<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
AMENDMENT NO. 1 TO
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1997
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
BEAVERTON, 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 9,185,779
(Class) (Shares outstanding at July 31, 1997)
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<PAGE>
ANALOGY, INC.
FORM 10-Q/A
INDEX
THIS REPORT ON FORM 10-Q/A CONSTITUTES AMENDMENT NO. 1 TO THE REGISTRANT'S
REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997, AND AMENDS, IN ITS
ENTIRETY, PART I, ITEMS 1 AND 2, AND PART II, ITEM 6 OF SUCH REPORT AS
ORIGINALLY FILED AUGUST 11, 1997. SEE NOTE 2 OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS FOR A DISCUSSION OF THE BASIS FOR SUCH AMENDMENTS.
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets - June 30, 1997
and March 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations - Three Months
ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows - Three Months
ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 13
</TABLE>
1
<PAGE>
PART I - FINANCIAL INFORMATION
ANALOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
--------- ---------
(As Restated)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,155 $ 1,827
Marketable securities - 1,697
Accounts receivable 5,805 9,161
Prepaid expenses 1,145 886
Other assets, net 374 455
--------- ---------
Total current assets 11,479 14,026
Furniture, fixtures and equipment, net of
accumulated depreciation and amortization
of $6,278 and $5,833 4,257 4,280
Library costs, net 2,982 2,729
Other assets, net 1,003 1,095
--------- ---------
$ 19,721 $ 22,130
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 708 $ 1,482
Current portion of capital leases 466 566
Accrued salaries and benefits 1,767 2,095
Unearned revenue 5,536 5,812
--------- ---------
Total current liabilities 8,477 9,955
Non-current portion of capital leases 499 499
Other liabilities 353 359
Shareholders' equity:
Common stock, no par value, authorized 35,000
shares; 9,135 and 9,118 shares issued and
outstanding 17,160 17,124
Foreign currency translation (173) (155)
Accumulated deficit (6,595) (5,652)
--------- ---------
Total shareholders' equity 10,392 11,317
--------- ---------
$ 19,721 $ 22,130
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------
1997 1996
----------- -----------
(As Restated)
<S> <C> <C>
Revenue:
Product licenses $ 2,751 $ 2,670
Service and other 2,461 2,046
----------- -----------
Total revenue 5,212 4,716
Cost of revenue:
Product licenses 551 377
Service and other 584 485
----------- -----------
Total cost of revenue 1,135 862
----------- -----------
Gross profit 4,077 3,854
Operating expenses:
Research and development 1,511 1,361
Sales and marketing 3,088 2,738
General and administrative 668 675
Amortization of intangibles 92 -
----------- -----------
Total operating expenses 5,359 4,774
----------- -----------
Operating loss (1,282) (920)
Other income, net 25 9
----------- -----------
Loss before income taxes (1,257) (911)
Income tax benefit (314) (202)
----------- -----------
Net loss $ (943) $ (709)
----------- -----------
----------- -----------
Net loss per common share $ (0.10) $ (.09)
----------- -----------
----------- -----------
Weighted average common shares outstanding 9,127 8,311
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------
1997 1996
----------- -----------
(As Restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (943) $ (709)
Adjustments to reconcile net loss to net cash
provided by(used in) operating activities:
Depreciation and amortization 832 574
Changes in operating assets and liabilities:
Accounts receivable 3,303 578
Prepaid expenses and other assets (220) (102)
Accounts payable and accrued expenses (1,052) (819)
Unearned revenue (242) (536)
----------- -----------
Net cash provided by (used in) operating activities 1,678 (1,014)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities - (5,910)
Maturities of marketable securities 1,700 -
Capital expenditures for furniture, fixtures and equipment (427) (553)
Capital expenditures for library costs (544) (210)
----------- -----------
Net cash provided by (used in) investing activities 729 (6,673)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on subordinated debt - (769)
Principal payments on capital lease obligations (101) (179)
Common stock offering costs - (68)
Proceeds from sale of common stock 36 9
----------- -----------
Net cash used in financing activities (65) (1,007)
----------- -----------
Effect of exchange rate changes on cash and cash equivalents (14) (4)
----------- -----------
Net increase (decrease) in cash and cash equivalents 2,328 (8,698)
Cash and cash equivalents at beginning of period 1,827 10,208
----------- -----------
Cash and cash equivalents at end of period $ 4,155 $ 1,510
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 34 $ 93
Income taxes 9 41
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Acquisition of equipment under capital lease obligations $ - $ 257
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited financial information included herein for the three months ended
June 30, 1997 and 1996 was prepared in conformity with generally accepted
accounting principles. The financial information as of March 31, 1997 is derived
from the Analogy, Inc. (the "Company") consolidated financial statements
included in the Annual Report on Form 10-K for the year ended March 31, 1997.
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, 1997, as included
in the Company's Annual Report on Form 10-K for the year ended March 31, 1997.
Operating results for the three months ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the entire fiscal year ending
March 31, 1998, or any portion thereof.
2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS FOR PRIOR PERIODS
In April 1998, the Company determined that revenue from products sold to a
reseller previously recognized in the first quarter of fiscal year 1998 of
$774,000, should more appropriately be recognized as revenue at the time the
product is sold to the ultimate end user rather than to recognize revenue when
it is sold to the reseller. Accordingly, the accompanying consolidated financial
statements for the first quarter of fiscal year 1998 have been restated. The
effect of this restatement was as follows:
<TABLE>
<CAPTION>
Three months ended
-----------------------
(In thousands, except per share amounts) June 30, 1997
-----------------------
As reported Restated
<S> <C> <C>
Total revenues $ 5,986 $ 5,212
Net loss $ (410) $ (943)
Diluted loss per share $ (0.04) $ (0.10)
Accumulated deficit at June 30, 1997 $ (6,062) $ (6,595)
</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 were
classified as "available for sale" and accordingly, these securities were
carried at market value, which was not materially different from cost at March
31, 1997.
4. EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128), which changes the standards for computing and presenting earnings per
share (EPS) and supersedes Accounting Principles Board Opinion No. 15, "Earnings
per Share." SFAS 128 replaces the presentation of primary EPS with a
presentation of
5
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basic EPS, requires dual presentation of basic and diluted EPS on the face of
the income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
SFAS 128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods and requires restatement of all
prior-period EPS data presented.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), which establishes requirements
for disclosure of comprehensive income. The objective of SFAS 130 is to report
all changes in equity that result from transactions and economic events other
than transactions with owners. Comprehensive income is the total of net income
and all other non-owner changes in equity. SFAS 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of earlier financial
statements for comparative purposes is required.
The Company has not quantified the effect of adoption of SFAS 128 or SFAS 130.
6
<PAGE>
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
both commercial and governmental contract model development and research and
development contracts. 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 and
certain other services revenue is recognized as the services or portions thereof
have been provided. Revenue from contract model development is recognized upon
shipment of the underlying models, or upon acceptance criteria as agreed to with
the customer. The Company received a modeling contract from the U.S. Air Force
in fiscal year 1997. The Company also received a contract from the Defense
Advanced Research Projects Agency ("DARPA") in fiscal year 1997 and a multi-year
grant from the National Institute of Standards and Technology ("NIST") in fiscal
year 1996 which provide funding to the Company for research and development. The
DARPA contract contains cost sharing provisions.
In April 1998, the Company determined that revenue from products sold to a
reseller previously recognized in the first quarter of fiscal year 1998 of
$774,000, should more appropriately be recognized as revenue at the time the
product is sold to the ultimate end user rather than to recognize revenue when
it is sold to the reseller. Accordingly, the accompanying consolidated financial
statements for the first quarter of fiscal year 1998 have been restated. SEE
NOTE 2 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
FORWARD LOOKING STATEMENTS
This report, including the following discussion and analysis of financial
condition and results of operations, contains certain statements, trend analysis
and other information that constitute "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, which may
involve risks and uncertainties. Such forward looking statements include, but
are not limited to, statements including the words "anticipate," "believe,"
"estimate," "expect," "plan," "intend" and other similar expressions. 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, including those discussed below and elsewhere in this Report.
The Company's quarterly operating results have in the past and may in the future
vary significantly depending on factors such as the receipt and timing of
significant orders, 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, seasonal factors, the mix of
direct and indirect sales and general economic conditions. In particular, the
Company's quarterly operating results have in the past fluctuated as a result of
the large percentage of orders that are not received by the Company until near
the end of the quarter. Substantially all of the
7
<PAGE>
Company's product licensing revenue in each quarter results from orders booked
in that quarter. The Company's expense levels are based, in part, on its
expectations as to future revenue. If revenue levels are below expectations,
results of operations may be disproportionately affected because only a small
portion of the Company's expenses varies with its revenue. Seasonal factors,
particularly decreases in revenues in European markets in the second fiscal
quarter resulting from European holidays in July and August, and cyclical
economic patterns in the aerospace, defense, automotive or other end-user
industries also contribute to quarter-to-quarter fluctuations. Additionally, a
significant portion of the Company's revenue in a quarter typically is earned in
the last few weeks of that quarter. As a result, the Company may not learn of,
or be able to confirm, revenue or earnings shortfalls until late in the quarter
or following the end of the quarter. Any shortfall in revenue or earnings from
expected levels or other failure to meet expectations of the financial markets
regarding results of operations could have an immediate and significant adverse
effect on the trading price of the Company's Common Stock in any given period.
The Company has historically derived a significant portion of its revenue from
the aerospace and defense industries, which have been characterized by
significant technological changes, high cyclicality and the potential for
significant downturns in business activity resulting from changes in economic
conditions or governmental resources and spending policies. No assurance can be
given that the aerospace and defense industries will experience economic growth,
will not experience a downturn or that any downturn will not be severe, or that
such conditions would not have a material adverse effect on the Company's
business, financial condition and results of operations.
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.
8
<PAGE>
RESULTS OF OPERATIONS
The following table sets 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: JUNE 30, 1997 JUNE 30, 1996
---------------------- ----------------------
(AS RESTATED)
<S> <C> <C> <C> <C>
Revenue:
Product licenses $ 2,751 52.8 % $ 2,670 56.6 %
Service and other 2,461 47.2 2,046 43.4
-------- -------- -------- --------
Total revenue 5,212 100.0 4,716 100.0
Cost of revenue:
Product licenses 551 10.6 377 7.9
Service and other 584 11.2 485 10.3
-------- -------- -------- --------
Total cost of revenue 1,135 21.8 862 18.2
-------- -------- -------- --------
Gross profit 4,077 78.2 3,854 81.8
Operating expenses:
Research and development 1,511 29.0 1,361 28.8
Sales and marketing 3,088 59.2 2,738 58.1
General and administrative 668 12.8 675 14.3
Amortization of intangibles 92 1.8 - -
-------- -------- -------- --------
Total operating expenses 5,359 102.8 4,774 101.2
-------- -------- -------- --------
Operating loss (1,282) (24.6) (920) (19.4)
Other income, net 25 .5 9 .1
-------- -------- -------- --------
Loss before income taxes (1,257) (24.1) (911) (19.3)
Income tax benefit (314) (6.0) (202) (4.2)
-------- -------- -------- --------
Net loss $ (943) (18.1) % $ (709) (15.1) %
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
FIRST QUARTER 1998 COMPARED TO FIRST QUARTER 1997
REVENUE
Total revenue increased 10.5% to $5.2 million in the first quarter of fiscal
year 1998 from $4.7 million in the first quarter of fiscal year 1997. No one
customer accounted for 10% or more of total revenue in the first quarters of
fiscal year 1998 and 1997. SEE NOTE 2 OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
Product license revenue increased 3.0% to $2.8 million in the first quarter of
fiscal year 1998 from $2.7 million in first quarter of fiscal year 1997.
Service and other revenue increased 20.3% to $2.5 million in the first quarter
of fiscal year 1998 from $2.0 million in the first quarter of fiscal year 1997.
The increase was due primarily to increased demand for the Company's maintenance
and other services, growth in the Company's installed base; and revenues from
NIST under a $2.0 million grant awarded in fiscal year 1996, the U.S. Air Force
under a $2.0 million modeling contract awarded during the first quarter of
fiscal year 1997, and DARPA under a $1.3 million contract awarded in September
1996. In the first quarter of fiscal year 1998, the Company recognized revenues
of $209,000, $161,000 and $137,000, related to the NIST grant, the U.S. Air
Force contract and the DARPA contract, respectively. In the first quarter of
fiscal year 1997, the Company recognized revenues of $242,000, $256,000 and $0,
related to the NIST grant, the U.S. Air Force contract and the DARPA contract,
respectively.
9
<PAGE>
In addition to revenues received under the NIST grant, and under the contracts
with the U.S. Air Force and DARPA, the Company received other revenues from the
U.S. government or its subcontractors during the first quarters of fiscal years
1998 and 1997. Total revenues from U.S. government-related sources, including
the previously mentioned specific awards, accounted for approximately 9.7% of
total revenues in the first quarter of fiscal year 1998, and approximately 10.8%
of total revenues in the first quarter of fiscal year 1997. The cancellation or
reduction of projects being undertaken by the U.S. government requiring products
or services of the type provided by the Company, or the Company's failure to
obtain awards of such projects, could have a material adverse effect on the
Company's business, financial condition and results of operations.
International revenue was $2.7 million (52% of total revenue) in the first
quarter of fiscal year 1998 compared to $1.9 million (41% of total revenue) in
the first quarter of fiscal year 1997. International revenue increased primarily
as a result of increased sales in Germany and Taiwan. The Company sells its
products and services through its wholly-owned subsidiaries in Europe, and
through distributors in Asia.
COST OF REVENUE
Total cost of revenue increased 31.7% to $1.1 million in the first quarter of
fiscal year 1998 from $862,000 in the first quarter of fiscal year 1997.
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 and royalty payments. The Company
does not capitalize development costs for software products since the time
between the establishment of a working model of the software product and its
commercialization is typically of a short duration. Cost of product license
revenue increased to 20.0% of product license revenue in the first quarter of
fiscal year 1998 from 14.1% in the first quarter of fiscal year 1997, due
primarily to increased amortization of model library costs, royalty payments,
and commissions paid to a new sales agent Taiwan in the first quarter of fiscal
year 1998 which were included in cost of product revenue in the quarter.
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. The costs associated with service and other revenue as
a percentage of total revenue are typically higher than the costs of product
license revenue. As a percentage of service and other revenue, cost of service
and other revenue was flat at 23.7% in the first quarter of fiscal year 1998 and
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 11.0%
to $1.5 million in the first quarter of fiscal year 1998 from $1.4 million the
first quarter of fiscal year 1997, primarily as a result of increased personnel.
As a percentage of total revenue, research and development costs increased to
29.0% in the first quarter of fiscal year 1998 from 28.8% in the first quarter
of fiscal year 1997.
10
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SALES AND MARKETING
Sales and marketing expense consists primarily of salaries, commissions and
travel. Sales and marketing expense increased 12.8% to $3.1 million in the first
quarter of fiscal year 1998 from $2.7 million in the first quarter of fiscal
year 1997. The increase primarily resulted from increases in personnel,
salaries, related benefits, travel and training. Additionally, in the first
quarter of fiscal year 1998 the Company established a new telemarketing
division. As a percentage of total revenue, sales and marketing expenses
increased to 59.2% in the first quarter of fiscal year 1998 from 58.1% in the
first quarter 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 remained relatively
flat at $668,000 in the first quarter of fiscal year 1998 compared to $675,000
in the first quarter of fiscal year 1997. As a percentage of total revenue,
general and administrative expenses decreased to 12.8% in the first quarter of
fiscal year 1998 from 14.3% in the first quarter of fiscal year 1997 primarily
due to increased revenue in the first quarter of fiscal year 1998.
OTHER INCOME (EXPENSE), NET
Other expense, net primarily consists of interest income on cash, cash
equivalents and marketable securities offset by interest expense associated with
capital leases and the effects of foreign currency transaction gains and losses.
Other income, net was $25,000 and $9,000 in the first quarter of fiscal years
1998 and 1997, respectively. This change is primarily attributable to reduced
interest expense resulting from a lower level of debt outstanding and the effect
of foreign currency gains and losses.
BENEFIT FROM INCOME TAXES
The Company provided for foreign withholding taxes of $30,000 and $26,000 in the
first quarters of fiscal years 1998 and 1997, respectively. In the first quarter
of fiscal year 1998 the Company recorded a benefit from the utilization of net
operating loss carryforwards of $344,000, which it believes will be realized in
the fiscal year.
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 provided by operating activities was $1.7 million in the first quarter
of fiscal year 1998. This primarily resulted from a decrease in accounts
receivable, representing the collection of billings to the U.S. government which
were outstanding at March 31, 1997, and adjustments for depreciation and
amortization. These changes were offset by a decrease in accounts payable and
accrued expenses as a result of timing of purchases and payments, an increase in
prepaid expenses and other assets as a result of the timing of payment of
prepaid insurance and royalties, and a net loss for the period.
Net cash provided by investing activities was $729,000 in the first quarter of
fiscal year 1998, which primarily included the maturities of investments in
marketable securities, offset by capital expenditures for the upgrade of
corporate information systems and capital expenditures associated with the
investment in the Company's component and template model libraries.
11
<PAGE>
Net cash used in financing activities was $65,000 in the first quarter of fiscal
year 1998, which primarily included payments on capital lease obligations.
During the first quarter of fiscal year 1998, the Company negotiated an
operating line of credit with a bank which allows the Company to receive
advances of up to $3 million based on eligible accounts receivable and is
secured by accounts receivable, furniture, fixtures and equipment and general
intangibles. Interest is payable monthly at the bank's prime rate plus 1%. The
line of credit facility requires the Company to maintain certain financial and
other covenants and matures on March 9, 1998. No amounts were outstanding under
this facility at June 30, 1997.
In April 1997 the Company negotiated a lease line of credit, which allows the
Company to lease up to $1,000,000 of computers and related equipment. Amounts
borrowed under the lease line of credit are to be repaid over 36 months. The
lease line of credit expires March 31, 1998. No amounts were outstanding under
this facility at June 30, 1997. In connection with the negotiation of the lease
line of credit the Company issued warrants to purchase 10,000 shares of its
common stock at $7.50 per share which expire on June 23, 2001.
The Company believes its existing cash, cash equivalents and marketable
securities, combined with amounts available under its operating line of credit
and lease line of credit, 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.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128), which changes the standards for computing and presenting earnings per
share (EPS) and supersedes Accounting Principles Board Opinion No. 15, "Earnings
per Share." SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS, requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued for both
interim and annual periods ending after December 15, 1997, and requires
restatement of all prior-period EPS data presented.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), which establishes requirements
for disclosure of comprehensive income. The objective of SFAS 130 is to report
all changes in equity that result from transactions and economic events other
than transactions with owners. Comprehensive income is the total of net income
and all other non-owner changes in equity. SFAS 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of earlier financial
statements for comparative purposes is required.
The Company has not quantified the effect of adoption of SFAS 128 or SFAS 130.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this report are listed below:
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<S> <C>
27 Financial Data Schedule, as restated
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1997.
13
<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: June 1, 1998
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)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S FORM 10Q/A FOR THE
THREE MONTHS ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,155
<SECURITIES> 0
<RECEIVABLES> 5,805
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,479
<PP&E> 10,535
<DEPRECIATION> (6,278)
<TOTAL-ASSETS> 19,721
<CURRENT-LIABILITIES> 8,477
<BONDS> 0
0
0
<COMMON> 17,160
<OTHER-SE> (6,768)
<TOTAL-LIABILITY-AND-EQUITY> 19,721
<SALES> 2,751
<TOTAL-REVENUES> 5,212
<CGS> 551
<TOTAL-COSTS> 1,135
<OTHER-EXPENSES> 5,359
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,257)
<INCOME-TAX> (314)
<INCOME-CONTINUING> (943)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (943)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
