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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NO. 0-20740
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PLATINUM SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0277592
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
195 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618-2402
(Address of principal executive offices, zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 453-4000
--------------------------------------
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
--- ---
As of November 6, 1996, there were 18,296,969 shares of common stock
outstanding.
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INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION............................................................................ 3
Item I - Financial Statements...................................................................... 3
Unaudited Condensed Consolidated Balance Sheets........................................... 3
Unaudited Condensed Consolidated Statements of Operations................................. 4
Unaudited Condensed Consolidated Statements of Cash Flows................................. 5
Notes to Unaudited Condensed Consolidated Financial Statements............................ 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations..... 7
PART II - OTHER INFORMATION............................................................................... 13
Item 1 - Legal Proceedings......................................................................... 13
Item 6 - Exhibits and Reports on Form 8-K.......................................................... 13
SIGNATURE .......................................................................................... 14
</TABLE>
2
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PART I
FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS:
PLATINUM SOFTWARE CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,801 $ 5,402
Short-term investments 10,057 10,098
Restricted cash - 1,006
Accounts receivable, net 7,601 7,893
Notes receivable from divestitures, net 664 825
Inventories 411 460
Prepaid expenses and other 1,374 1,638
--------- ---------
Total current assets 24,908 27,322
Property and equipment, net 8,469 8,896
Software development costs, net 2,504 2,250
Acquired source code, net 870 1,088
Other assets 464 446
--------- ---------
$ 37,215 $ 40,002
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,852 $ 3,436
Other accrued expenses 7,466 7,522
Accrued restructuring costs 1,730 1,921
Deferred revenue 10,705 10,912
--------- ---------
Total current liabilities 22,753 23,791
--------- ---------
Stockholders' equity:
Preferred stock 31,996 31,996
Common stock 18 18
Additional paid-in capital 111,416 111,194
Less: notes receivable from officers for issuance of restricted stock (11,563) (11,563)
Accumulated foreign currency translation adjustments 338 249
Accumulated deficit (117,743) (115,683)
--------- ---------
Total stockholders' equity 14,462 16,211
--------- ---------
$ 37,215 $ 40,002
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated balance sheets.
3
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PLATINUM SOFTWARE CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
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<S> <C> <C>
Revenues:
License fees $ 5,081 $ 6,776
Consulting and professional services 2,121 3,229
Support services 3,523 2,425
Royalty income 135 208
-------- --------
10,860 12,638
Cost of revenues 4,162 5,508
-------- --------
Gross profit 6,698 7,130
-------- --------
Operating expenses:
Sales and marketing 5,060 6,181
General and administrative 1,679 1,565
Software development 2,241 4,213
-------- --------
8,980 11,959
-------- --------
Loss from operations (2,282) (4,829)
Other income, net 222 346
-------- --------
Net loss $ (2,060) $ (4,483)
======== ========
Net loss per share $ (0.11) $ (0.32)
======== ========
Shares used in computing
net loss per share 18,134 14,011
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated statements.
4
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PLATINUM SOFTWARE CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,060) $ (4,483)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 1,360 1,420
Interest accretion on class action settlement - 86
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable, net 292 (1,505)
(Increase) decrease in inventories 49 (22)
(Increase) decrease in prepaid expenses and other 264 (553)
Increase in other assets (18) (13)
Increase (decrease) in accounts payable (584) 1,298
Increase (decrease) in accrued expenses (56) 442
Decrease in accrued restructuring costs (191) (757)
Decrease in deferred revenue (207) (100)
-------- ---------
Cash used in operating activities (1,151) (4,187)
-------- ---------
Cash flows from investing activities:
Payments received on notes receivable from divestitures 161 102
Capital expenditures (469) (1,498)
Capitalized software development costs (500) (77)
Purchase of short-term investments (1,000) -
Sale of short-term investments 1,041 -
-------- ---------
Cash used in investing activities (767) (1,473)
-------- ---------
Cash flows from financing activities:
Exercise of common stock options 137 208
Issuance of common stock under the Employee Stock Purchase Plan 85 172
Decrease in restricted cash 1,006 476
-------- ---------
Cash provided by financing activities 1,228 856
-------- ---------
Effect of exchange rates on cash 89 50
-------- ---------
Net decrease in cash and cash equivalents (601) (4,754)
Cash and cash equivalents, beginning of period 5,402 26,276
-------- ---------
Cash and cash equivalents, end of period $ 4,801 $ 21,522
======== =========
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed consolidated statements.
5
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PLATINUM SOFTWARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements present
the financial position of Platinum Software Corporation (the "Company") as of
September 30, 1996 and June 30, 1996, the results of its operations and cash
flows for the three-months ended September 30, 1996 and 1995, and have been
prepared by the Company in accordance with generally accepted accounting
principles and pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures in these financial statements are adequate to make the information
presented not misleading. The unaudited condensed consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
June 30, 1996.
In the opinion of management, the unaudited condensed consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the Company's financial position,
results of operations and cash flows.
The results of operations for the three-months ended September 30, 1996, are not
necessarily indicative of the results of operations to be expected for the
entire fiscal year ending June 30, 1997.
REVENUE RECOGNITION
Revenue is recognized from licenses of software upon contract execution,
shipment of products and when the Company has performed all of its significant
contractual obligations. When a software license agreement obligates the Company
to provide more than one software module, all license revenue under the
agreement is deferred until all modules achieve general availability and are
delivered, except when the license agreement contains a specific financial
remedy in the event the unavailable module is not delivered. In such instance,
revenue is deferred in the amount attributable to the specific financial remedy.
The Company generally does not provide any post-contract customer service or
support as part of the software license fee; however, when such services are
provided for in the license agreement, an appropriate portion of the license fee
is deferred and amortized over the service or support period. The Company's
customers may enter into maintenance agreements with the Company and such
revenue is recognized ratably over the term of the agreement. Revenue from
consulting services is recognized as services are provided.
NET LOSS PER SHARE
Net loss per share is computed by dividing net loss by the weighted average
number of shares of common stock and common stock equivalents outstanding during
the period. The shares of common stock issuable in connection with the July 26,
1995 election to redeem the debenture have been treated as if they were
outstanding from July 26, 1995 to September 30, 1995. Due to the agreement to
rescind the Company's July 26, 1995 election to repay the debenture and the
subsequent reinstatement of the debenture, the treatment for net loss per share
purposes of the shares of common stock issuable in connection with the repayment
of the debenture have been changed from being outstanding to common stock
equivalents from October 1, 1995 to June 30, 1996. However, common stock
equivalents were antidilutive for the years ended June 30, 1995 and 1996, and
therefore, excluded from the calculation of net loss per share for such periods.
FISCAL 1996 RESTRUCTURING
During the second quarter of fiscal 1996, the Company restructured its business
operations. The restructuring included the cessation of the marketing of the
version of the Company's Platinum SQL Enterprise product that runs on the
Sybase/UNIX server platform as well as the elimination of the Company's direct
sales force for this product line. The restructuring resulted in a charge of
$3,271,000 which was recorded in the second quarter of fiscal 1996. Such amount
included approximately $1,160,000 for severance and other extended benefit costs
related to the
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reduction in force, $1,239,000 for lease termination and buyout costs related to
the closure of facilities and $872,000 in asset write-downs and other costs. The
Company estimates that expense savings from the second quarter 1996
restructuring, on a quarterly basis, are $2,800,000 million. In February 1996,
the Company had another reduction in force of approximately 40 positions. This
reduction in force resulted in an additional restructuring charge of $2,297,000
which was recorded in the third quarter of fiscal 1996. Such amount included
approximately $300,000 for severance and other extended benefit costs related to
the reduction in force, $625,000 in lease termination and buyout costs related
to the closure of facilities and $1,372,000 in asset write-downs and other
costs. The Company estimates that expense savings from the third quarter 1996
restructuring, on a quarterly basis, are $900,000. Such savings from the two
fiscal 1996 restructurings have been offset in part by the costs associated with
the re-establishment of the direct sales force. See "Item 2--Management's
Discussion and Analysis of Financial Condition and Results of Operations."
During the three-months ended September 30, 1996, the Company paid approximately
$191,000 for severance, lease termination and other costs relating to these two
restructurings and the fiscal 1994 restructuring.
CONTINGENCIES
The Company is subject to miscellaneous legal proceedings in the normal course
of business and other legal proceedings related to or arising out of the fiscal
1994 restructuring, reductions in force and the discontinuance of certain
client/server applications. The Company is currently defending these proceedings
and claims, and anticipates that it will be able to resolve these matters in a
manner that will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
RESULTS OF OPERATIONS
Net loss for the first quarter of fiscal 1997 was $2.1 million, or $0.11 per
share, as compared to net loss of $4.5 million, or $0.32 per share, for the
comparable quarter of fiscal 1996. The following summarizes the significant
aspects related to the Company's results of operations.
Revenues
Revenues were approximately $10.9 million and $12.6 million for the three-months
ended September 30, 1996 and 1995, respectively, representing a decrease of 14%.
Included in revenues for the three-months ended September 30, 1995 was $223,000
of license fee revenues that were previously deferred as part of the fiscal 1994
restatement. Excluding the impact of the license fee revenues deferred as part
of the restatement, revenues for the current quarter decreased $1.6 million or
12% from the comparable quarter of fiscal 1995.
Total license fee revenues were $5.1 million and $6.8 million for the
three-months ended September 30, 1996 and 1995, respectively. Excluding license
fee revenues that were deferred as part of the fiscal 1994 restatement, total
license fee revenues were $5.1 million and $6.6 million for the three-months
ended September 30, 1996 and 1995, respectively, representing a 22% decrease.
License fee revenues for the Company's Platinum SQL product (formerly named
Platinum SQL NT) were approximately $3.3 million and $2.9 million for the
three-months ended September 30, 1996 and 1995, respectively.
License fee revenues for the Platinum-DOS and Platinum for Windows products were
approximately $1.6 million and $1.3 million for the three-months ended September
30, 1996 and 1995, respectively.
Excluding license fee revenues that were deferred as part of the fiscal 1994
restatement, license fee revenues for the Company's Platinum SQL Enterprise
product line were $0 for the three-months ended September 30, 1996 as compared
to approximately $1.9 million for the three months ended September 30, 1995. In
October 1995, the Company discontinued the marketing of the version of its
Platinum SQL Enterprise product line that runs on the Sybase/UNIX server
platform because of lack of recent license revenue (see Item 1 - "Notes to
Unaudited Condensed Consolidated Financial Statements -- Fiscal 1996
Restructuring").
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International license fee revenues were $1.8 million for the three-months ended
September 30, 1996 and 1995.
Consulting and professional services revenue decreased 34% from $3.2 million in
the three-months ended September 30, 1995 to $2.1 million in the three-months
ended September 30, 1996. The decrease was primarily attributable to the
involvement of the consulting and professional services division in providing
formal training to distributors and dealers, and assisting them in transferring
expertise gained in Platinum SQL Enterprise and Platinum SQL NT implementations
over the last three years. During the remainder of fiscal 1997, the consulting
and professional services division will focus more of its efforts in providing
consulting and implementation services to customers and the Company expects
professional services revenues to increase when compared to the first quarter of
fiscal 1997. See "Certain Factors That May Affect Future Results - Forward
Looking Statements."
Support services revenue increased 45% from revenues of $2.4 million for the
three-months ended September 30, 1995 to $3.5 million in the three-months ended
September 30, 1996. The increase was primarily attributable to an overall rise
in the installed base of end-users of Platinum SQL and the increased effort to
renew customers on maintenance contracts.
Gross Profit
Gross profit increased as a percentage of revenues from 56% for the three-months
ended September 30, 1995 to 62% for the three-months ended September 30, 1996.
The increase in gross profit percentage is due to higher support services
revenues as a percentage of total revenues, which have higher margins than
consulting and professional services revenues.
Operating Expenses
Total operating expenses decreased from $12.0 million for the three-months ended
September 30, 1995 to $9.0 million for the three-months ended September 30,
1996. The decrease was primarily attributable to cost savings achieved from the
termination of the direct sales force in October 1995 and the fiscal 1996
restructurings. Total operating expenses as a percentage of revenues were 83%
and 95% for the three-months ended September 30, 1996 and 1995, respectively.
Sales and marketing expenses were approximately $5.1 million and $6.2 million
for the three-months ended September 30, 1996 and 1995, respectively, or
approximately 47% and 49% of total revenues. The decrease resulted from cost
savings achieved from the termination of the direct sales force in October 1995.
In the fourth quarter of fiscal 1996, the Company re-established a smaller
direct sales force for its Platinum SQL product and expects sales and marketing
expenditures to increase for the second quarter of fiscal 1997. See "Certain
Factors That May Affect Future Results - Forward Looking Statements."
General and administrative expenses were approximately $1.7 million and $1.6
million for the three-months ended September 30, 1996 and 1995, respectively, or
approximately 15% and 12% of total revenues.
Software development expenditures were approximately $2.7 million and $4.3
million for the three-months ended September 30, 1996 and 1995, respectively,
before capitalization of software costs of approximately $500,000 and $77,000,
respectively. The decrease in the amount of software development expenses was
due to a lesser number of development employees which resulted from personnel
cuts in the fiscal 1996 restructurings, reduction in lease and other costs, and
other cost savings in the fiscal 1996 restructurings. Upon the release for
general availability of the Company's software products, the Company amortizes
capitalized software development costs over a five year period. Such
amortization is included in cost of revenues. The percentage of capitalized
software development costs to total software development costs was 18% for the
three-months ended September 30, 1996 and 2% for the three-months ended
September 30, 1995. During the three-months ended September 30, 1996, costs were
capitalized for the Platinum for Windows purchase order module and the
multi-currency functionality for Platinum SQL. The Company expects that gross
development expenditures should remain constant for the remainder of fiscal
1997. See "Certain Factors That May Affect Future Results - Forward Looking
Statements."
8
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Other Income
Other income for the three-months ended September 30, 1996 and 1995, was
approximately $222,000 and $346,000, respectively. For the three-months ended
September 30, 1996 and 1995, other income primarily represented interest earned
on the Company's cash and cash equivalents.
FINANCIAL CONDITION
Liquidity and Capital Resources
As of September 30, 1996, the Company's principal sources of liquidity included
cash and cash equivalents of approximately $4,801,000. Cash and cash equivalents
decreased by approximately $601,000 over the June 30, 1996 balance primarily due
to cash used in operations. The Company had working capital of $3.5 million at
June 30, 1996 versus working capital of $2.1 million at September 30, 1996. The
decrease is primarily attributable to cash used in operations.
The Company's operations used approximately $1.2 million of cash and cash
equivalents in the quarter ended September 30, 1996. Included in the use of cash
and cash equivalents from operations was the investment of approximately $2.2
million in software development.
As part of the sale of certain Company product lines and divisions in the fiscal
1994 restructuring, the Company received payments on notes receivable from
divestitures of approximately $161,000 during the quarter ended September 30,
1996. The Company also paid approximately $191,000 in severance, lease and other
costs related to the fiscal 1994 and fiscal 1996 restructurings during the
quarter ended September 30, 1996. At September 30, 1996, the Company had a
$1,730,000 cash obligation related to lease termination and other costs of the
fiscal 1994 and fiscal 1996 restructurings and this obligation will be funded
from existing cash reserves and working capital.
The Company has taken steps to significantly reduce its operating expenses,
through several reductions in work force over the past two years, as well as the
disposition of several business units. If the Company is not successful in
achieving targeted revenues, the Company may be required to take further actions
to align its operating expenses with its reduced revenues, such as further
reductions in work force.
The Company experienced negative cash flow from operations for the first nine
months of fiscal 1996 and the first three months of fiscal 1997 and positive
cash flow from operations during the fourth quarter of fiscal 1996. The Company
expects to be cash flow positive from operations commencing the third quarter of
fiscal 1997. See "Business - Certain Considerations - Forward Looking
Statements." Accordingly, the Company is dependent upon its ability to generate
cash flow from license fees and other operating revenues, as well as the
collection of its outstanding accounts receivable to maintain current liquidity
levels. However, the Company believes that its current cash reserves, together
with existing sources of liquidity, will satisfy the Company's projected
short-term liquidity and other cash requirements for the next 12 months.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Liquidity. The Company's cash and cash equivalents decreased from $5.4 million
at June 30, 1996 to $4.8 million at September 30, 1996, principally due to the
use of cash in operations. Although, the Company's fiscal 1994 restructuring is
substantially complete, there will be additional cash outlays in connection with
lease terminations, estimated to be approximately $152,000. In addition, there
will be further cash outlays estimated at approximately $1.1 million in
connection with the second quarter fiscal 1996 restructuring and approximately
$466,000 in connection with the third quarter fiscal 1996 restructuring. The
Company has taken steps to significantly reduce its operating expenses, through
the reductions in work force, as well as the disposition of several business
units that were not within the Company's core financial software application
business. The Company has experienced negative cash flow from operations for the
first nine months of fiscal 1996 and the first three months of fiscal 1997 and
positive cash flow from operations during the fourth quarter of fiscal 1996. The
Company expects to be cash flow positive from operations commencing the third
quarter of fiscal 1997. See "Certain Considerations -- Forward Looking
Statements." If the Company is not successful in achieving targeted revenues or
positive cash flow, the Company may be required to take further actions to align
its operating expenses with its reduced revenues, such as further reductions in
work force.
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Disruption of Revenues. The negative events that have occurred at the Company
since April 1994, including the fiscal 1994 restatement of the Company's
financial statements for prior periods, an investigation by the SEC relating to
the circumstances underlying the restatement, a securities class action lawsuit,
several reductions in force, the closing of business units and poor financial
performance, have caused potential customers to curtail or delay purchasing
decisions or make purchases from other software vendors and have, accordingly,
adversely impacted the Company's ability to generate revenue. Although, the
Company has settled the securities class action, raised additional equity
financing, and the SEC investigation has concluded, the negative effects on
revenue from the negative events at the Company have continued. There can be no
assurance that the difficulty in closing sales of software licenses will not
continue in the future or that Authorized Dealers or Authorized Consultants will
continue to represent the Company's products and, accordingly, revenues may be
significantly impacted in the future.
Fluctuations in Quarterly Operating Results. The Company's operating results can
vary substantially from period-to-period. The Company's quarterly operating
results fluctuate in part due to the number and timing of new product
introductions and enhancements, discontinuance of product lines, the timing of
product orders and shipments, recognition of deferred revenue upon the Company's
completion of its contractual obligations, marketing and product development
expenditures and promotional programs. A significant portion of the Company's
quarterly revenues are recorded in the final month of the quarter, with a
concentration of such revenues in the final 10 business days of that month.
Also, the timing of the closing of direct sales in the latter part of each
quarter increases the risk of quarter-to-quarter fluctuations. Accordingly, the
Company believes that period-to-period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as an indication of
future performance. If revenues do not meet the Company's expectations in any
given quarter, operating results may be adversely affected. There can be no
assurance that the Company will be profitable in any quarter or at all.
Dependence on Distribution Channels. The Company distributes its Platinum DOS
and Platinum for Windows products exclusively through third-party dealers and
VARs, and distributes its Platinum SQL software product through a direct sales
force as well as through VARs and distributors. The Company's distribution
channel includes distributors, resellers, software consultants and systems
integrators, and Authorized Consultants, which consist primarily of professional
firms. Although no one of these distribution channel members is responsible for
any material amount of the Company's license fees, the Company's results of
operations could be adversely affected if significant numbers of its Authorized
Dealers or Authorized Consultants were to cease distributing or recommending the
Company's products or were to choose to emphasize competing products. Generally,
the Company's agreements with its Authorized Dealers and Authorized Consultants
do not require them to exclusively offer or recommend the Company's products and
may be terminated by either party with or without cause.
In the fourth quarter of fiscal 1996, the Company began reestablishing a direct
sales force for its middle market client server financial software product,
Platinum SQL. There can be no assurance that the direct sales force will be
successful in generating revenue or that it will not lead to conflicts with the
Company's dealer channel.
The Company's Platinum SQL product (formerly named Platinum SQL NT) was first
introduced on a limited basis to the network of Authorized Dealers during the
quarter ended December 31, 1994. Platinum SQL, a client/server financial
software application designed to run on Microsoft Windows NT and Microsoft SQL
server, is a more technically complex product than Platinum for Windows and
Platinum-DOS and requires additional skill and training to successfully
implement. The Company presently has over 70 authorized Platinum SQL dealers who
have completed training and is actively seeking additional skilled Authorized
Dealers to sell Platinum SQL. Delays in training Authorized Dealers or
recruiting additional skilled Authorized Dealers could adversely impact the
Company's ability to generate license revenues from its Platinum SQL product
line. The Company is emphasizing the enhancement and training of its dealer
channel with a particular focus on Platinum SQL dealers. There can be no
assurance that the Company's direct or indirect sales efforts will be
successful.
Dependence on Platinum SQL Product Line. Platinum SQL, which is a successor
product to Platinum SQL Enterprise which was first introduced in June 1992, and
to Platinum SQL NT, which was first introduced in December 1994, is a relatively
new integrated financial and management information software product for use on
client/server computing systems. It is common for complex programs such as
Platinum SQL to contain undetected errors when first released, which are
discovered only after the product has been used with many different computer
systems and in varying applications. The Company has been informed by customers
of certain errors with respect to its Platinum SQL product which the Company is
addressing. The inability of the Company to correct the errors, or any
significant delay in correcting the errors in Platinum SQL, will have a material
adverse effect on the Company's
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results of operations. In addition, there can be no assurance that significant
technical problems will not be discovered, or if discovered, corrected in a
timely manner. Technical problems with the current release of the database
platforms on which Platinum SQL operates could impact sales of these Company
products, and any significant technical problems could have a material adverse
effect on the Company's results of operations.
New Product Introductions. The Company's future success will depend upon its
ability to develop and successfully introduce new products, enhance its current
products on a timely basis and increase customer acceptance of its existing
products. The Company has two principal product lines, Platinum for Windows
(including Platinum-DOS) and Platinum SQL. The Company continues to provide
maintenance and support services for its Platinum SQL Enterprise product for
existing customers. Platinum SQL was released in the quarter ended December 31,
1994 and some of the core accounting modules of Platinum for Windows were
released during the quarters ended June 30, 1995 and December 31, 1995. Version
3.3 of Platinum SQL and additional modules of Platinum for Windows are scheduled
for release in calendar 1996. In the past, the Company has occasionally
experienced delays in the introduction of new products and product enhancements.
There can be no assurance that the Company will be successful in developing and
marketing these new products or product enhancements on a timely basis or that
the Company will not experience significant delays in introducing new products
in the future, which could have a material adverse effect on the Company's
results of operations. In addition, there can be no assurance that new products
or product enhancements developed by the Company will achieve market acceptance.
Dependence on Client/Server Environment. The Company's development tools,
application products and consulting and education services are intended to help
organizations build, customize or deploy solutions that operate in a
client/server computing environment. The client/server market is relatively new,
and there can be no assurance that organizations will continue to adopt
client/server environments or that customers of the Company that have begun the
migration to a client/server environment will broadly implement this model of
computing. The Company's future financial performance will depend in large part
on continued growth in the market for client/server software applications and
related services, which in turn will depend in part on the growth in the number
of organizations implementing client/server computing environments and the
number of applications developed for use in those environments. There can be no
assurance that these markets will continue to grow or that the Company will be
able to respond effectively to the evolving requirements of these markets. If
the market for client/server application products and services does not grow in
the future, or grows more slowly than the Company anticipates, or if the Company
fails to respond effectively to evolving requirements of this market, the
Company's business, financial condition and results of operations would be
materially adversely affected.
Competition. The financial computer software industry is intensely competitive
and rapidly changing. A number of companies offer products similar to the
Company's products that target the same markets. Some of the Company's existing
competitors, as well as a number of new potential competitors, have larger
technical staffs, more established and larger marketing and sales organizations
and significantly greater financial resources than the Company. There can be no
assurance that competitors will not develop products that are superior to the
Company's products or that achieve greater market acceptance. The Company's
future success will depend significantly upon its ability to increase its share
of its target markets and to license additional products and product
enhancements to existing customers. The adverse publicity relating to the
restatement of previously issued financial results has resulted in increased
competitive challenges, which the Company expects will continue. In addition,
adverse publicity relative to the Company's restructuring efforts, downsizing
and poor financial results has resulted in further competitive challenges. There
can be no assurance that the Company will be able to compete successfully or
that competition will not have a material adverse effect on the Company's
financial condition and results of operations.
Exposure to Rapid Technological Change. The market for the Company's financial
accounting software products is characterized by rapid technological advances,
changes in end-user requirements, frequent new product introductions and
enhancements and evolving industry standards. The introduction of products
embodying new technologies and the emergence of new industry standards could
render the Company's existing products and products under development obsolete
and unmarketable. The Company's future success will depend upon its ability to
address the increasingly sophisticated needs of its customers by enhancing its
current products and by developing and introducing on a timely basis new
products that keep pace with technological developments and emerging industry
standards, respond to evolving end user requirements and achieve market
acceptance. Any failure by the Company to anticipate or adequately respond to
technological developments or end-user requirements, or any significant delays
in product development or introduction, could result in a loss of
competitiveness or reduced revenues. If the Company is unable, for technological
or any other reason, to develop, introduce and sell its products in a timely
manner, the Company's business, operating results and financial condition would
be materially adversely affected.
11
<PAGE> 12
From time to time, the Company or its present or future competitors may announce
new products, capabilities or technologies that have the potential to replace or
shorten the life cycles of the Company's existing products. There can be no
assurance that announcements of currently planned or other new products will not
cause customers to delay or alter their purchasing decisions in anticipation of
such products, which could have a material adverse effect on the Company's
business, operating results and financial condition.
Shares Eligible for Future Sale. As of November 6, 1996, the Company had
18,296,969 shares of common stock outstanding. There are presently 2,435,000
shares of Series B Preferred Stock and 231,598 shares of Series C Preferred
Stock outstanding. Each share of Series B Preferred Stock is convertible into
one share of common stock, as adjusted for stock dividends, combinations or
splits at the option of the holder. Each share of Series C Preferred Stock is
convertible into ten shares of common stock, as adjusted for stock dividends,
combinations or splits at the option of the holder. As a result, the Series B
and Series C Preferred Stock are convertible into 2,435,000 and 2,315,980 shares
of common stock, respectively. The holders of the Series B and Series C
Preferred Stock have the right to cause the Company to register the sale of the
shares of common stock issuable upon conversion of the Series B and Series C
Preferred Stock. Also, the Company has a substantial number of options or shares
issuable to employees under employee option plans. In addition, certain third
parties hold warrants to purchase an aggregate of 105,000 shares of common
stock. The holders of these warrants have the right to require the Company to
register the sale of the shares of common stock issuable upon exercise of the
warrants. As a result, a substantial number of shares of common stock will be
eligible for sale in the public market at various times in the future. Sales of
substantial amounts of such shares could adversely affect the market price of
the Company's common stock.
Possible Volatility of Stock Prices. The market prices for securities of
technology companies, including the Company, have been volatile. Quarter to
quarter variations in operating results, changes in earnings estimates by
analysts, announcements of technological innovations or new products by the
Company or its competitors, announcements of major contract awards and other
events or factors may have a significant impact on the market price of the
Company's Common Stock. In addition, the securities of many technology companies
have experienced extreme price and volume fluctuations, which have often been
unrelated to the companies' operating performance. These conditions may
adversely affect the market price of the Company's Common Stock.
Forward Looking Statements. This quarterly report contains certain forward
looking statements that involve risks and uncertainties. Certain risks and
uncertainties which may impact the accuracy of the forward looking statements
with respect to revenues, expenses, operating results and software delivery
schedules include, without limitation, the impact of competitive products,
pricing, the discovery of undetected errors or software bugs in the Company's
products, subsequent changes in business strategy or plan, the ability of the
Company to overcome recent negative events such as restructurings and reductions
in force, the ability of the Company to recruit and train dealers for the
Platinum SQL product and the ability of the Company to develop a direct sales
force for the Platinum SQL product.
Because of these and other factors affecting the Company's operating results,
past financial performance should not be considered an indicator of future
performance, and investors should not use historical trends to anticipate
results or trends in future periods.
12
<PAGE> 13
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS:
The Company is subject to miscellaneous legal proceedings in the normal course
of business and other legal proceedings related to or arising out of the fiscal
1994 restructuring, reductions in force and the discontinuance of certain
client/server applications. The Company is currently defending these proceedings
and claims, and anticipates that it will be able to resolve these matters in a
manner that will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
13
<PAGE> 14
SIGNATURE
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.
PLATINUM SOFTWARE CORPORATION
-----------------------------
(Registrant)
Date: November 13, 1996 /s/ MICHAEL J. SIMMONS
-----------------------------
Michael J. Simmons
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)
14
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