation of certain commitments and other costs.
The following table summarizes the activity in the provision for
restructuring costs during the three months ended October 31, 1999:
Employee Total
Termination Facilities Other Provision
---------------- ------------ --------- ---------------
Balance, July 31, 1999........ $ 2,855 $ 2,598 $ 463 $ 5,916
Cash payments................. (760) (162) (58) (1,260)
----------- ------------ --------- -------------
Balance, October 31, 1999... $ 2,095 $ 2,436 $ 405 $ 4,936
=========== ============ ========= =============
Long term balance......... $ 250 $ 1,807 $ 245 $ 2,302
============ ============ ========= =============
During the three months ended October 31, 1999 the Company made cash
payments of approximately $1.3 million relating to the provision for
restructuring costs recorded in fiscal year 1999. This included $760,000 in
salary continuance for terminated employees, $162,000 in rent for the Company's
vacant office space in Toronto and the United Kingdom, and $58,000 in other
miscellaneous costs.
As at October 31, 1999, the Company had not been successful in finding
alternative arrangements regarding its vacant facilities in Toronto and the
United Kingdom.
Employee terminations include salary continuance for which the Company is
contractually obligated to pay. All employees were terminated on or before April
30, 1999.
8. SEGMENTED INFORMATION
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
Company's chief decision maker in deciding how to allocate resources and
assessing performance. The Company's chief decision maker is the Chief Executive
Officer. The Company's reportable segments include Product, Consulting, and
Customer Support. The Product segment engages in business activities from which
it earns license revenues from the Company's software products. The Consulting
segment earns revenues from assisting customers in configuring, implementing and
integrating the Company's products and when required, customizing products and
designing automated processes to meet the customers specific business needs as
well as providing all necessary training. The Customer Support segment earns
revenues through after sale support for software products as well as providing
software upgrades under the Company's maintenance and support programs.
The Company evaluates performance based on the contribution of each segment. The
Product segment costs include all costs associated with selling product
licenses, consulting services, and customer support. The costs of the Consulting
and Customer Support segments include all costs associated with the delivery of
the service to the customer. Inter-segment revenues as well as charges such as
depreciation and amortization, interest expense, and overhead allocations are
not included in the calculation of segment profit. The Company does not use a
measure of segment assets to assess performance or allocate resources. As a
result, segment asset information is not presented.
The following table sets forth, on a comparative basis for the periods
indicated, the Company's segmented information:
<TABLE>
<CAPTION>
Three months ended Six months ended
October 31, October 31,
--------------------- ---------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Product
Revenues $ 14,687 $ 20,160 $ 26,625 $ 42,029
Costs 8,692 10,699 17,608 20,793
----------- --------- ---------- ---------
Contribution 5,995 9,461 9,017 21,236
----------- --------- ---------- ---------
Consulting
Revenues 5,200 5,391 10,975 11,403
Costs 2,236 2,935 4,653 6,467
----------- --------- ---------- ---------
Contribution 2,964 2,456 6,322 4,936
----------- --------- ---------- ---------
Customer Support
Revenues 5,186 6,100 10,521 10,861
Costs 728 1,051 1,476 1,769
----------- --------- ---------- ---------
Contribution 4,458 5,049 9,045 9,092
----------- --------- ---------- ---------
Total contribution 13,417 16,966 24,384 35,264
Research and development (3,926) (3,741) (7,668) (7,097)
Other expenses (10,510) (10,186) (20,499) (19,607)
Gain on sale of assets -- -- 1,813 --
----------- --------- ---------- ---------
Operating income (loss) $ (1,019) $ 3,039 $ (1,970) $ 8,560
=========== ========= ========== =========
</TABLE>
9. RECENT ACCOUNTING PRONOUNCEMENTS
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income" and SOP
98-5 "Reporting Costs of Start-up Activities".
In December 1998, the American Institute of Certified Public Accountants (AICPA)
issued SOP 98-9 "Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions". The adoption of SOP 98-9 has not had a
material impact on the Company's results of operations and financial position.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This statement establishes
accounting and reporting standards for derivative instruments and hedging
activities and is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. In June 1999, the FASB issued SFAS No.137 which delays the
effective date of SFAS 133 until fiscal years beginning after June 15, 2000.
Although the impact of SFAS 133 on the Company's financial disclosures is not
known at this time, the Company will adopt SFAS 133 during the year ending April
30, 2001.
10. THE YEAR 2000
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date sensitive systems may recognize the
Year 2000 as 1900 or some other date, resulting in errors when information using
Year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 issue may be experienced before, on, or after
January 1, 2000, and if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
During, and subsequent to, the quarter ended October 31, 1999, the Company
became aware of problems in certain date handling capabilities of certain older
products. These products include Filler 4 and 5, Filler Pro 4 and 5 and the
Central Pro Calculation Agent. The Company has contacted all known customers and
all known users of these affected products and has made available corrected
versions of the identified products. While the Company believes that the number
of users affected will be very small, there can be no assurance that a large
number of customers will not be affected, that the Company has contacted all
users of the identified products, or that those customers will implement the
corrected versions of the software.
The amount of potential customer claims arising from the advent of the Year 2000
and the possible inability of any of the Company's products to adequately handle
date changes cannot be estimated. As a result, no provision has been made in
these financial statements for any such customer claims.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's results of operations and of its
liquidity and capital resources should be read in conjunction with the
information contained in the accompanying Unaudited Consolidated Financial
Statements and related Notes thereto, together with management's discussion and
analysis of financial condition and results of operations contained in the
Company's Report on Form 10-K for the fiscal year ended April 30, 1999. The
following discussion provides a comparative analysis of material changes in the
financial condition and results of operations of the Company and its
wholly-owned subsidiaries: JetForm Corporation (a Delaware corporation), JetForm
Pacific, JetForm Nordic, JetForm France, JetForm UK, JetForm Germany, JetForm
Ireland, and JetForm Japan for the three and six months ended October 31, 1999
and 1998.
Results of Operations
The Company's revenues and operating results have varied substantially from
period to period. With the exception of its consulting services operation, the
Company has historically operated with little backlog of orders because its
software products are generally shipped as orders are received. The Company
recognizes product revenue when orders are shipped, or for irrevocable
commitment license agreements, when the Company has fulfilled its material
obligations in connection therewith and there is reasonable assurance of
collection. As a result, product revenue in any period is substantially
dependent on orders booked and shipped in that period and on the receipt of
irrevocable commitment license agreements. Product revenue is difficult to
forecast due to the fact that the Company's sales cycle, from initial trial to
multiple copy licenses, varies substantially from customer to customer. As a
result, variations in the timing of product sales can cause significant
variations in operating results from period to period.
The following table sets forth, on a comparative basis for the periods
indicated, the components of the Company's product margin, service margin, and
product and service margin:
<TABLE>
<CAPTION>
Three months ended October 31, Six months ended October 31,
------------------------------------------- -------------------------------------------
1999 1998 1999 1998
--------------------- --------------------- -------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Product revenue $14,687 100% $20,160 100% $26,625 100% $42,029 100%
Cost of product 2,661 18% 2,353 12% 4,772 18% 4,291 10%
---------- ---------- ---------- ---------- ---------- --------- ----------- ---------
Product margin $12,026 82% $17,807 88% $21,853 82% $37,738 90%
========== ========== ========== ========== ========== ========= =========== ==========
Service revenue $10,386 100% $11,491 100% $21,496 100% $22,264 100%
Cost of service 3,101 30% 4,615 40% 6,491 30% 8,811 40%
---------- ---------- ---------- ---------- ---------- --------- ----------- ---------
Service margin $ 7,285 70% $ 6,876 60% $15,005 70% $13,453 60%
========== ========== ========== ========== ========== ========= =========== ==========
Total revenues $25,073 100% $31,651 100% $48,121 100% $64,293 100%
Cost of product
and service 5,762 23% 6,968 22% 11,263 23% 13,102 20%
---------- ---------- ---------- ---------- ---------- --------- ----------- ---------
Product and
service margin $19,311 77% $24,683 78% $36,858 77% $51,191 80%
========== ========== ========== ========== ========== ========= =========== ==========
</TABLE>
<PAGE>
The following table presents, for the periods indicated, consolidated
statements of operations data expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
Three months ended October Six months ended October 31,
31,
------------------------------ -----------------------------
1999 1998 1999 1998
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Product 59% 64% 55% 65%
Service 41% 36% 45% 35%
------------ ------------- ------------ ------------
100% 100% 100% 100%
------------ ------------- ------------ ------------
Costs and expenses
Cost of product 11% 7% 10% 7%
Cost of service 12% 15% 13% 14%
Sales and marketing 44% 39% 47% 38%
General and administrative 11% 8% 11% 8%
Research and development 16% 12% 16% 11%
Depreciation and amortization 10% 10% 11% 9%
Gain on sale of assets -- -- (4%) --
------------ ------------- ------------ ------------
104% 90% 104% 87%
------------ ------------- ------------ ------------
Operating income (loss) (4%) 10% (4%) 13%
Other income (expense) 1% 3% 2% 3%
------------ ------------- ------------ ------------
Income (loss) before taxes (3%) 12% (2%) 17%
Provision for income taxes 1% 2% 1% 3%
------------ ------------- ------------ ------------
Net income (loss) (4%) 10% (3%) 14%
============ ============= ============ ============
</TABLE>
The following table provides details of product revenue by geographic
segment and within North America, by distribution channel:
<TABLE>
<CAPTION>
Three months ended October 31, Six months ended October 31,
-------------------------------------------- -------------------------------------------
Increase Increase
1999 1998 (Decrease) 1999 1998 (Decrease)
------------ ---------- ------------- ------------ ------------ ------------
(in thousands of Canadian dollars)
<S> <C> <C> <C> <C> <C> <C>
Product revenue by region
North America $ 10,302 $ 15,507 (34%) $ 16,461 $ 31,065 (47%)
Europe 3,140 3,354 (6%) 7,896 8,188 (4%)
Rest of World 1,245 1,299 (4%) 2,268 2,776 (18%)
------------ ----------- ------------ ------------
$ 14,687 $ 20,160 (27%) $ 26,625 $ 42,029 (37%)
============ =========== ============ ============
Product revenue by channel in North America
Reseller and OEM $ 7,508 $ 11,734 (36%) $ 11,078 $ 18,405 (40%)
End Users 2,794 3,773 (26%) 5,383 12,660 (57%)
------------ ----------- ------------ ------------
$ 10,302 $ 15,507 (34%) $ 16,461 $ 31,065 (47%)
============ =========== ============ ============
</TABLE>
THREE MONTHS ENDED OCTOBER 31, 1999 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1998
REVENUES
TOTAL REVENUES. Total revenues decreased 21% to $25.1 million for the three
months ended October 31, 1999 from $31.7 million for the three months ended
October 31, 1998. Total revenues consisted of 59% product revenue and 41%
service revenue for the three months ended October 31, 1999.
PRODUCT REVENUE. Product revenue decreased 27% to $14.7 million for the
three months ended October 31, 1999 from $20.2 million for the three months
ended October 31, 1998. Product revenue derived from North America, Europe and
Rest of World represented 70%, 21%, and 9%, respectively, of product revenue for
the three months ended October 31, 1999, as compared to 77%, 17% and 6%,
respectively, of product revenue for the three months ended October 31, 1998.
The Company attributes the decrease in product revenue primarily to
external market factors including the Year 2000 issue, a shift towards Internet
based solutions from traditional client/server solutions, and the emergence of
new competitors selling pre-packaged solutions.
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date sensitive systems may recognize the
Year 2000 as 1900 or some other date, resulting in errors when information using
Year 2000 dates is processed. As a result, the Company's primary customer base,
large financial services organizations and government agencies, who are deeply
affected by the Year 2000 problem due to their reliance on computer systems,
have focused their information technology resources on ensuring Year 2000
readiness. This has dramatically impacted the Company's ability to sell
enterprise wide licenses to these customers. The Company expects that the Year
2000 issue will have a continuing impact on product sales for the remainder of
fiscal year 2000.
The Company has also experienced a shift of focus by its customers to
Internet-based solutions from more traditional client/server solutions and the
emergence of new competitors selling pre-packaged solutions. The Company has
developed a comprehensive strategy to address both the market for Internet-based
solutions and prepackaged applications which is presently being implemented.
However, there can be no assurance that revenue derived from this strategy will
be sufficient to offset the potential decrease in revenue from the Company's
client/server products.
Product revenue derived from North America decreased 34% to $10.3 million
for the three months ended October 31, 1999 from $15.5 million for the three
months ended October 31, 1998. Reseller and OEM sales, which represented 73% of
North American product revenue, decreased 36% to $7.5 million for the three
months ended October 31, 1999 from $11.7 million for the three months ended
October 31, 1998. Product revenue from end users, which represented 27% of North
American product revenue, decreased 26% to $2.8 million for the three months
ended October 31, 1999 from $3.8 million for the three months ended October 31,
1998. The Company attributes the decrease in Reseller and OEM and End User
revenue to the Year 2000 issue, a shift towards Internet based solutions from
traditional client/server solutions, and the emergence of new competitors
selling pre-packaged solutions.
Product revenue derived from Europe decreased 6% to $3.1 million for the
three months ended October 31, 1999 from $3.4 million for the three months ended
October 31, 1998, primarily as a result of decreased licence revenue from Sweden
and Germany.
Product revenue derived from Rest of World decreased 4% to $1.2 million for
the three months ended October 31, 1999 from $1.3 million for the three months
ended October 31, 1998.
SERVICE REVENUE. Service revenue decreased 10% to $10.4 million for the
three months ended October 31, 1999 from $11.5 million for the three months
ended October 31, 1998. For the three months ended October 31, 1999 maintenance
and support revenue remained constant at $6.1 million for both the three months
ended October 31, 1998 and 1999. The Company's consulting revenue decreased 21%
to $4.3 million for the three months ended October 31, 1999 from $5.4 million
for the three months ended October 31, 1998. For the three months ended October
31, 1998 consulting revenue included $741,000 of revenue from Why Interactive
which was sold on May 1, 1999. Excluding revenue from Why Interactive,
consulting revenue decreased 8% primarily due to the general decrease in sales.
COSTS AND EXPENSES
Costs and expenses are comprised of cost of product, cost of service, sales
and marketing, general and administrative, research and development,
depreciation and amortization, and other expenses. Cost of product consists of
third party commissions, the cost of disks, manuals, packaging, freight, royalty
payments to vendors whose software is bundled with certain JetForm products and
amortization of deferred product development costs. Cost of service includes all
costs of providing technical support, training, consulting, custom forms
development and application development services. Sales and marketing expenses
are principally related to salaries and commissions paid to sales and marketing
personnel. Research and development expenses include personnel and occupancy
costs as well as the costs of software development, testing, product management,
quality assurance and documentation. Depreciation and amortization includes
depreciation of fixed assets and amortization of other assets, and goodwill and
distribution rights relating to various acquisitions.
TOTAL COSTS AND EXPENSES. Total costs and expenses decreased 9% to $26.1
million for the three months ended October 31, 1999 from $28.6 million for the
three months ended October 31, 1998.
COST OF PRODUCT. Cost of product increased 13% to $2.7 million for the
three months ended October 31, 1999 from $2.4 million for the three months ended
October 31, 1998, primarily as a result of the increase in amortization of
deferred development costs. For the three months ended October 31, 1999, total
deferred cost charged to cost of product increased to $846,000 from $730,000 for
the three months ended October 31, 1998. The product margin decreased to 82% for
the three months ended October 31, 1999 from 88% for the three months ended
October 31, 1998 due to lost economies of scale resulting from the decrease in
product revenue.
COST OF SERVICE. Cost of service decreased 33% to $3.1 million for the
three months ended October 31, 1999 from $4.6 million for the three months ended
October 31, 1998, primarily as a result of the sale of Why Interactive. The
service margin increased to 70% for the three months ended October 31, 1999 from
60% for the three months ended October 31, 1998, primarily as a result of the
sale of Why Interactive which had lower margins than other services.
COSTS OF PRODUCT AND SERVICE. Costs of product and service decreased 17% to
$5.8 million for the three months ended October 31, 1999 from $7.0 million for
the three months ended October 31, 1998. Product and service margin decreased to
77% for the three months ended October 31, 1999 from 78% for the three months
ended October 31, 1998.
SALES AND MARKETING. Sales and marketing expenses decreased 10% to $11.1
million for the three months ended October 31, 1999 from $12.2 million for the
three months ended October 31, 1998, primarily due to a reduction in staff
resulting from the Company's restructuring in fiscal year 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
5% to $2.8 million for the three months ended October 31, 1999 from $2.6 million
for the three months ended October 31, 1998 primarily due to increased spending
on information systems and facilities. As a percentage of total revenues,
general and administrative expenses increased to 11% from 8% for the three
months ended October 31, 1999 and 1998, respectively.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 5% to
$3.9 million for the three months ended October 31, 1999 from $3.7 million for
the three months ended October 31, 1998, primarily due to an increase in the
number of employees and related costs. For both the three months ended October
31, 1999 and 1998, the Company capitalized approximately $900,000 of software
development costs. Research and development expenses were 16% and 12% of product
revenue for the three months ended October 31, 1999 and 1998, respectively.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased 15%
to $2.6 million for the three months ended October 31, 1999 from $3.0 million
for the three months ended October 31, 1998 primarily due to lower amortization
resulting from the write down of certain intangible assets in the fourth quarter
of fiscal year 1999.
OPERATING INCOME. Operating loss was $1.0 million for the three months
ended October 31, 1999 compared to an operating income of $3.0 million for the
three months ended October 31, 1998.
INTEREST AND OTHER INCOME. Interest and other income decreased 60% to
$340,000 for the three months ended October 31, 1999, from $843,000 for the
three months ended October 31, 1998 primarily due to decreased cash and cash
equivalents available for investment.
PROVISION FOR INCOME TAXES. The Company recorded a provision for income
taxes of $208,000 for the three months ended October 31, 1999, compared to
$599,000 for the three months ended October 31, 1998. As at October 31, 1999,
the Company had a net deferred tax asset of approximately $56.8 million. The
Company believes sufficient uncertainty exists regarding the realizability of
this net deferred tax asset that a valuation allowance of $49.2 million has been
provided.
SIX MONTHS ENDED OCTOBER 31, 1999 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 1998
REVENUES
TOTAL REVENUES. Total revenues decreased 25% to $48.1 million for the six
months ended October 31, 1999 from $64.3 million for the six months ended
October 31, 1998. Total revenues consisted of 55% product revenue and 45%
service revenue for the six months ended October 31, 1999.
PRODUCT REVENUE. Product revenue decreased 37% to $26.6 million for the six
months ended October 31, 1999 from $42.0 million for the six months ended
October 31, 1998. Product revenue derived from North America, Europe and Rest of
World represented 62%, 30%, and 8%, respectively, of product revenue for the six
months ended October 31, 1999, as compared to 74%, 19% and 7%, respectively, of
product revenue for the six months ended October 31, 1998.
The Company attributes the decrease in product revenue primarily to
external market factors including the Year 2000 issue, a shift towards Internet
based solutions from traditional client/server solutions, and the emergence of
new competitors selling pre-packaged solutions.
Product revenue derived from North America decreased 47% to $16.5 million
for the six months ended October 31, 1999 from $31.1 million for the six months
ended October 31, 1998. Product revenue from end users, which represented 33% of
North American product revenue, decreased 57% to $5.4 million for the six months
ended October 31, 1999 from $12.7 million for the six months ended October 31,
1998. Reseller and OEM sales, which represented 67% of North American product
revenue, decreased 40% to $11.1 million for the six months ended October 31,
1999 from $18.4 million for the six months ended October 31, 1998. The Company
attributes the decrease in Reseller and OEM and End User revenue to the Year
2000 issue, a shift towards Internet based solutions from traditional
client/server solutions, and the emergence of new competitors selling
pre-packaged solutions.
Product revenue derived from Europe decreased 4% to $7.9 million for the
six months ended October 31, 1999 from $8.2 million for the six months ended
October 31, 1998 primarily as a result of decreased license revenue from Sweden
and Germany.
Product revenue derived from Rest of World decreased 18% to $2.3 million
for the six months ended October 31, 1999 from $2.8 million for the six months
ended October 31, 1998, primarily due to decreased license revenue from
Australia.
SERVICE REVENUE. Service revenue decreased 3% to $21.5 million for the six
months ended October 31, 1999 from $22.3 million for the six months ended
October 31, 1998. For the six months ended October 31, 1999 maintenance and
support revenue increased 5% to $11.4 million from $10.9 million for the six
months ended October 31, 1998. The Company's consulting revenue decreased 12% to
$10.0 million for the six months ended October 31, 1999 from $11.4 million for
the six months ended October 31, 1998. For the six months ended October 31, 1998
consulting revenue included $2.0 million of revenue from Why Interactive which
was sold on May 1, 1999. Excluding revenue from Why Interactive, consulting
revenue increased 7%.
COSTS AND EXPENSES
TOTAL COSTS AND EXPENSES. Total costs and expenses were $50.1 million for
the six months ended October 31, 1999, an decrease of 10% from $55.7 million for
the six months ended October 31, 1998.
COST OF PRODUCT. Cost of product increased 11% to $4.8 million for the six
months ended October 31, 1999 from $4.3 million for the six months ended October
31, 1998, primarily as a result of increased amortization of deferred
development costs. For the six months ended October 31, 1999, total deferred
cost charged to cost of product increased to $1.6 million from $1.4 million for
the three months ended October 31, 1998. The product margin decreased to 82% for
the six months ended October 31, 1999 from 90% for the six months ended October
31, 1998 due to lost economies of scale resulting from the decrease in product
revenue.
COST OF SERVICE. Cost of service decreased 26% to $6.5 million for the six
months ended October 31, 1999 from $8.8 million for the six months ended October
31, 1998, primarily as a result of the sale of Why Interactive. The service
margin increased to 70% for the six months ended October 31, 1999 from 60% for
the six months ended October 31, 1998, primarily as a result of the sale of Why
Interactive which had lower margins than other services.
COSTS OF PRODUCT AND SERVICE. Costs of product and service decreased 14% to
$11.3 million for the six months ended October 31, 1999 from $13.1 million for
the six months ended October 31, 1998. Product and service margin decreased to
77% for the six months ended October 31, 1999 from 80% for the six months ended
October 31, 1998.
SALES AND MARKETING. Sales and marketing expenses decreased 8% to $22.5
million for the six months ended October 31, 1999 from $24.5 million for the six
months ended October 31, 1998, primarily due to a reduction in staff resulting
from the Company's restructuring in fiscal year 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
2% to $5.3 million for the six months ended October 31, 1999 from $5.2 million
for the six months ended October 31, 1998. As a percentage of total revenues,
general and administrative expenses increased to 11% from 8% for the six months
ended October 31, 1999 and 1998, respectively.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 8% to
$7.7 million for the six months ended October 31, 1999 from $7.1 million for the
six months ended October 31, 1998, primarily due to an increase in the number of
employees and related costs. For both the six months ended October 31, 1999 and
1998, the Company capitalized approximately $1.8 million of software development
costs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
decreased 12% to $5.1 million for the six months ended October 31, 1999 from
$5.8 million for the six months ended October 31, 1998 primarily due to lower
amortization resulting from the write down of certain intangible assets in the
fourth quarter of fiscal year 1999.
OPERATING INCOME. Operating loss was $2.0 million for the six months ended
October 31, 1999 compared to operating income of $8.6 million for the six months
ended October 31, 1998.
INTEREST AND OTHER INCOME. Interest and other income decreased 60% to
$836,000 for the six months ended October 31, 1999 from $2.1 million for the six
months ended October 31, 1998, primarily due to decreased cash and cash
equivalents available for investing.
PROVISIONS FOR INCOME TAXES. The Company recorded a provision for taxes of
$384,000 for the six months ended October 31, 1999, compared to $1.6 million for
the six months ended October 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
As at October 31, 1999 and April 30, 1999, the Company had $39.0 million
and $47.3 million of cash and cash equivalents respectively. During the six
months ended October 31, 1999, the Company's cash and cash equivalents decreased
by $8.3 million, primarily due to two payments to Delrina totaling $14.5
million.
OPERATIONS
The Company decreased its investment in the non-cash operating components
of working capital during the six months ended October 31, 1999, by
approximately $3.8 million, primarily due to decreases in accounts receivable
and unbilled receivables which were partially offset by decreases in accounts
payable and accrued liabilities.
The Company purchased approximately $2.2 million of fixed assets in the six
months ended October 31, 1999. The purchases of fixed assets included computer
hardware and software, office equipment and furniture, and leasehold
improvements. During the six months ended October 31, 1999, the Company
increased its investment in other assets by $1.3 million related primarily to
capitalized development costs and purchases of other assets.
During the six months ended October 31, 1999, the Company generated cash of
approximately $178,000 relating to the participation in the Company's stock
purchase plan.
ACCOUNTS RECEIVABLE AND TERM ACCOUNTS RECEIVABLE
Total accounts receivable and term accounts receivable decreased $5.3
million to $43.6 million at October 31, 1999 from $48.9 million at April 30,
1999, primarily due the Company's increased focus on collections and a decrease
in orders with extended payment terms. Accounts receivable increased to $30.8
million at October 31, 1999 from $29.3 million at April 30, 1999. Term accounts
receivable, which are accounts receivable with payment dates exceeding the
Company's customary trade terms, decreased by $6.9 million to $12.7 million as
at October 31, 1999 from $19.6 million on April 30, 1999.
Term accounts receivable primarily arise from the recording of revenue from
irrevocable commitments to purchase licenses ("Irrevocable Commitment
Licenses"). Under an Irrevocable Commitment License, a customer commits to pay a
minimum amount over a specified period of time in return for the right to use or
resell up to a specific number of copies of a delivered product for a fixed
amount. The amount of revenue recorded is the amount of the minimum commitment
over the term of the license, less deemed interest for that part of the license
term that is beyond the Company's customary trade terms.
Payments under Irrevocable Commitment Licenses are generally received from
the customer on the earlier of (i) installation of the Company's products by the
customer or delivery to its customers or end users and (ii) specified minimum
payment dates in the license agreement. Amounts by which revenues recorded
exceed payments received are recorded as accounts receivable. Payments that are
expected beyond the Company's customary trade terms are recorded as term
accounts receivable. Payments that are expected to be received more than one
year from the balance sheet date, are recorded as non-current term accounts
receivable. Total license fees over the term of the Irrevocable Commitment
License may be greater than the minimum commitment initially recorded as
revenue. Revenues from installations or sales of the Company's products in
excess of the minimum commitment are recorded by the Company as and when they
are reported by the customer.
DELRINA OBLIGATION
On September 10, 1996, the Company acquired the Delrina Assets from Delrina
Corporation ("Delrina"), a subsidiary of Symantec Corporation of Cupertino,
California. Under the asset purchase agreement (the "Delrina Asset Purchase
Agreement"), the Company will make quarterly payments to Delrina, from September
27, 1996 to June 27, 2000.
On February 12, 1998, the Company and Delrina re-negotiated certain terms
of the Delrina Asset Purchase Agreement whereby the Company agreed to accelerate
payment of its obligation in consideration for a reduction in the effective
interest rate which will result in a reduction in future imputed interest
charges. In addition, the amended agreement provides that the Company may issue
its Common Shares to Delrina in satisfaction of a portion of its payment
obligations provided that: (i) the total market value of the Company's Common
Shares held by Delrina immediately following such issuance does not exceed
US$14.0 million thereafter; and (ii) the Company continues to meet certain
registration requirements in respect of such issued Common Shares. As at October
31, 1999, the Company believes that Delrina held no Common Shares of the
Company.
During the six months ended October 31, 1999, the Company made payments of
approximately US$10.0 million ($14.5 million) in satisfaction of its quarterly
obligations to Delrina. As at October 31, 1999, the next three scheduled
quarterly payments totaled US$5.2 million.
FINANCIAL INSTRUMENTS AND CREDIT FACILITY
The Company has entered into receivables purchase agreements with third
party purchasers. Under the agreements, the Company has the option to sell
certain accounts receivable on a recourse basis. The purchasers have recourse in
the event of a trade dispute as defined in the receivables purchase agreements
and upon the occurrence of other specified events. As at October 31, 1999 and
April 30, 1999, the outstanding balance of accounts receivable sold under these
agreements were approximately US$7.6 million and US$6.9 million, respectively.
The Company believes that none of the receivables sold are at risk of recourse.
The Company has a committed $20 million credit facility with the Royal Bank of
Canada. The credit facility is made up of (i) a $10 million term loan facility
which bears interest at a rate of 1.5% over the bankers acceptance rate of the
Bank from time to time and is payable on February 1, 2001; and (ii) a $10
million revolving line of credit which bears interest at the prime rate of the
Bank from time to time. As at October 31, 1999, the Company had drawn down the
$10 million term loan facility and fixed the interest rate until January 20,
2000 at 6.84%. The Company had no borrowings against its revolving line of
credit as at October 31, 1999. The Company has granted as collateral for the $20
million credit facility a general security agreement over JetForm's assets,
including a pledge of the shares of certain subsidiaries.
JetForm hedges its U.S. dollar net asset or liability position to reduce its
exposure to currency fluctuations. To achieve this objective, JetForm primarily
enters into foreign exchange forward contracts with major Canadian chartered
banks, and therefore, does not anticipate non-performance by these
counterparties. JetForm does not enter into foreign exchange forward contracts
for speculative or trading purposes. Gains and losses on these forward exchange
contracts are recognized and included in income as realized and offset against
foreign exchange gains and losses on the underlying net asset or liability
position.
PROVISION FOR RESTRUCTURING COSTS
On March 17, 1999, the Corporation announced a restructuring plan directed
at reducing costs. The key restructuring actions included:
- Consolidation of management responsibilities and reduction in
headcount.
- Closure of redundant facilities.
- Reduction in the carrying value of certain capital assets primarily
related to past acquisitions.
- Cancellation of certain commitments and other costs.
The following table summarizes the activity in the provision for
restructuring costs during the three months ended October 31, 1999:
Employee Total
Termination Facilities Other Provision
-------------- ------------ --------- ------------
Balance, July 31, 1999.........$ 2,855 $ 2,598 $ 463 $ 5,916
Cash payments................. (760) (162) (58) (1,260)
----------- ------------ --------- -------------
Balance, October 31, 1999.... $ 2,095 $ 2,436 $ 405 $ 4,936
=========== ============ ========= =============
Long term balance............ $ 250 $ 1,807 $ 245 $ 2,302
========== ============ ========= =============
During the three months ended October 31, 1999 the Company made cash payments of
approximately $1.3 million relating to the provision for restructuring costs
recorded in fiscal year 1999. This included $760,000 in salary continuance for
terminated employees, $162,000 in rent for the Company's vacant office space in
Toronto and the United Kingdom, and $58,000 in other miscellaneous costs.
As at October 31, 1999, the Company has not been successful in finding
alternative arrangements regarding its vacant facilities in Toronto and the
United Kingdom.
Employee terminations include salary continuance for which the Company is
contractually obligated to pay. All employees were terminated on or before April
30, 1999.
EXECUTIVE CHANGE
Subsequent to the end of the quarter, John Kelly, Chief Executive Officer and
President, announced his retirement to pursue other interests. The impact, if
any, on the remainder of the fiscal year cannot be determined at this time. John
Gleed, Director and Founder of the Company, has assumed the responsibilities of
interim Chief Executive Officer until a new Chief Financial Officer can be
found. John Kelly will remain as a Director of the Company.
THE YEAR 2000
What is commonly known as the Year 2000 issue arises because many computerized
systems use two digits rather than four to identify a year. Date sensitive
systems may recognize the Year 2000 as 1900 or some other date, resulting in
errors when information using Year 2000 dates is processed. The effect of the
Year 2000 issue may be experienced before, on, or after January 1, 2000, and, if
not addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations.
The Company recognizes the need to ensure its operations will not be adversely
impacted by software failures caused by the advent of the Year 2000. To address
the Year 2000 issues, the Company has commenced a program which entailed a
comprehensive review of its software products, internal financial and
operational systems, and the Company's suppliers.
The Company has reviewed all its major products and believes that the majority
of the current versions are Year 2000 compliant. However, during, and subsequent
to, the quarter ended October 31, 1999, the Company became aware of problems in
certain date handling capabilities of certain older products. These products
include Filler 4 and 5, Filler Pro 4 and 5 and the Central Pro Calculation
Agent. The Company has contacted all known customers and all known users of
these affected products and has made available corrected versions of the
identified products. While the Company believes that the number of users
affected will be very small, there can be no assurance that a large number of
customers will not be affected, that the Company has contacted all users of the
identified products, or that those customers will implement the corrected
versions of the software. The Company has made available information on its Year
2000 product compliance on its Web site http://www.jetform.com.
With respect to the Company's internal systems, the Company has identified
internal hardware and software systems that could be affected by the Year 2000
date change. The Company has taken preventive measures in those cases where
systems have been found not to be Year 2000 compliant either by replacing those
systems or upgrading to compliant versions offered by suppliers. All costs
associated with modifying the existing internal use computer software were
expensed as incurred. The Company is continuing to test its internal systems and
believes that it will not experience serious interruptions in its business due
to the failure of its systems. There can be no assurance that the Company has
identified all required changes or that its internal systems will not be
materially, adversely affected by the advent of the Year 2000.
The Company has contacted its major suppliers and is not aware of any Year 2000
compliance issues that would impact its normal business operations. However,
there can be no assurance that the systems of its major suppliers and other
service providers on which the Company relies will not be adversely impacted by
software failures caused be the advent of the Year 2000.
The Company believes that it has successfully implemented the systems and
programming changes necessary to address the Year 2000 issues with respect to
its products and internal systems. However, the risks from the inability of the
Company's software products or internal systems to properly function in the Year
2000 could result in increased warranty costs, customer satisfaction issues,
inability to ship products, potential lawsuits, and other costs and liabilities
resulting from business interruptions. To the extent possible, the Company has
developed contingency plans designed to allow continued operation in the event
of failure of the Company's or third parties' systems. The amount of potential
customer claims arising from the advent of the Year 2000 and the possible
inability of the Company's products to adequately handle date changes cannot be
estimated.
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Each year, the Company's shareholders elect the directors of the Company for the
ensuing year. At the Company's annual meeting of shareholders held on September
8, 1999 (the "Annual Meeting"), the following individuals were elected to the
board of directors:
Robert F. Allum, John Gleed, Eric R. Goodwin, Thomas E. Hicks, John B. Kelly,
Graham C. Macmillan, Dennis B. Maloney, Abraham E. Ostrovsky, Donald J. Payne,
Stephen A. Holinski, Stanley A. Young, Dr. John B. Millard, Siegfried E. Buck
The following proposals, as more particularly described in the Company's
Management Proxy Circular dated July 26, 1999, were approved at the Company's
Annual Meeting.
Votes For Votes Against or
Withheld
1. Election of directors 6,600,577 43,425
2. Appointment of PricewaterhouseCoopers as
independent auditors for the fiscal year
ending April 30, 2000. 635,679 40,788
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Ex-1.0 Amendment dated October 27, 1999, to Loan Agreement between the Royal
Bank of Canada and the Registrant.
There were no reports on Form 8-K during the quarter.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
JetForm Corporation
December 4, 1999 By: John Gleed
- ----------------------------- --------------------------
Date John Gleed
Chief Executive Officer and Director
December 4, 1999 By: Jeffrey McMullen
- ----------------------------- ----------------------------
Date Jeffrey McMullen
Vice President, Finance and Chief
Financial Officer
October 27, 1999
JetForm Corporation
560 Rochester Street
Ottawa, Ontario
K1S 5K2
Attention: Mr. Jeff McMullen
Chief Financial Officer
Dear Sirs:
Further to our recent discussions, we are pleased to offer the following
amendments to the letter agreement dated April 7, 1999 between Royal Bank of
Canada and JetForm Corporation (the "Agreement"):
7. Repayment:
In sub-paragraph 1, each of the dates September 30, 1999 is amended to
November 30, 1999.
In sub-paragraph 4, the date of June 30, 2000 is amended to February 1,
2001.
8. Availability:
Sub-paragraph 1 (a) (ii) is amended with the addition "where such
insurance has been formally assigned to the bank".
Sub-paragraph 4 (a) is deleted and replaced with the following:
"Borrowings under this segment must not exceed 25% of the aggregate of
(all on a consolidated basis):
- Cash, net of any short term operating loans
- Cash equivalents
- Trade accounts receivable falling due within the next twelve months,
but excluding amounts 90 days or more past due".
Sub-paragraph 4 (e) is amended to read February 1, 2001.
20. Periodic Review
The date is amended to November 30, 1999.
An extension fee of .15% is payable with respect to Segment (4). The extension
fee is non-refundable and will be deemed to have been earned by the Bank upon
acceptance of this amendment to compensate for time, effort and expense incurred
by the Bank in extending this facility. All other terms of the Agreement remain
unchanged.
This amendment expires if not accepted by November 19, 1999 unless extended in
writing by the Bank. If this agreement is acceptable, kindly sign and return the
attached copy to the attention of the writer.
Yours truly,
We acknowledge and accept the within terms and conditions.
JETFORM CORPORATION
Per: ______________________________________________
Per: ______________________________________________
Date: ______________________________________________
