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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
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[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 NUMBER: 0-27752
ANALOGY, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0892014
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9205 SW GEMINI DRIVE
PORTLAND, OREGON 97008
(Address of principal executive offices and zip code)
503-626-9700
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [ X ] No [ ]
----- -----
COMMON STOCK, NO PAR VALUE 8,367,390
(Class) (Shares outstanding at November 1, 1996)
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ANALOGY, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Balance Sheets - September 30, 1996
and March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations - Three Months and Six Months
Ended September 30, 1996 and 1995. . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows - Six Months
ended September 30, 1996 and 1995. . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . 6
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 12
1
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ANALOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
------------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,015 $10,208
Marketable securities 4,910 -
Accounts receivable 5,936 5,831
Prepaid expenses and other assets 857 817
--------- -------
Total current assets 12,718 16,856
Furniture, fixtures and equipment, net 3,765 3,113
Library costs, net 2,211 2,116
Other assets 254 209
--------- -------
$18,948 $22,294
--------- -------
--------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,230 $ 2,124
Current portion of capital leases 482 537
Accrued expenses 1,634 1,427
Unearned revenue 5,155 5,208
Subordinated debt 100 929
--------- -------
Total current liabilities 8,601 10,225
Non-current portion of capital leases 383 423
Other liabilities 145 155
Shareholders' equity:
Common stock, no par value, authorized 35,000 shares; 14,177 14,180
8,366 and 8,293 shares issued and outstanding
at September 30, 1996 and March 31, 1996
Foreign currency translation (106) (78)
Retained deficit (4,252) (2,611)
--------- -------
Total shareholders' equity 9,819 11,491
--------- -------
$18,948 $22,294
--------- -------
--------- -------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
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ANALOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
------------------------- -------------------------
1996 1995 1996 1995
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenue:
Product licenses $2,882 $4,031 $5,553 $8,090
Service and other 2,377 1,292 4,422 2,538
----- ------ ----- ------
Total revenue 5,259 5,323 9,975 10,628
Cost of revenue:
Product licenses 374 293 751 629
Service and other 525 184 1,011 367
----- ------ ----- ------
Total cost of revenue 899 477 1,762 996
----- ------ ----- ------
Gross profit 4,360 4,846 8,213 9,632
Operating expenses:
Research and development 1,278 1,214 2,640 2,269
Sales and marketing 3,015 2,437 5,752 5,108
General and administrative 682 664 1,357 1,249
----- ------ ----- ------
Total operating expenses 4,975 4,315 9,749 8,626
----- ------ ----- ------
Operating (loss) income (615) 531 (1,536) 1,006
Other income (expense), net (1) (219) 9 (400)
----- ------ ----- ------
(Loss) income before income
taxes (616) 312 (1,527) 606
----- ------ ----- ------
Income tax expense 316 80 114 155
----- ------ ----- ------
Net (loss) income $ (932) $232 $(1,641) $451
----- ------ ----- ------
----- ------ ----- ------
Net (loss) income per common share $(0.11) $0.03 $ (0.20) $0.07
----- ------ ----- ------
----- ------ ----- ------
Shares used in per share calculations 8,356 6,921 8,334 6,879
----- ------ ----- ------
----- ------ ----- ------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
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ANALOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended September 30,
-------------------------------
1996 1995
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(1,641) $ 451
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,225 850
Changes in operating assets and liabilities:
Accounts receivable (134) 1,168
Prepaid expenses and other assets (85) (227)
Accounts payable and accrued expenses (697) 1,125
Unearned revenue (44) (463)
--------- -------
Net cash (used in) provided by operating activities (1,376) 2,904
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (5,910) -
Sales of marketable securities 1,000 -
Capital expenditures for furniture, fixtures and equipment (1,156) (394)
Capital expenditures for library costs (559) (512)
--------- -------
Net cash used in investing activities (6,625) (906)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit - (1,910)
Payments on subordinated debt (829) -
Principal payments on capital leases (353) (291)
Common stock offering costs (75) -
Proceeds from exercise of common stock options 72 74
--------- -------
Net cash used in financing activities (1,185) (2,127)
Effect of exchange rate changes on cash and cash equivalents (7) 45
--------- -------
Net decrease in cash and cash equivalents (9,193) (84)
Cash and cash equivalents at beginning of period 10,208 1,179
--------- -------
Cash and cash equivalents at end of period $1,015 $1,095
--------- -------
--------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 116 $ 163
Income taxes 138 -
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Acquisition of equipment under capital lease obligations $257 $ 44
</TABLE>
<PAGE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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ANALOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements as of and for
the three months and six months ended September 30, 1996 and 1995 have been
prepared in conformity with generally accepted accounting principles. The
financial information as of March 31, 1996 is derived from the Analogy, Inc.
(the "Company") consolidated financial statements included in the Annual Report
on Form 10-K for the year then ended. Certain information or footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted,
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of management, the accompanying consolidated financial statements
include all adjustments necessary (which are of a normal and recurring nature)
for the fair presentation of the results of the interim periods presented. The
accompanying consolidated financial statements should be read in conjunction
with the Company's audited consolidated financial statements for the year ended
March 31, 1996, as included in the Company's Annual Report on Form 10-K for the
year then ended.
Operating results for the three and six months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the entire
fiscal year ending March 31, 1997, or any portion thereof.
2. FURNITURE, FIXTURES AND EQUIPMENT, NET
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
------------- ------------
<S> <C> <C>
Office furniture $ 783 $ 541
Computer equipment 3,317 2,782
Capital leases 3,462 3,206
Software 930 550
--------- ---------
8,492 7,079
Less accumulated depreciation and amortization (4,727) (3,966)
--------- ---------
$ 3,765 $ 3,113
--------- ---------
--------- ---------
</TABLE>
3. CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash equivalents consist of highly liquid investments with maturities at
the date of purchase of 90 days or less; marketable securities consist primarily
of government and corporate securities. The Company's marketable securities are
classified as "available for sale" as the Company intends to utilize its
marketable securities for liquidity or operational purposes. Accordingly, these
securities are carried at market value, which is not materially different from
cost at September 30, 1996.
4. SUBSEQUENT EVENTS
On October 24, 1996, the Company announced an agreement in principle to
acquire Symmetry Design Systems, Inc., a leading independent developer of analog
and mixed-signal modeling tools and model libraries. The consummation of the
acquisition will be subject to the negotiation and execution of a definitive
merger agreement, and the satisfaction of all conditions expressed in such
agreement. The acquisition, which is to be accounted for as a purchase, is
expected to be completed by the end of November.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company develops, markets and supports high-performance software and
model libraries for the top-down design and behavioral simulation of
mixed-signal and mixed-technology systems. The Company's core simulator product,
Saber, was introduced in 1987. In addition to Saber, Analogy offers schematic
capture and analysis tools and framework integration products providing
interfaces to the design environments of major electronic design automation
companies.
The Company's product license revenue consists of license fees for its
software products and template and component model library subscription fees.
Service and other revenue consists of software maintenance fees, training,
consulting and contract model development. The Company's software products are
shipped only after the Company has an executed software license agreement with a
customer. Revenue from software licenses is recognized upon shipment to the
customer. Revenue from library subscription fees is typically billed annually
and the related revenue is recognized ratably over the life of the contract,
usually twelve months. Maintenance is normally billed in advance and recognized
ratably over the life of the contract, which is usually twelve months. Training,
consulting, contract model development and other services revenue is recognized
as the services or portions thereof have been completed. The Company received a
multi-year grant from the National Institute of Standards and Technology
("NIST") in fiscal year 1996 and a contract with the Defense Advanced Research
Projects Agency ("DARPA") in fiscal year 1997 which provide funding to the
Company for research and development. These contracts contain cost sharing
provisions.
The Company has focused substantial efforts on its international business
operations, particularly in Europe. The Company's international operations
accounted for 43% and 32% of the Company's total revenue for the first six
months of fiscal year 1997 and 1996, respectively. The majority of the Company's
international operations are conducted through the Company's wholly-owned
subsidiaries in Europe.
FORWARD LOOKING STATEMENTS
All statements and trend analysis contained herein relative to future size
or degree of market penetration of the Company's products and information
relating to the rates of growth or decline of revenue or expenses constitute
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward looking statements are subject to
the business and economic risks faced by the Company and the Company's actual
results of operations may differ materially from those contained in the forward
looking statements.
Results of operations for the periods discussed below should not be
considered indicative of the results to be expected in any future period, and
fluctuations in operating results may also result in fluctuations in the market
price of the Company's common stock. Like most high technology companies, the
Company faces certain business risks that could have adverse effects on the
Company's results of operations.
The Company's quarterly operating results have in the past and may in the
future vary significantly depending on factors such as increased competition,
the timing of new product announcements, changes in pricing policies by the
Company or its competitors, lengthy sales cycles, lack of market acceptance or
delays in the introduction of new or enhanced versions of the Company's
products, the timing of significant orders, seasonal factors, the mix of direct
and indirect sales and general economic conditions.
The Company has historically derived a significant portion of its revenue
from the automotive industry. The automotive industry is characterized by high
cyclicality, technological change, fluctuations in manufacturing capacity and
pricing and gross margin pressures. This industry has from time to time
experienced significant economic downturns characterized by decreased product
demand, production over-capacity, price erosion, work slowdowns and layoffs. No
assurance can be given that the automotive industry will experience economic
growth, will not experience a downturn or that any downturn will not be severe.
6
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The Company's operating results have depended, and will continue to depend,
upon designers of mixed-signal and mixed-technology systems adopting methods of
design analysis and simulation which use behavioral modeling techniques. The
design analysis and simulation industry is characterized by rapid technological
change, frequent new product introductions and evolving industry standards. The
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. The
Company's future success will depend upon its ability to enhance its current
products and to develop or acquire new products that keep pace with
technological developments and emerging industry standards and address the
increasingly sophisticated needs of its customers.
RESULTS OF OPERATIONS
The following tables set forth for the periods indicated selected items of
the Company's consolidated statements of operations and such items expressed as
a percentage of total revenue:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
STATEMENT OF OPERATIONS DATA: SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
Revenue:
Product licenses $ 2,882 54.8% $ 4,031 75.7%
Service and other 2,377 45.2 1,292 24.3
------- ------ -------- --------
Total revenue 5,259 100.0 5,323 100.0
Cost of revenue:
Product licenses 374 7.1 293 5.5
Service and other 525 10.0 184 3.5
------- ------ -------- --------
Total cost of revenue 899 17.1 477 9.0
------- ------ -------- --------
Gross profit 4,360 82.9 4,846 91.0
Operating expenses:
Research and development 1,278 24.3 1,214 22.8
Sales and marketing 3,015 57.3 2,437 45.8
General and administrative 682 13.0 664 12.4
------- ------ -------- --------
Total operating expenses 4,975 94.6 4,315 81.0
------- ------ -------- --------
Operating (loss) income (615) (11.7) 531 10.0
Other income (expense), net (1) -- (219) (4.1)
------- ------ -------- --------
(Loss) income before income taxes (616) (11.7) 312 5.9
Income tax expense 316 6.0 80 1.5
------- ------ -------- --------
Net (loss) income $ (932) 17.7% $ 232 4.4%
------- ------ -------- --------
------- ------ -------- --------
</TABLE>
7
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<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
STATEMENT OF OPERATIONS DATA: 1996 1995
------------------------- -------------------------
<S> <C> <C> <C> <C>
Revenue:
Product licenses $5,553 55.7% $8,090 76.1%
Service and other 4,422 44.3 2,538 23.9
----- ------ ------ ------
Total revenue 9,975 100.0 10,628 100.0
Cost of revenue:
Product licenses 751 7.5 629 5.9
Service and other 1,011 10.2 367 3.5
----- ------ ------ ------
Total cost of revenue 1,762 17.7 996 9.4
----- ------ ------ ------
Gross profit 8,213 82.3 9,632 90.6
Operating expenses:
Research and development 2,640 26.5 2,269 21.3
Sales and marketing 5,752 57.6 5,108 48.1
General and administrative 1,357 13.6 1,249 11.7
----- ------ ------ ------
Total operating expenses 9,749 97.7 8,626 81.1
----- ------ ------ ------
Operating (loss) income (1,536) (15.4) 1,006 9.5
Other income (expense), net 9 0.1 (400) (3.8)
----- ------ ------ ------
(Loss) income before income taxes (1,527) (15.3) 606 5.7
Income tax expense 114 1.2 155 1.5
----- ------ ------ ------
Net (loss) income $(1,641) 16.5% $451 4.2%
----- ------ ------ ------
----- ------ ------ ------
</TABLE>
THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
REVENUE
Total revenue in the second quarter of fiscal year 1997 was at
approximately the same level as the second quarter of fiscal year 1996. Total
revenue decreased 6% to $10.0 million in the first six months of fiscal year
1997 from $10.6 million in the first six months of fiscal year 1996.
Product license revenue decreased 29% to $2.9 million in the second quarter
of fiscal year 1997 from $4.0 million in the second quarter of fiscal year 1996,
and decreased 31% to $5.6 million in the first six months of fiscal year 1997
from $8.1 million in the first six months of fiscal year 1996. The decreases
were primarily attributable to the slippage of several key orders from the first
quarter and second quarters of fiscal year 1997 to later in the year, and to
lower overall sales in the automotive sector in the United States. These
decreases were partially offset by increases in international sales in the first
six months of fiscal year 1997.
Service and other revenue increased 84% to $2.4 million in the second
quarter of fiscal year 1997 from $1.3 million in the second quarter of fiscal
year 1996, and increased 74% to $4.4 million in the first six months of fiscal
year 1997 from $2.5 million in the first six months of fiscal year 1996. The
increases were due primarily to increased maintenance revenue resulting from
growth in the Company's installed base, billings to NIST under the grant awarded
in fiscal year 1996, billings to the U.S. Air Force under a contract awarded
during the first quarter of fiscal year 1997, and billings to DARPA under a
contract awarded in September 1996.
Sales to Electronic Data Systems Corp. ("EDS"), which serves as a
distributor to certain automotive industry users, accounted for approximately 4%
and 17% of total revenue in the first six months of fiscal year 1997 and 1996,
respectively. Near term uncertainty regarding capital spending by General
Motors has resulted in reductions in orders
8
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from EDS. The loss of or further reduction in sales to EDS could have an adverse
effect on the Company's business, financial condition and results of operations.
Other than EDS, no one customer accounted for 10% or more of total revenue in
the second quarter or first six months of fiscal years 1997 or 1996.
Revenue from international operations was $4.3 million (43% of total
revenue) in the first six months of fiscal year 1997 compared to $3.4 million
(32% of total revenue) in the first six months of fiscal year 1996. In the first
six months of fiscal year 1997, revenue from international operations increased
as a percentage of total revenue, as revenue from United States operations, in
particular from the automotive industry, decreased during the same period.
COST OF REVENUE
Total cost of revenue increased to $899,000 in the second quarter of fiscal
year 1997 from $477,000 in the second quarter of fiscal year 1996, and increased
to $1.8 million in the first six months of fiscal year 1997 from $996,000 in the
first six months of fiscal year 1996.
Cost of product license revenue consists primarily of documentation
expense, media manufacturing costs, supplies, shipping expense and the
amortization of component and template model library costs. Cost of product
license revenue increased to 13.0% of product license revenue in the second
quarter of fiscal year 1997 from 7.3% in the second quarter of fiscal year 1996,
and increased to 13.5% of product license revenue in the first six months of
fiscal year 1997 from 7.8% in the first six months of fiscal year 1996. The
increases were primarily due to the decrease in product license revenue during
the same period, as costs such as documentation expense and supplies are
expensed as incurred, which may not necessarily relate to the number of product
licenses shipped during the period.
The cost of service and other revenue consists primarily of maintenance and
customer support expenses (including product enhancements and improvements, bug
fixes, telephone support, installation assistance and on-site support), contract
model development costs and the direct cost of providing services such as
training and consulting. Cost of service and other revenue increased to 22.0% of
service and other revenue in the second quarter of fiscal 1997 from 14.2% of
service and other revenue in the second quarter of fiscal year 1996, and
increased to 22.9% of service and other revenue in the first six months of
fiscal 1997 from 14.5% of service and other revenue in the first six months of
fiscal year 1996. The increases were due primarily to the Company's increased
installed product base, costs associated with performance under the grant
received from NIST and the costs associated with performance under the U.S. Air
Force and DARPA contracts. The costs associated with service and other revenue
as a percentage of total revenue are typically higher than the costs of product
license revenue. It is anticipated that service and other revenue will continue
to increase as a percentage of total revenue for the remainder of fiscal year
1997.
RESEARCH AND DEVELOPMENT
Research and development expense includes all costs associated with
development of new products and technology research. The costs classified in
this category primarily include such items as salaries, fringe benefits,
depreciation of capital equipment and an allocation of facilities and systems
support costs used in research and development. Research and development
expenses increased slightly to $1.3 million in the second quarter of fiscal year
1997 from $1.2 million in the second quarter of fiscal year 1996, and increased
16% to $2.6 million in the first six months of fiscal year 1997 from $2.3
million in the first six months of fiscal year 1996. The increases primarily
resulted from the increase in research and development personnel in the first
quarter of fiscal 1997 and increased facilities and systems support expenses to
accommodate the increased personnel. As a percentage of total revenue, research
and development costs increased to 26.5% in the first six months of fiscal year
1997 from 21.3% in the first six months of fiscal year 1996, due to the above
and the decrease in total revenue in the first six months of fiscal year 1997.
SALES AND MARKETING
Sales and marketing expense consists primarily of salaries, commissions and
travel. Sales and marketing expense increased 24% to $3.0 million in the second
quarter of fiscal year 1997 from $2.4 million in the second quarter of 1996, and
increased 13% to $5.7 million in the first six
9
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months of fiscal year 1997 from $5.1 million in the first six months of fiscal
year 1996. As a percentage of total revenue, sales and marketing expenses
increased to 57.6% in the first six months of fiscal year 1997 from 48.1% in the
first six months of fiscal year 1996, due primarily to increases in personnel
and training, and expenses incurred to support the introduction of new products
expected to be released in early November 1996. Additionally, the increase as a
percentage of total revenue was due to the decrease in revenue in the first six
months of fiscal year 1997.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include costs associated with the
Company's executive staff, legal, accounting, corporate systems, facilities and
human resources departments. General and administrative expenses increased 3% to
$682,000 in the second quarter of fiscal year 1997 from $664,000 in the second
quarter of fiscal year 1996, and increased 9% to $1.4 million in the first six
months of fiscal year 1997 from $1.2 million in the first six months of fiscal
year 1996. As a percentage of total revenue, general and administrative expenses
increased to 13.6% in the first six months of fiscal year 1997 from 11.7% in the
first six months of fiscal 1996, due to expansion of facilities, and the
increased costs of being a public company, including those related to external
reporting requirements, and legal and accounting costs.
OTHER INCOME (EXPENSE), NET
Other expense, net primarily consists of interest income on cash and cash
equivalents and marketable securities offset by interest expense associated with
short-term financing of accounts receivable, capital leases and subordinated
debt. Other expense, net was $1,000 (expense) in the second quarter of fiscal
year 1997 and $219,000 (expense) in the second quarter of fiscal year 1996; and
$9,000 (income) in the first six months of fiscal year 1997 and $400,000
(expense) in the first six months of fiscal year 1996. This change is primarily
attributable the reduction in interest expense resulting from reduced amounts
outstanding under the Company's line of credit arrangement and subordinated
debt; a result of the Company's initial public offering in March 1996.
PROVISION FOR INCOME TAXES
In the second quarter of fiscal year 1997 the Company reversed the $228,000
benefit from the anticipated utilization of net operating loss carryforwards
which had been recorded in the previous quarter. The reversal was a result of
changes in the estimate of the mix of taxable income among the Company's U.S.
and foreign entities. In the second quarter of fiscal 1997, the Company recorded
approximately $88,000 of foreign tax expense.
The Company's effective income tax rate for fiscal year 1997 will be
impacted by the mix of tax benefits available from utilization of net operating
loss carryforwards and tax expense for subsidiaries in certain countries where
the Company does business. Accordingly, the Company's income tax position and
resulting income tax rate is uncertain for fiscal year 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception with private equity
investments, cash from operations, subordinated debt, bank loans, capital
equipment leases, accounts receivable financing and in March 1996, with an
initial public offering of common stock which resulted in net proceeds to the
Company of approximately $9.4 million.
Net cash used in operating activities was $1.4 million in the first six
months of fiscal year 1997, primarily resulting from a net loss for the period,
adjustments for depreciation and amortization and the decrease in accounts
payable. The decrease in accounts payable primarily represents payment of
amounts outstanding at March 31, 1996, including costs associated with the
Company's initial public offering which was completed in March 1996.
Net cash used in investing activities was $6.6 million in the first six
months of fiscal year 1997, which primarily included the net investment of cash
in marketable securities. Also included in net cash used in investing activities
were capital expenditures for furniture, fixtures and equipment, which were
primarily systems upgrades and
10
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improvements, and capital expenditures associated with the investment in the
Company's component and template model libraries.
Net cash used in financing activities was $1.2 million in the first six
months of fiscal year 1997, which primarily included payments of subordinated
debt and capital lease obligations.
At September 30, 1996, the Company had cash and cash equivalents of
$1.0 million and marketable securities of $4.9 million. The Company also
utilizes lease financing arrangements to finance purchase of capital assets as a
source of liquidity. The Company believes that the net proceeds from its initial
public offering, together with lease financing arrangements, available funds and
cash flows expected to be generated by operations, will be sufficient to meet
its anticipated cash needs for working capital and capital expenditures for the
next 12 months. Accordingly, the Company currently has no outstanding borrowing
facility.
11
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders was held on August 9, 1996 at
which the actions below were taken:
1. The shareholders elected the following seven directors to the Company's
Board of Directors, by the votes indicated below, to serve for the ensuing year.
EXPIRATION SHARES IN SHARES
NAME OF TERM FAVOR WITHHELD
---- ------- ----- --------
Robert L. Cattoi 1997 7,539,449 9,200
John H. Faehndrich 1997 5,251,778 2,296,871
Martin Vlach 1997 5,157,257 2,391,392
Frank Roehr 1998 5,408,945 2,139,704
Gary P. Arnold 1999 7,017,064 531,585
Neil E. Goldschmidt 1999 7,531,149 17,500
Charles F. Sporck 1999 7,539,249 9,400
2. The Analogy, Inc. 1996 Employee Stock Purchase Plan was approved as follows:
6,897,596 shares were voted in favor, 623,678 shares were voted in opposition,
5,200 shares abstained and there were 22,175 broker non-votes.
3. The appointment of KPMG Peat Marwick, LLP as the Company's independent
auditors for the fiscal year ending March 31, 1997 was ratified as follows:
7,534,186 shares were voted in favor, 8,613 shares were voted in opposition, and
5,850 votes abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this report are listed below:
EXHIBIT NO.
11 Statement Regarding Computation of Per Share (Loss) Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
1996.
12
<PAGE>
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.
Dated: November 7, 1996
ANALOGY, INC.
By: /s/ GARY P. ARNOLD
-------------------------------
Gary P. Arnold
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
By: /s/ TERRENCE A. RIXFORD
-------------------------------
Terrence A. Rixford
Vice President, Finance and Administration
(Principal Financial Officer)
13
<PAGE>
EXHIBIT 11.0
ANALOGY, INC.
COMPUTATION OF PER SHARE (LOSS) EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net (loss) income $ (932) $ 232 $ (1,641) $ 451
-------- -------- -------- --------
-------- -------- -------- --------
Net (loss) income per share (1) $ (0.11) $ 0.03 $ (0.20) $ 0.07
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average shares outstanding:
Common stock 8,356 4,541 8,334 4,511
Dilutive common stock options and
warrants, using the treasury stock
method -- 2,380 -- 2,368
-------- -------- -------- --------
Shares used in per share calculations 8,356 6,921 8,334 6,879
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
(1) Fully diluted earnings per share is not disclosed on the consolidated
statements of operations as it is not more than three percent different from
primary earnings per share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S FORM 10Q FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,015
<SECURITIES> 4,910
<RECEIVABLES> 5,936
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,718
<PP&E> 8,492
<DEPRECIATION> 4,727
<TOTAL-ASSETS> 18,948
<CURRENT-LIABILITIES> 8,601
<BONDS> 0
0
0
<COMMON> 14,177
<OTHER-SE> (4,358)
<TOTAL-LIABILITY-AND-EQUITY> 18,948
<SALES> 5,553
<TOTAL-REVENUES> 9,975
<CGS> 751
<TOTAL-COSTS> 1,762
<OTHER-EXPENSES> 9,749
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,527)
<INCOME-TAX> 114
<INCOME-CONTINUING> (1,641)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,641)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
