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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 Commission File Number
JUNE 30, 1996 0-21010
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
GUPTA CORPORATION
(DOING BUSINESS AS CENTURA SOFTWARE CORPORATION)
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2874178
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1060 Marsh Road
Menlo Park, California 94025
(Address of principal executive offices)
Registrant's telephone number, including area code:
(415) 321-9500
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 at least the past 90 days.
Yes X No
----- -----
As of June 30, 1996, there were 12,600,842 shares of the Registrant's common
stock outstanding.
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GUPTA CORPORATION
FORM 10-Q For the Quarter Ended June 30, 1996
INDEX
Page
Facing sheet 1
Index 2
Part I. Financial Statements and Supplementary Data
Item 1. a) Condensed consolidated balance sheets at June 30,
1996 and December 31, 1995 3
b) Condensed consolidated statements of operations for
the three months and six months ended June 30, 1996
and June 30, 1995 4
c) Condensed consolidated statements of cash flows for
the six months ended June 30, 1996 and June 30, 1995 5
d) Notes to 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
Signature 15
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ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GUPTA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS) June 30, December 31,
1996 1995
--------- ------------
Unaudited
ASSETS
Current Assets
Cash and cash equivalents $10,572 $ 9,865
Short-term investments 3,366 9,557
Accounts receivable, less allowances
of $3,474 in 1996 and $3,475 in 1995 10,636 12,174
Inventories 167 218
Other current assets 3,467 2,999
------- -------
Total current assets 28,208 34,813
Property and equipment, at cost, less
accumulated depreciation 4,764 5,881
Capital software, at cost, net of
accumulated amortization 3,663 2,980
Long-term investments 1,511 2,354
Other assets 2,075 2,076
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Total assets $40,221 $48,104
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of long-term debt $ 376 $ 397
Accounts payable 6,154 6,152
Accrued compensation and related expenses 2,658 3,168
Other accrued liabilities 3,812 7,572
Accrued Litigation Expense 13,334 14,328
Deferred revenue 25,000 28,800
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Total current liabilities 51,334 60,417
Long-term debt, less current portion 10,168 10,330
Other long-term liabilities 1,777 1,414
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Total liabilities 63,279 72,161
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SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value:
Authorized: 60,000 shares
Issued and outstanding: 12,600 shares in
1996 and 12,382 shares in 1995 57,882 57,577
Cumulative translation adjustment (200) (150)
Accumulated deficit (80,740) (81,484)
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Total shareholders' equity (deficit) (23,058) (24,057)
------- -------
Total liabilities and shareholders'
equity (deficit) $40,221 $48,104
------- -------
------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
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GUPTA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(IN THOUSANDS, Three Months ended Six Months ended
EXCEPT PER SHARE DATA) June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
-------- -------- ------- ------
Net revenues:
Product $11,657 $13,290 $22,588 $26,731
Service 3,989 4,243 8,451 8,225
------- ------- ------- -------
Net revenues 15,646 17,533 31,039 34,956
------- ------- ------- -------
Cost of revenues:
Product 1,253 1,948 2,499 3,878
Service 2,262 2,795 4,457 5,393
------- ------- ------- -------
Cost of revenues 3,515 4,743 6,956 9,271
------- ------- ------- -------
Gross profit 12,131 12,790 24,083 25,685
------- ------- ------- -------
Operating expenses:
Sales and marketing 7,534 10,898 14,287 21,936
Research and development 2,656 2,860 5,557 6,009
General and administrative 1,487 2,040 3,128 4,373
------- ------- ------- -------
Total operating expenses 11,677 15,798 22,972 32,318
------- ------- ------- -------
Operating income (loss) 454 (3,008) 1,111 (6,633)
Other income (expense), net -- 178 (174) 624
------- ------- ------- -------
Income (loss) before provision
for income taxes 454 (2,830) 937 (6,009)
Provision for income taxes 31 119 193 627
------- ------- ------- -------
Net income (loss) 423 (2,949) 744 (6,636)
------- ------- ------- -------
------- ------- ------- -------
Net income (loss) per share $0.03 ($0.24) $0.06 ($0.55)
------- ------- ------- -------
------- ------- ------- -------
Weighted average common shares
and equivalents 12,735 12,184 12,694 12,144
------- ------- ------- -------
------- ------- ------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
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GUPTA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN THOUSANDS) Six months ended June 30,
-------------------------
1996 1995
--------- ---------
Cash flows from operating activities:
Net income (loss) $ 744 $(6,685)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 1,560 1,985
Amortization of and adjustments to
capitalized software development costs 668 999
Provision for doubtful accounts -- (681)
Provision for sales returns and allowances -- 20
Changes in assets and liabilities:
Accounts receivable 1,539 1,922
Inventories 51 222
Prepaid expenses and other current assets (469) (1,150)
Accounts payable and accrued liabilities (5,263) (2,381)
Deferred revenue (3,800) 5,499
Other liabilities 363 503
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Net cash provided by (used in) operating
activities (4,607) 253
------- -------
Cash flows from investing activities:
Maturities of investments 7,034 7,321
Capitalization of software development costs (1,351) (1,775)
Other assets 1 (626)
Additions to property and equipment (442) (1,744)
------- -------
Net cash provided by investing
activities 5,242 3,177
------- -------
Cash flows from financing activities:
Proceeds (repayment) of notes payable (162) 9,560
Repayment of capital lease obligations (21) (787)
Proceeds from issuance of common stock, net 305 829
------- -------
Net cash provided by
financing activities 122 9,602
------- -------
Effect of exchange rate changes on cash and
cash equivalents (50) 18
------- -------
Net increase in cash and cash
equivalents 707 13,050
Cash and cash equivalents at beginning of year 9,865 7,031
------- -------
Cash and cash equivalents at end of period $10,572 $20,081
------- -------
------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
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GUPTA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF PREPARATION. The condensed consolidated balance sheets as of
June 30, 1996 and the condensed consolidated statements of operations and cash
flows for the periods ended June 30, 1996 and 1995 have been prepared by the
Company, without audit. The financial statements for the period ended June
30, 1995 have been restated (see Notes to the Company's Annual Report on Form
10-K for the year ended December 31, 1995). In the opinion of management,
all adjustments necessary for a fair statement of the financial position,
results of operations, and cash flows have been made for all periods
presented. The financial data should be reviewed in conjunction with the
audited financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995. The results
of operations for the interim period ended June 30, 1996 are not necessarily
indicative of the operating results for the full year.
The December 31, 1995 balance sheet was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
COMPUTATION OF NET INCOME (LOSS) PER SHARE. Net income (loss) per share
is computed using the weighted average number of common and common equivalent
shares outstanding. Common equivalent shares (using the modified treasury
stock method) have been included in the computation when dilutive. Convertible
debentures which are not common stock equivalents are also not included in
a fully diluted calculation of earnings (loss) per share because their effect is
antidilutive.
2. LITIGATION
On May 2, 1994, a lawsuit was filed against the Company and certain
of its officers and directors, by a holder of the Company's common stock, on
his own behalf and purportedly on behalf of a class of others similarly
situated. The lawsuit was subsequently amended, and alleged that the
Company made false and misleading statements and failed to disclose material
information relating to existing business conditions and the Company's
prospects and that officers and directors violated the insider trading laws.
The plaintiff was seeking damages of an unstated amount.
The Company has reached a binding settlement agreement with
plaintiffs' counsel in this lawsuit, subject to court approval. Under the
terms of the agreement, the Company will provide $3 million and 1,875,000
shares to a fund to be distributed among the members of the plaintiff class.
The Company also agreed to supplement this payment with up to 625,000
additional shares in the event the value of its common stock is less than
$6.00 per share at certain dates in the future. The Company's directors and
officers' liability insurer will pay approximately $2 million of the cash
contribution to the settlement fund. As a result of the settlement, shares
outstanding will increase by approximately 15% based on the settlement price.
The 1995 financial statements include $15.3 million in litigation expense
for the agreement and associated legal expenses.
As of June 30, 1996, to the best of the Company's knowledge there
were no other pending actions, potential actions, claims or proceedings
against the Company that were likely to result in potential damages that
would have a material adverse impact on the Company's financial statements.
As noted in the "Risk Factors" in Item 2 below, the Company exists in a
volatile legal and regulatory environment and it is not possible to
anticipate or estimate the potential adverse impact of unknown claims or
liabilities against the Company, its officers and directors, and as such no
estimate is made in the Company's financial statements for such unknown
claims or liabilities.
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ITEM 2.
GUPTA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. With the exception of
historical information contained herein, the matters discussed in this Form
10-Q involve risk and uncertainties, including quarterly fluctuations in
operating results, timely availability and market acceptance of new products
and upgrades, the impact of competitive products and pricing, and other risk
factors as detailed below. Results for future quarters could differ
materially from those expressed in any forward looking statements made by or
on behalf of the company.
The following discussion should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto
included in Part I--Item 1 of this Quarterly Report, and the audited
consolidated financial statements, and notes thereto, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
RESULTS OF OPERATIONS:
NET REVENUES. During 1995, the Company restated revenues on certain
product licensing arrangements for fiscal years 1995, 1994, and 1993,
excluding the fourth quarter of 1995. For these contracts the Company has
deferred recognition of revenues until the customer indicates that it has
sublicensed or distributed the product. The restatement resulted in a
reduction of operating revenues of $0.1 million in the second quarter of 1995.
Net revenues decreased 11% to $15.6 million for the second quarter
of 1996 from $17.5 million for the second quarter of 1995. For the first six
months of 1996 net revenue decreased 11% to $31.0 million from $35.0 million
for the first six months of 1995. International revenues accounted for
approximately 60% of net revenues in the second quarter of 1996 compared to
67% in the second quarter of 1995. International revenues were approximately
60% of net revenues for the first six months of 1996 compared to 61% for the
same period in 1995. Revenue from expired contracts amounted to $0.3 million
and $0.1 million in the second quarter of 1996 and 1995, respectively. For
the first six months of 1996 revenue from expired contracts was $0.8 million
compared to $0.5 million for the same period in 1995.
Product revenues decreased by $1.6 million or 12% to $11.7 million
for the second quarter of 1996 compared to the second quarter of 1995. For
the first six months of 1996 product revenues decreased 16% to $22.6 million
from $26.7 million for the same period of 1995. Sales of the new Centura
product line, introduced in May, accounted for approximately 30% of product
revenues in the second quarter of 1996. The remaining second quarter 1996
product revenues were split between database and tools/connectivity software
at 54% and 46%, respectively. In the second quarter of 1995, database
products and tools/connectivity software accounted for 49% and 51% of product
revenues, respectively. For the first six months of 1996, product revenues
for other than the new Centura line were 48% database and 52%
tools/connectivity software, compared to 52% and 48% for the same period of
1995. Channel sales accounted for 68% of net revenues for the second quarter
of 1996, compared to 74% for the second quarter of 1995. For the first six
months of 1996 channel sales were 69% compared to 69% for the same period in
1995.
Service revenues decreased 6% to $4.0 million for the second quarter
of 1996 from $4.2 million for the second quarter of 1995. For the first six
months of 1996 service revenues increased to $8.5 million from $8.2 million
in the same period of 1995.
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COST OF PRODUCT. Cost of product as a percentage of product
revenues was 11% for the second quarter of 1996, and 11% for the first six
months of 1996 compared to 15% and 15% for the same periods of 1995.
COST OF SERVICES. Cost of services as a percentage of service
revenues was 57% for the second quarter of 1996 and 53% for the first six
months of 1996 compared to 66% and 66% for same periods of 1995.
SALES AND MARKETING EXPENSES. For the second quarter of 1996, the
Company spent $7.5 million, or 49% of net revenues, in sales and marketing
activities, compared to $10.9 million, or 63% of net revenues, for the second
quarter of 1995. In the first six months of 1996, sales and marketing
expenses were $14.3 million or 46% of net revenues compared to $21.9 million
or 63% for the same period in 1995. The reduction in sales and marketing
expense for the first six months of 1996 compared to the same period in 1995
reflects the Company's commitment to control spending, while continuing its
worldwide marketing efforts.
RESEARCH AND DEVELOPMENT EXPENSES. The table below sets forth gross
research and development expenses, capitalized software development costs,
and net research and development expenses in dollar amounts and as a
percentage of net revenues for the periods indicated:
(IN THOUSANDS) Three months ended Six months ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
--------- -------- --------- ------
Dollar Amounts:
Gross research and
development expenses $3,185 $3,193 $6,908 $ 7,784
Capitalized software
development costs (529) (333) (1,351) (1,775)
------- ------- ------- -------
Net research and development
expenses $2,656 $2,860 $5,557 $6,009
As a Percentage of Net Revenues:
Gross research and
development expenses 20.4% 18.2% 22.3% 22.3%
Net research and development
expenses 17.0% 16.4% 17.9 % 17.2%
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased 27% to $1.5 million for the second quarter of 1996 from
$2.0 million for the second quarter of 1995. For the first six months of
1996 these expenses decreased 29% to $3.1 million compared to $4.4 million in
the same period of 1995. In 1995, the Company began a program of reducing
administrative expenses by staff reductions, deferring MIS projects, and
reductions in discretionary spending. The Company is now experiencing the
benefits of this program, in reduced General and Administrative Expenses.
Additionally, the Company completed a restructuring announced on January 2,
1996, the costs of which were accrued in the fourth quarter of 1995, which
further reduced general and administrative staff.
OTHER INCOME (EXPENSE). Other income (expense) is comprised of
interest income, interest expense, and gains or losses on foreign currency
transactions. For the second quarter of 1996 other income (expense) was
$(0.0) million, compared to $0.2 million for the second quarter of 1995. For
the first six months of 1996 other income (expense) was $(0.2) million
compared to $0.6 million in the same period of 1995.
PROVISION FOR INCOME TAXES. The provision for income taxes was
$31,000 in the second quarter of 1996 and $119,000 in the second quarter of
1995. For the first six months of 1996, income tax provision was $193,000
versus $627,000 in the same period of 1995. The provision primarily relates
to foreign withholding taxes. Due to the Company's existing NOL position
with regard to prior years, no tax provision was made for income in this
quarter.
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LIQUIDITY AND CAPITAL RESOURCES:
At June 30, 1996, the Company had a deficit working capital position
of $23.1 million due principally to the restatement of fiscal years 1993,
1994 and 1995, which increased deferred revenues by $20 million, and to the
litigation accrual associated with the binding settlement agreement, subject
to court approval, on the shareholder litigation. (See Note 2 of Notes to
Condensed Consolidated Financial Statements). Net cash used in operating
activities in the first half of 1996 was $4.6 million. Approximately $3.8
million of the $4.6 million was associated with the shareholder lawsuit,
restructuring and one time charges expensed during fiscal 1995. For the
first half of 1996, cash provided by investing activities totaled $5.2
million, which related primarily to the maturities of short-term
investments of $7.0 million, which was offset by the capitalization of
software development costs of $1.4 million.
Additional financing may be necessary to meet NASDAQ minimum net
worth requirements. Furthermore, the Company is dependent upon achieving a
reasonable operating performance to satisfy its current and future financing
needs. During 1995, the Company completed a private debt placement with
Computer Associates International of approximately $10 million dollars. If
the Company needs further financing, there can be no assurance that it will
be available on reasonable terms or at all. Any additional equity financing
will result in dilution to the Company's shareholders.
RISK FACTORS:
This Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. Actual results could
differ materially from those projected in the forward-looking statements as a
result of certain of the risk factors set forth below and elsewhere in this
Quarterly Report on Form 10-Q. In evaluating the Company's business,
prospective investors should carefully consider the following factors in
addition to the other information presented in this report.
CENTURA PRODUCTS. The Company's strategy, including a proposed
change in the Company's name, is centered on the successful delivery and
market acceptance of its Centura product line. The initial release of the
Centura products occurred in May 1996, with additional products scheduled for
delivery throughout 1996. The failure to deliver these products as scheduled
or their failure to achieve early market acceptance could have a material
adverse affect on the Company's business, operating results and financial
condition.
NEED FOR ADDITIONAL FINANCING. Additional financing may be
necessary to meet NASDAQ minimum net worth requirements. Furthermore, the
Company is dependent upon achieving a reasonable operating performance to
satisfy its current and future financing needs. During 1995, the Company
completed a private debt placement with Computer Associates International of
approximately $10 million dollars. If the Company needs further financing,
there can be no assurance that it will be available on reasonable terms or at
all. Any additional equity financing will result in dilution to the Company's
stockholders.
DEPENDENCE ON THIRD PARTY ORGANIZATIONS. The Company is increasingly
dependent on the efforts of third party "partners" (e.g., consultants, system
houses, software developers, etc.) to implement, service and support the
Company's products. These third parties increasingly have opportunities to
select from a very broad range of products from the Company's competitors,
many of whom have greater resources and market acceptance than the Company.
In order to succeed, the Company must actively recruit and sustain
relationships with these third parties. There can be no assurance that the
Company will be successful in recruiting new partners or in sustaining its
relationships with its existing partners.
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DEPENDENCE ON KEY PERSONNEL. The Company's future success depends
in large part on the continued service of its key product development,
technical, sales, marketing and management personnel and on its ability to
continue to attract, motivate and retain highly qualified employees. The
Company depends on teams of programmers, and competition for these skilled
employees is intense. The loss of services of key technical or management
personnel could have a material adverse effect upon the Company's current
business, new product development efforts and prospects. Competition for
qualified software development, sales and other personnel is intense and
there can be no assurance that the Company will be successful in attracting
and retaining such personnel. The Company does not have employment or
non-competition agreements with any employees, except for Sam Inman, the
Company's CEO and President.
CONTINUING LOSSES. While the Company has reported profits in the
first two quarters of 1996, it had net losses of $44.1 million and $31.8
million for fiscal years 1995 and 1994, respectively. There can be no
assurance that the restructuring of the Company's business strategies and
tactics completed in early 1996 will be successful or that the Company will
be able to sustain any such profitability on a quarterly basis.
COMPETITION. The market for client/server system software is
intensely competitive and characterized by rapidly changing technology,
evolving industry standards, and changing customer requirements. The
Company's competitors include providers of sophisticated database software
including IBM, Informix Corporation, Ingres, Oracle Corporation and Sybase,
Inc. The Company also faces competition from the providers of PC-based
software products, including Microsoft Corporation and Borland International.
In addition, the Company faces competition from providers of software
specifically developed for the PC client/server market, including front-end
tools offered by Sybase's Powersoft Division, Microsoft, and Forte, and
potentially from vendors of applications development tools based on
fourth-generation languages or computer-aided software engineering
technologies. Many of the Company's competitors have longer operating
histories and greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and a larger installed base,
than the Company. Furthermore, these competitors could attempt to increase
their presence in this market by acquiring or forming strategic alliances
with competitors or bundling existing or new products with other, more
established products. The Company's products experienced increased
competition in 1995 and the first six months of 1996, resulting in price
reductions and loss of market share. There can be no assurance that the
Company will be able to compete successfully or that competition will not
have a material adverse effect in the future.
NEW PRODUCT RISKS; RAPID TECHNOLOGICAL CHANGE. The market for the
Company's software products and services is characterized by dynamic customer
demands, rapid technological and marketplace changes, and frequent new
product introductions. The Company believes that its future success will
depend on its ability to enhance its existing products and introduce new
products on a timely and cost-effective basis that meet dynamic customer
requirements. The Company has experienced delays in introducing new products
and enhancements which resulted in loss or delays of product revenues. In
addition, programs as complex as the software products offered by the Company
may contain undetected errors or bugs when they are first introduced which
could adversely affect commercial acceptance of such products. Gupta's
success will also depend on the ability of its products to perform well with
existing and future leading, industry-standard application software products
intended to be used in connection with RDBMSs. There can be no assurance that
the Company will be able to respond effectively to technological changes or
product announcements by competitors. Furthermore, the Company may announce
new products, capabilities or technologies that have an immediate adverse
impact on the Company's existing product offerings. Commercial acceptance of
the Company's products and services could be adversely affected by critical
or negative statements or reports by industry and financial analysts
concerning the Company and its products, or other factors such as the
Company's financial performance.
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DEPENDENCE UPON DISTRIBUTION CHANNELS. The Company increasingly
relies on strategic relationships with value-added resellers and distributors
for a substantial portion of its sales and revenues. Some of the Company's
resellers and distributors also offer competing products. Most of the
Company's resellers and distributors are not subject to any minimum purchase
requirements, can cease marketing the Company's products at any time, and may
from time to time be granted stock exchange or rotation rights. The
introduction of new and enhanced products may result in higher product
returns and exchanges. Any product returns or exchanges in excess of
recorded allowances could have a material adverse effect on the Company's
business, operating results and financial condition. The Company also
maintains relationships with a number of vertical software "partners" and
strategic marketing "partners" for marketing or resale of the Company's
products. The loss of one or more resellers, distributors, vertical software
partners or other marketing partners, or failure of such parties to renew
agreements with the Company on expiration, could have a material adverse
effect on the Company.
Since 1994 the Company has reduced its resources devoted to North
American corporate sales and also decreased its expenditures on corporate and
product marketing. The Company expects to rely increasingly on third-party
channels for sales of packaged product while focusing its corporate sales
efforts on larger opportunities. Failure of the Company to successfully
implement, support and manage these sales strategies could have a material
adverse effect on the Company.
In a number of markets, including rapidly growing client/server
markets such as Japan, Korea, China/Hong Kong and Brazil, the Company has
entered into quasi-exclusive multi-year agreements with independent companies
that have also licensed the use of the Company's name. These organizations
are in place to increase the Company's opportunities and penetration in such
markets where the rapid adoption of client/server technologies is
anticipated. While the Company believes that to date these agreements have
increased the Company's penetration in these markets, there can be no
certainty that this performance will continue nor that these relationships
will remain in place. The Company's future cost of maintaining its business
in these markets could increase substantially if these agreements are not
renewed.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. The Company's revenues
and operating results have fluctuated and may vary substantially from period
to period. The product licensing arrangements which are subject to sell
through revenue recognition will make estimation of revenues dependent on
customer reporting. Thus, estimation of operating results prior to the end of
a quarter becomes extremely uncertain. The Company has operated historically
with little or no backlog of traditional boxed product shipments. Gupta has
experienced a seasonal pattern of product revenue decline between the fourth
quarter and the succeeding first quarter, contributing to lower worldwide
product revenues and operating results. The Company has generally realized
lower European product revenues in the third quarter as compared to the
second quarter of each year. The Company has experienced a pattern of
recording a substantial portion of its revenues in the third month of a
quarter. As a result, product revenues in any quarter are substantially
dependent on orders booked in the last month. Because the Company's
operating expenses are based on projected annual and quarterly revenue
levels, operating results for a particular period may be adversely affected
by delays in or loss of orders. Additional factors have caused and may in the
future cause, the Company's revenues and operating results to vary
significantly from period to period. These factors include: delays in
introduction of products or product enhancements; size and timing of
individual orders; software "bugs" or other product quality problems;
competition and pricing in the software industry; sales mix among
distribution channels; customer order deferrals in anticipation of new
products; market acceptance of new products; reduction in demand for existing
products and shortening of product life cycles as a result of new product
introductions; changes in operating expenses; changes in Company strategy;
personnel changes; foreign currency exchange rates; mix of products sold;
inventory obsolescence; product returns and rotations; and general economic
conditions
COMPONENTIZED MARKETS: The advent of so-called componentized
software may alter the way in which customers buy software. As specific
software functionality can be bundled into smaller units or objects rather
than in broad, highly functional products such as the Company's development
tools,
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customers may be less willing to buy such broad, highly functional products.
If such a trend continues, there can be no assurance that the Company will be
able to repackage and efficiently distribute its products in such
componentized packages. The costs and efforts necessary to package and
distribute such components are largely unknown. Failure of the Company to
introduce componentized products successfully and cost-effectively could have
a material adverse affect on the Company's business, operating results and
financial condition.
MARKET ACCEPTANCE OF PC CLIENT/SERVER SYSTEMS. Substantially all
of the Company's revenues have been derived from the licensing of software
products for PC client/server systems, and licenses of such products are
expected to continue to account for substantially all of the Company's
revenues for the foreseeable future. With the increasing focus on
enterprise-wide systems, some customers may opt for solutions that favor
mainframe or mini-computer solutions. Accordingly, companies may abandon use
of PC client/server systems and such decisions could be critical to the
Company's future success.
INTERNATIONAL SALES AND OPERATIONS. The Company expects that
international revenues, particularly in new and emerging markets, will
continue to account for a significant percentage of its total revenues.
Certain risks are inherent in international operations, including foreign
currency fluctuations and losses, governmental controls, export license
requirements, restrictions on the export of critical technology, political
and economic instability, trade restrictions, changes in tariffs and taxes,
difficulties in staffing and managing international operations, and
possibility of difficulty in accounts receivable collection. There can be no
assurance that these or other factors will not have a material adverse effect
on the Company's future international sales and operations.
LEGAL PROCEEDINGS: The Company operates in a complicated and
volatile industry in which disputes, litigation, regulatory proceedings and
other actions are a necessary risk of doing business. There can be no
assurance that the Company will not participate in such legal proceedings
and that the costs and charges will not have a material adverse impact on the
Company's future success.
POSSIBLE VOLATILITY OF STOCK PRICE. The market for the Company's
stock is highly volatile. The trading price of the Company's common stock
fluctuated widely in 1995 and the first six months of 1996 and may continue
to be subject to wide fluctuations in response to quarterly variation in
operating and financial results and announcements of new products or customer
contracts by the Company or its competitors. Any shortfall in revenue or
earnings from levels expected by securities analysts or others could have an
immediate and significant adverse effect on the trading price of the
Company's common stock in any given period. Additionally, the Company may
not learn of, or be able to confirm, revenue or earnings shortfalls until
late in the fiscal quarter or following the end of the quarter, which could
result in an even more immediate and adverse effect on the trading of the
Company's common stock. Finally, the Company participates in a highly
dynamic industry, which often results in significant volatility of the
Company's common stock price.
-12-
<PAGE>
PART II: OTHER INFORMATION
GUPTA CORPORATION
ITEM 1. LEGAL PROCEEDINGS
On May 2, 1994, a lawsuit was filed against the Company and certain of
its officers and directors, by a holder of the Company's common stock, on his
own behalf and purportedly on behalf of a class of others similarly situated.
The lawsuit was subsequently amended, and alleged that the Company made
false and misleading statements and failed to disclose material information
relating to existing business conditions and the Company's prospects and that
officers and directors violated the insider trading laws. The plaintiff was
seeking damages of an unstated amount.
The Company has reached a binding settlement agreement with
plaintiff counsel in this lawsuit, subject to court approval. Under the
terms of the agreement, the Company will provide $3 million and 1,875,000
shares to a fund to be distributed among the members of the plaintiff class.
The Company also agreed to supplement this payment with up to 625,000
additional shares in the event the value of its common stock is less than
$6.00 per share at certain dates in the future. $2 million of the cash
contribution to the settlement fund will be paid by the Company's directors
and officers' liability insurer. As a result of the settlement, shares
outstanding will increase by approximately 15% based on the settlement price.
The 1995 financial statements include $15.3 million in litigation expense for
the agreement and associated legal expenses.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
-13-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
None
(b) Reports on Form 8-K
The Company filed a Form 8-K, reporting the engagement of the accounting
firm of Price Waterhouse, LLP, as independent accountants to audit the
Company's financial statements for years ended December 31, 1993, 1994 and
1995, dated January 8, 1996 ("Form 8-K"). The Company also reported that
Arthur Andersen LLP had withdrawn its reports dated January 14, 1994, and
January 23, 1995, issued with respect to the Company's December 31, 1993, and
December 31, 1994, financial statements.
The Company filed a Form 8-K on April 17, 1996, announcing that its
annual report on Form 10-K would be delayed due to the fact that the
Company's audit for the periods ended December 31, 1993, 1994 and 1995, by
Price Waterhouse LLP was not yet complete.
The Company filed a Form 8-K on June 18, 1996, announcing that its
annual report on Form 10-K would be further delayed due to the fact that the
Company's audit for the periods ended December 31, 1993, 1994 and 1995 by
Price Waterhouse LLP was not yet complete.
-14-
<PAGE>
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.
GUPTA CORPORATION
/s/ Richard A. Gelhaus
--------------------------------------
Senior Vice President and Chief
Financial Officer
(Duly Authorized and Principal
Financial and Accounting Officer)
Date: August 13, 1996
-15-
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