<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(Mark One)
/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 TO
Commission file number: 0-21010
CENTURA SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
CALIFORNIA 94-2874178
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
975 ISLAND DRIVE, REDWOOD SHORES, CALIFORNIA 94065
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (650) 596-3400
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
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_________ No____X____
As of July 31, 1997, there were 15,334,501 shares of the Registrant's Common
Stock outstanding.
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<PAGE>
CENTURA SOFTWARE CORPORATION
FORM 10-Q for the Quarter Ended March 31, 1997
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
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<S> <C> <C> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements and Supplementary Data
a) Condensed consolidated balance sheets at June 30, 1997 and December 31,
1996........................................................................ 1
b) Condensed consolidated statements of operations for the three months and six
months ended June 30, 1997 and 1996......................................... 2
c) Condensed consolidated statements of cash flows for the six months ended
June 30, 1997 and 1996...................................................... 3
d) Notes to condensed consolidated financial statements........................ 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations..................................................................................... 7
PART II OTHER INFORMATION
Item 1. Legal Proceedings......................................................................... 18
Item 2. Changes in Securities..................................................................... 18
Item 3. Defaults in Senior Securities............................................................. 18
Item 4. Submission of Matters to a Vote of Security Holders....................................... 18
Item 5. Other Information......................................................................... 18
Item 6. Exhibits and Reports on Form 8-K.......................................................... 19
</TABLE>
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CENTURA SOFTWARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................... $ 4,812 $ 6,669
Short-term investments.............................................. 565 2,065
Accounts receivable, less allowances of $2,931 and $2,826........... 8,917 13,574
Other current assets................................................ 4,387 3,516
----------- ------------
Total current assets.............................................. 18,681 25,824
Property and equipment, at cost, net of accumulated depreciation...... 4,742 3,622
Capitalized software, at cost, net of accumulated amortization........ 3,443 4,226
Long-term investments................................................. 976 1,221
Other assets.......................................................... 2,017 1,812
----------- ------------
Total assets...................................................... $ 29,859 $ 36,705
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Current portion of long-term debt................................... $ 10,188 $ 336
Accounts payable.................................................... 6,355 5,683
Accrued compensation and related expenses........................... 2,254 2,484
Other accrued liabilities........................................... 4,057 4,313
Accrued litigation expenses......................................... 209 6,733
Deferred revenue.................................................... 17,795 21,891
----------- ------------
Total current liabilities......................................... 40,858 41,440
Long-term debt, less current portion.................................. -- 10,032
Other long-term liabilities........................................... 856 2,156
----------- ------------
Total liabilities................................................. 41,714 53,628
----------- ------------
Shareholders' Deficit:
Common stock, par value $.01 per share; 60,000 shares authorized;
15,301 shares and 13,728 shares issued and outstanding............ 69,896 63,047
Cumulative translation adjustment................................... (505) (513)
Accumulated deficit................................................. (81,246) (79,457)
----------- ------------
Total shareholders' deficit....................................... (11,855) (16,923)
----------- ------------
Total liabilities and shareholders' deficit....................... $ 29,859 $ 36,705
----------- ------------
----------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
1
<PAGE>
CENTURA SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues:
Product............................................................. $ 11,790 $ 11,657 $ 21,304 $ 22,588
Service............................................................. 4,314 3,989 8,400 8,451
--------- --------- --------- ---------
Net revenues...................................................... 16,104 15,646 29,704 31,039
--------- --------- --------- ---------
Cost of revenues:
Product............................................................. 1,301 1,253 2,667 2,499
Service............................................................. 2,272 2,262 4,391 4,457
--------- --------- --------- ---------
Cost of revenues.................................................. 3,573 3,515 7,058 6,956
--------- --------- --------- ---------
Gross profit.................................................... 12,531 12,131 22,646 24,083
--------- --------- --------- ---------
Operating expenses:
Sales and marketing................................................. 7,387 7,443 14,010 14,186
Research and development............................................ 2,718 2,656 5,421 5,557
General and administrative.......................................... 1,764 1,667 3,457 3,358
Acquisition expense................................................. 270 -- 531 --
--------- --------- --------- ---------
Total operating expenses.......................................... 12,139 11,766 23,419 23,101
--------- --------- --------- ---------
Operating income (loss)......................................... 392 365 (773) 982
Other income (expense):
Interest income..................................................... 41 192 96 386
Interest expense.................................................... (210) (262) (424) (409)
Foreign currency gain (loss)........................................ 78 159 (653) (22)
--------- --------- --------- ---------
Income (loss) before income taxes..................................... 301 454 (1,754) 937
Provision for income taxes............................................ 25 31 35 193
--------- --------- --------- ---------
Net income (loss)..................................................... $ 276 $ 423 $ (1,789) $ 744
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) per share........................................... $ 0.02 $ 0.03 $ (0.12) $ 0.06
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares and equivalents........................ 15,289 12,735 15,256 12,694
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
2
<PAGE>
CENTURA SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................................................... $ (1,789) $ 744
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization....................................................... 2,704 2,379
Provision for doubtful accounts..................................................... 247 101
Provision for sales returns and allowances.......................................... 257 649
Valuation of stock warrant issued in connection with factoring agreement............ 102 --
Changes in assets and liabilities:
Accounts receivable............................................................... 4,153 788
Other current assets.............................................................. (871) (417)
Other assets...................................................................... (272) 29
Accounts payable and accrued liabilities.......................................... (1,506) (4,268)
Deferred revenue.................................................................. (4,096) (3,800)
Accrued litigation expense........................................................ 9 (994)
Other long-term liabilities....................................................... 392 363
--------- ---------
Net cash used in operating activities........................................... (670) (4,426)
--------- ---------
Cash flows from investing activities:
Maturities of investments............................................................. 1,746 7,215
Purchases of investments.............................................................. (1) (181)
Proceeds from sale of property and equipment.......................................... 462 425
Acquisitions of property and equipment................................................ (2,853) (935)
Capitalization of software costs...................................................... (454) (1,351)
Capitalization of other intangibles................................................... (129) (112)
--------- ---------
Net cash provided by (used in) investing activities............................. (1,229) 5,061
--------- ---------
Cash flows from financing activities:
Repayment of note payable............................................................. (180) (164)
Repayment of capital lease obligations................................................ -- (19)
Proceeds from issuance of common stock, net........................................... 214 305
--------- ---------
Net cash provided by financing activities....................................... 34 122
--------- ---------
Effect of exchange rate changes on cash and cash equivalents............................ 8 (50)
--------- ---------
Net increase (decrease) in cash and cash equivalents.................................... (1,857) 707
Cash and cash equivalents at beginning of period........................................ 6,669 9,865
--------- ---------
Cash and cash equivalents at end of period.............................................. $ 4,812 $ 10,572
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
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CENTURA SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF PREPARATION. The condensed consolidated balance sheet as of June
30, 1997, the condensed consolidated statements of operations for the three and
six month periods ended June 30, 1997 and 1996, and cash flows for the six month
periods ended June 30, 1997 and 1996 have been prepared by Centura Software
Corporation (the "Company") without audit. 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, 1996. The results of operations for the
three and six month periods ended June 30, 1997, are not necessarily indicative
of the operating results to be expected for the full year.
The December 31, 1996 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 stock equivalents (using the modified treasury stock
method) have been included in the computation when dilutive. Convertible
debentures, which are not common stock equivalents, are excluded in a fully
diluted calculation of earnings (loss) per share because their effect is
antidilutive.
RECENT ACCOUNTING PRONOUNCEMENT. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"). SFAS 128 is effective for the Company's
fiscal year ending December 31, 1997. Under SFAS 128, primary earnings per share
is replaced by basic earnings per share and fully diluted earnings per share is
replaced by diluted earnings per share. If the Company had adopted SFAS 128 for
the three and six month periods ended June 30, 1997, the Company's loss per
share would have been as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE
1997 30, 1997
--------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Basic income (loss) per share................................... $ 0.02 $ (0.12)
Diluted income (loss) per share................................. $ 0.02 $ (0.12)
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for the reporting of comprehensive income
and its components in a full set of general-purpose financial statements for
periods ending after December 15, 1997. Reclassification of financial statements
for earlier periods for comparative purposes is required. The Company will adopt
SFAS 130 in 1997 and does not expect such adoption to have a material effect on
the consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of An
Enterprise and Related Information" ("SFAS 131"). SFAS 131 revises information
regarding the reporting of operating segments. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company will adopt SFAS 131 beginning in 1998 and does not expect
such adoption to have a material effect on the consolidated financial
statements.
4
<PAGE>
CENTURA SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS. In order to conform to the current period presentation,
certain reclassifications have been made to the condensed consolidated
statements of operations for the three and six month periods ended June 30, 1996
and to the condensed consolidated statement of cash flows for the six months
ended June 30, 1996.
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 reached a binding settlement agreement with plaintiffs' counsel
in this lawsuit, and gained court approval on September 30, 1996. Under the
terms of the agreement, the Company would 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 was less than an average price
of $6.00 per share during certain twenty day trading periods specified by the
Court. The Company's directors and officers' liability insurer paid
approximately $2 million of the cash contribution to the settlement fund. The
Company paid the remaining cash settlement during 1996. The 1995 financial
statements include $15.3 million in litigation expense for the agreement and
associated legal expenses. As of March 31, 1997, the Company had distributed all
common stock shares as required by the settlement agreement.
As of June 30, 1997, 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
section entitled "Factors That May Affect Future Results" under Item 2 herein,
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.
3. TERMINATION OF MERGER AGREEMENT WITH INFOSPINNER INC.
On January 6, 1997, the Company entered into a definitive agreement (the
"Agreement") to acquire InfoSpinner, Inc. ("InfoSpinner") of Richardson, Texas.
The completion of the transaction was subject to the approval of both companies'
shareholders as well as other legal requirements. In addition, under the terms
of the Agreement, either party had the right to terminate the transaction if the
merger had not been consummated by April 30, 1997. As of April 30, 1997, the
Company did not obtain the majority vote of the shareholders required for the
approval of the proposed merger, and as a result, the board of directors of
InfoSpinner elected to exercise its right to terminate the transaction.
In addition to the Agreement, the companies also entered into a
distributorship agreement (the "Distributorship Agreement") on January 6, 1997,
which grants the Company the right to distribute
5
<PAGE>
CENTURA SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
3. TERMINATION OF MERGER AGREEMENT WITH INFOSPINNER INC. (CONTINUED)
InfoSpinner's Foresite Web Integration Server on a worldwide basis. The
Distributorship Agreement remains in full force and effect.
4. FACTORING AGREEMENT
On June 26, 1997, the Company entered into a one year agreement to sell,
with recourse, certain accounts receivable. Under the terms of the agreement,
the Company may sell accounts receivable at an advance rate of eighty percent of
the eligible accounts receivable sold. Interest is calculated at the rate of
1.2% per month based on the average daily balance outstanding. As of June 30,
1997 total eligible accounts receivable sold were $2.5 million. On June 30,
1997, in relation to this agreement, the Company issued a warrant to purchase
90,000 shares of common stock at an exercise price of $2.094 per share. The
warrant expires on June 30, 2002. The warrant was valued at $102,000 using a
risk-free rate of 6.33% and a volatility factor of 55%, and the related charge
is included in general and administrative expenses.
6
<PAGE>
CENTURA SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
ITEM 2. 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. 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.
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, 1996.
RESULTS OF OPERATIONS:
NET PRODUCT REVENUES. Net product revenues increased 1% to $11.8 million
for the quarter ended June 30, 1997, from $11.7 million for the quarter ended
June 30, 1996. The increase in net product revenues is primarily attributable to
increased sales of SQLBASE products and new revenues generated by FORESITE, the
Internet integration product sold by the Company pursuant to the Distributorship
Agreement with InfoSpinner, Inc. These increases were offset by decreases in
sales of SQLWINDOWS and CENTURA products as compared with the same period in the
prior year. International sales accounted for $7.5 million or 64% and $7.8
million or 67% of net product revenues for the quarters ended June 30, 1997 and
1996, respectively.
Net product revenues decreased 6% to $21.3 million for the six months ended
June 30, 1997, from $22.6 million for the six months ended June 30, 1996.
International sales accounted for $13.7 million or 64% and $15.2 million or 67%
of net product revenues for the six months ended June 30, 1997 and 1996,
respectively. The decrease in international sales of $1.5 million is primarily
due to decreased sales in the Asia Pacific and Latin America areas, caused
primarily by distributor problems in Japan and Brazil early in 1997. The
distributor problems resulted in a disruption of sales activities in those
regions and was the principal factor contributing to the overall decrease in net
product revenue over the six month period as compared with the same period in
the prior year. Concurrently with the overall decrease in net product revenue
the Company recognized a shift in product revenue mix away from the SQLWINDOWS
products to a greater proportion of CENTURA products over the six month period,
primarily due to the introduction of the CENTURA products commencing in May
1996. In addition, the Company experienced an increase in SQLBASE revenues and
new revenues generated from the FORESITE product in the six month period ended
June 30, 1997, compared with the same period in the prior year.
7
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CENTURA SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
NET SERVICE REVENUES. Net service revenues increased 8% to $4.3 million for
the quarter ended June 30, 1997, from $4.0 million for the quarter ended June
30, 1996. The increase was primarily due to increased technical support revenue,
partially offset by a reduction in customer training revenue. International
sales accounted for 48% and 39% of total net service revenues for the quarters
ended June 30, 1997 and 1996, respectively. Net service revenues remained
constant at $8.4 million for the six months ended June 30, 1997 compared with
the same period in 1996. International sales accounted for 42% and 39% of total
net service revenues for the six months ended June 30, 1997 and 1996,
respectively.
COST OF PRODUCT REVENUES. Cost of product revenues includes the cost of
subcontracted production and the amortization of capitalized software. Cost of
product revenues increased 4% to $1.3 million and 7% to $2.7 million over the
three and six month periods ended June 30, 1997, from $1.2 million and $2.5
million in the comparable periods in 1996, respectively. These increases were
primarily due to the increased amortization of capitalized software related to
the CENTURA products, partially offset by reduced production costs. Cost of
product revenues as a percentage of product revenues remained constant at 11%
for the quarters ended June 30, 1997 and 1996. Cost of product revenues as a
percentage of product revenues was 13% and 11% for the six months ended June 30,
1997 and 1996, respectively.
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed", the Company capitalizes internal development costs on a project when
the technological feasibility of such project has been determined. The Company
ceases capitalizing such expenses when the products derived from the project are
released for sale. The capitalized costs are then amortized ratably over the
useful life of the products, generally estimated to be two to three years.
Amortization of capitalized software costs were $371,000 and $692,000 for the
three and six month periods ended June 30, 1997 compared with $238,000 and
$379,000 for the same periods in 1996.
COST OF SERVICE REVENUES. Cost of service revenues consists primarily of
personnel costs related to product license maintenance, training and technical
support. Cost of service revenues remained constant at $2.2 million and $4.4
million for the three and six month periods ended June 30, 1997 compared with
the same periods in 1996. Cost of service revenues as a percentage of net
service revenues was 53% and 57% for the quarters ended June 30, 1997 and 1996,
respectively, and 52% and 53% for the six months ended June 30, 1997 and 1996,
respectively. The decrease in the percentage of service cost over service
revenue results primarily from increased net service revenue in the quarter
ended June 30, 1997 over a cost structure consistent with the prior year.
SALES AND MARKETING EXPENSES. Sales and marketing expenses were $7.4
million, or 46% of net revenues, for the quarter ended June 30, 1997, compared
with $7.4 million, or 48% of net revenues, for the quarter ended June 30, 1996.
For the six months ended June 30, 1997, sales and marketing expenses were $14.0
million, or 47% of net revenues, compared with $14.2 million or 46% of net
revenues for the six months ended June 30, 1996. Expenditures for sales and
marketing activities reflect the Company's efforts to achieve cost efficiencies
by focusing marketing expenditures in specific segments while maintaining
spending levels consistent with prior periods.
8
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CENTURA SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS
ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Gross research and development expenses.......................... $ 2,856 $ 3,185 $ 5,875 $ 6,908
Capitalized internal software development costs.................. (138) (529) (454) (1,351)
--------- --------- --------- ---------
Net research and development expenses............................ $ 2,718 $ 2,656 $ 5,421 $ 5,557
--------- --------- --------- ---------
--------- --------- --------- ---------
As a Percentage of Net Revenues:
Gross research and development expenses........................ 18% 20% 20% 22%
Net research and development expenses.......................... 17% 17% 18% 18%
</TABLE>
The decrease in gross research and development expenses, and capitalized
internal software development costs primarily reflects expanded development
efforts related to the CENTURA product in the first half of 1996.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
remained constant at $1.7 million for the quarters ended June 30, 1997 and 1996,
and remained constant at $3.4 million for the six months ended June 30, 1997 and
1996.
OTHER INCOME (EXPENSE), NET. Other income (expense), net is comprised of
interest income, interest expense, and gains or losses on foreign currency
transactions. For the quarter ended June 30, 1997 other income (expense), net
was $(0.1) million, compared to $0.1 million for the quarter ended June 30,
1996. This was primarily attributable to a reduction in interest income
resulting from a decrease in funds available for investment as compared with the
prior year.
For the six months ended June 30, 1997 other income (expense), net was
$(1.0) million, compared to $(0.1) million for the six months ended June 30,
1996. This was primarily attributable to a reduction in interest income
resulting from decreased funds available for investment as compared with the
prior year and increased foreign currency losses resulting primarily from the
strengthening of the United States Dollar against the British Pound and German
Mark between December 31, 1996 and March 31, 1997.
PROVISION FOR INCOME TAXES. The provision for income taxes was
insignificant for the quarters ended June 30, 1997, June 30, 1996 and for the
six months ended June 30, 1997 and was $0.2 million for the six months ended
June 30, 1996. The provision primarily relates to foreign withholding taxes. Due
to the availability of net operating loss carryforwards arising in prior years,
no provision for income taxes was made for the three and six month periods ended
June 30, 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES:
At June 30, 1997, the Company had a deficit working capital position of
$22.2 million due principally to deferred revenues of $17.8 million, and
principal and interest of $11.7 million related to an unsecured floating rate
convertible subordinated note. The Company believes that expected cash flows
from operations and existing cash balances, may not be sufficient to meet the
Company's currently anticipated working capital and capital expenditure
requirements during the next 12 months without the successful
9
<PAGE>
CENTURA SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
implementation of cost reduction and restructuring programs commencing in the
quarter ended September 30, 1997. There can be no assurance that such cost
reduction and restructuring programs can be implemented without adversely and
disproportionately impacting revenues and operating results. The Company is
exploring several options to raise cash for operational or other needs. There
can be no assurance that financing will be available on reasonable terms or at
all. Any additional equity financing may result in dilution to the Company's
shareholders.
Net cash used in operating activities for the six months ended June 30, 1997
resulted primarily from the recognition of revenues for which cash had been
received in prior periods, net operating losses, and decreases in other
long-term liabilities. These uses of cash were offset, in part, by the sale of
certain accounts receivable under a factoring agreement, non cash charges for
depreciation and amortization and increases in accounts payable and accrued
liabilities. Cash used in investing activities totaled $1.2 million due
primarily to purchases of property and equipment, which were funded, in part, by
maturities of short-term investments.
During March 1995, the Company entered into an unsecured floating rate
convertible subordinated note and related agreement (the "CA Agreement") with
Computer Associates International, Inc. ("CA") for $10.0 million. The note
matures on May 1, 1998 and is convertible into common stock at the Company's
option on the maturity date for a number of shares based on the market price of
the Company's common stock at the time of conversion. Interest on the note is
the one-month LIBOR plus 1.25% and is payable quarterly. At the Company's option
interest payments may be deferred until the principal is due. Material covenants
of the Company under the CA Agreement include the Company's agreement to: pay
and discharge its material obligations and liabilities, including tax
obligations; continue to engage in business of the same general type currently
conducted; refrain from declaring any dividend or from repurchasing or redeeming
its common stock or indebtedness; refrain from consolidating or merging (except
where the Company is the surviving corporation and incurs no event of default
under such note); refrain from incurring senior or pari passu indebtedness or
from creating or incurring encumbrances or liens, other than certain permitted
liens on its properties. The agreement also requires the Company to maintain a
minimum market capitalization of $40.0 million commencing on (and including)
November 1, 1997, and continuing through the duration of the note (the "Minimum
Market Capitalization Requirement"). If the Company does not meet the Minimum
Market Capitalization Requirement, the Company will lose the option to convert
the note into common stock, and all outstanding principal and interest will be
due and payable on the conversion date, May 1, 1998.
Additional financing will be required to meet NASDAQ minimum net worth
requirements, fund continuing operations, as well as, to pay the unsecured
floating rate convertible subordinated note and related outstanding interest
with CA.
The Company's capital requirements also may be affected by acquisitions of
businesses, products and technologies that are complementary to the Company's
business, which the Company considers from time to time. The Company regularly
evaluates such opportunities. Any such transaction, if consummated, may further
reduce the Company's working capital or require the issuance of equity.
FACTORS THAT MAY AFFECT FUTURE RESULTS
RECENT COMPANY LOSSES; FLUCTUATIONS IN QUARTERLY RESULTS. The Company has
experienced in the past and expects in the future to continue to experience
significant fluctuations in quarterly operating results. There can be no
assurance that the restructuring of the Company's business strategies and
tactics, commenced in early 1996, will be successful or that the Company will be
able to achieve or sustain any such
10
<PAGE>
CENTURA SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
profitability on a quarterly or annual basis. In addition, quarterly operating
results of the Company will depend on a number of other factors that are
difficult to forecast, including, general market demand for the Company's
products; the size and timing of individual orders during a quarter; the
Company's ability to fulfill such orders; introduction, localization or
enhancement of products by the Company; delays in the introduction and/or
enhancement of products by the Company and its competitors; market acceptance of
new products; reviews in the industry press concerning the products of the
Company or its competitors; 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; 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 the
Company's strategy; personnel changes; foreign currency exchange rates; mix of
products sold; inventory obsolescence; product returns and rotations; and
general economic conditions. Sales of the Company's products also may be
negatively affected by delays in the introduction or availability of new
hardware and software products from third parties. The Company's financial
results also may vary as a result of seasonal factors including year and quarter
end purchasing and the timing of marketing activities, such as industry
conventions and tradeshows.
Although the Company has operated historically with little or no backlog of
traditional boxed product shipments, it 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
during such quarters. It has generally realized lower European product revenues
in the third quarter as compared to the rest of the year. The Company has also
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
dependent on orders booked in the last month. Because the Company's staffing and
other operating expenses are based in part on anticipated net revenues, a
substantial portion of which may not be generated until the end of each quarter,
delays in the receipt or shipment of orders, including delays that may be
occasioned by failures of third party product fulfillment firms to produce and
ship products, or the actual loss of product orders can cause significant
variations in operating results from quarter to quarter. The Company may be
unable to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall. Accordingly, any significant shortfall in sales of the
Company's products in relation to the Company's expectations could have an
immediate adverse impact on the Company's business, operating results and
financial condition. To the extent that the Company's expenses precede or are
not subsequently followed by increased revenues, its business, operating results
and financial condition could be materially and adversely affected. In addition,
the Company currently intends to increase its operating expenses to primarily
fund increases in its sales and marketing operations and expand distribution
channels. To the extent that such expenses precede or are not subsequently
followed by increased net revenues, the Company's business, operating results
and financial condition could be materially and adversely affected. Due to the
foregoing factors, it is likely that the Company's operating results for some
future quarter will fall below the expectations of securities analysts and
investors. In such event, the trading price of the Company's common stock could
be materially and adversely affected.
NEED FOR ADDITIONAL EQUITY FINANCING. The Company will need to seek
additional equity financing to meet NASDAQ minimum net worth requirements,
continuing operations, as well as, pay the unsecured floating rate convertible
subordinated note and related outstanding interest with CA. Furthermore, the
Company must achieve a reasonable operating performance to satisfy its current
and future financing needs. There can be no assurance that financing will be
available on reasonable terms or at all. Any additional equity financing may
result in dilution to the Company's shareholders.
11
<PAGE>
CENTURA SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
VOLATILITY OF THE COMPANY'S COMMON STOCK PRICE. The market for the
Company's common stock is highly volatile. The trading price of the Company's
common stock fluctuated widely in 1996 and the first six months in 1997 and may
continue to be subject to wide fluctuations in response to quarterly variations
in operating and financial results, announcements of new products or customer
contracts by the Company or its competitors, litigation and other factors. 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 its common stock
price.
NEW PRODUCT RISKS; RAPID TECHNOLOGICAL CHANGE. The markets for the
Company's software products and services are characterized by rapid
technological developments, evolving industry standards, swift changes in
customer requirements and computer operating environments, and frequent new
product introductions and enhancements. As a result, the success of the Company
depends substantially upon its ability to continue to enhance its existing
products, develop and introduce in a timely manner new products incorporating
technological advances and meet increasing customer expectations, all on a
timely and cost-effective basis. To the extent one or more competitors introduce
products that better address customer needs, the Company's business could be
adversely affected. The Company currently markets the following primary
products: CENTURA, SQLWINDOWS, SQLBASE and SQLHOST, as well as FORESITE, the
Internet integration product, sold by the Company on a non-exclusive basis
pursuant to the Distributorship Agreement with InfoSpinner, Inc. Its strategy is
centered on the successful delivery and market acceptance of its CENTURA
products and FORESITE product. The release of the CENTURA line of products
occurred in May 1996. The Company'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 RDBMS. Any
failure to deliver these products as scheduled or their failure to achieve early
market acceptance as a result of competition, technological change, failure of
the Company to timely release new versions or upgrades, the failure of such
upgrades to achieve market acceptance or otherwise, could have a material
adverse effect on the business, operating results and financial condition of the
Company. In addition, 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. If the
Company is unable to develop and introduce new products or enhancements to
existing products in a timely manner in response to changing market conditions
or customer requirements, its business, operating results and financial
condition could be materially and adversely affected.
The Company depends substantially upon internal efforts for the development
of new products and product enhancements. The Company has in the past
experienced delays in the development of new products and product versions,
which resulted in loss or delays of product revenues, and there can be no
assurance that the Company will not experience further delays in connection with
its current product development or future development activities. Also, software
products as complex as those offered by the Company may contain undetected
errors when first introduced or as new versions are released. The Company has in
the past discovered software errors in certain of its new products and
enhancements, respectively, after their introduction. Although the Company has
not experienced material adverse effects resulting from any such errors to date,
there can be no assurance that errors will not be found in new products or
releases after commencement of commercial shipments, resulting in adverse
product reviews
12
<PAGE>
CENTURA SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
and a loss of or delay in market acceptance, which could have a material adverse
effect upon the Company's business, operating results and financial condition.
From time to time, the Company or its competitors may announce new products,
product versions, capabilities or technologies that have the potential to
replace or shorten the life cycles of the Company's existing products. The
Company has historically experienced increased returns of a particular product
version following the announcement of a planned release of a new version of that
product. The Company provides allowances for anticipated returns, and believes
its existing policies result in the establishment of allowances that are
adequate, and have been adequate in the past, but there can be no assurance that
product returns will not exceed such allowances in the future. The announcement
of currently planned or other new products may cause customers to delay their
purchasing decisions in anticipation of such products, which could have a
material adverse effect on business, operating results and financial condition
of the Company.
DEPENDENCE ON KEY PERSONNEL. The Company's future performance is
substantially dependent on the performance of its executive officers and key
product development, technical, sales, marketing and management personnel. The
Company does not have employment or non-competition agreements with any of its
employees except Sam Inman, the Company's CEO and President. The loss of the
services of any executive officer or other key technical or management personnel
of the Company for any reason could have a material adverse effect on the
business, operating results and financial condition of the Company.
The future success of the Company also depends on its continuing ability to
identify, hire, train, motivate and retain other highly qualified technical and
managerial personnel. Competition for such personnel is intense and the Company
has experienced difficulty in identifying and hiring qualified engineering and
software development personnel. There can be no assurance that the Company will
be able to attract, assimilate or retain other highly qualified technical and
managerial personnel in the future. The inability to attract and retain the
necessary technical and managerial personnel could have a material and adverse
effect upon its business, operating results and financial condition.
HIGHLY COMPETITIVE MARKETS. The markets for software products such as the
Company's products are intensely competitive, subject to rapid change and
characterized by constant demand for new product features, pressure to
accelerate the release of new products and product enhancements and to reduce
prices. A number of companies currently offer products that compete directly or
indirectly with one or more of the Company's products. Competitors of the
Company include, among others, providers of sophisticated database software,
originally designed and marketed primarily for use with mainframes and
minicomputers, including IBM, Informix Corporation, Ingres, Oracle and Sybase.
The Company also faces competition from providers of PC-based software products,
including Microsoft and Borland. These competitors offer database server
products and front-end tools designed for stand-alone PCs but may currently or
may in the future offer additional integrated PC client/server software. 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 connectivity software
competitors, such as IBI Systems, Inc. and Sybase's Micro DecisionWare Division.
The Company also faces potential competition from vendors of applications
development tools based on 4GLs or CASE technologies. With the emergence of the
World Wide Web as an important platform for application development and
deployment, additional competitors or potential competitors have emerged.
Many of the Company's competitors or potential competitors have longer
operating histories and significantly greater financial, managerial, technical,
and marketing resources, as well as greater name recognition and a larger
installed base, than the Company. A variety of potential actions by any of these
13
<PAGE>
CENTURA SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
competitors, including a reduction of product prices, increased promotion,
announcement or accelerated introduction of new or enhanced products or
features, acquisitions of software applications or technologies from third
parties, the formation of strategic alliances, product giveaways or product
bundling could have a material adverse effect on the business, operating results
and financial condition of the Company. The Company's products experienced
increased competition in 1995, 1996 and the first quarter of 1997, resulting in
loss of market share. Present or future competitors may be able to develop
products comparable or superior to those offered by the Company or adapt more
quickly to new technologies or evolving customer requirements. Such competition
has in the past and may again in the future result in price reductions and/or
loss of market share and has in the past and may again in the future have a
material adverse effect on the Company's business, operating results and
financial condition. In particular, while the Company is currently developing
additional product enhancements that it believes address customer requirements,
there can be no assurance that the development or introduction of these
additional product enhancements will be successfully completed on a timely basis
or that these product enhancements will achieve market acceptance. Accordingly,
there can be no assurance that the Company will be able to continue to compete
effectively in its markets, that competition will not intensify or that future
competition will not have a material adverse effect 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. 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,
some companies may abandon use of PC client/server systems, which could have a
material adverse effect on the Company's future success.
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, 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 effect on the Company's business, operating results and financial
condition.
INTERNET SOFTWARE MARKET. The market for Internet software in general, and
the segments of such market addressed by the FORESITE products sold by the
Company on a non-exclusive basis pursuant to a Distributorship Agreement with
InfoSpinner, Inc. and the Company's other products are relatively new. The
future financial performance of the Company will depend in part on the continued
expansion of this market and these market segments and the growth in the demand
for FORESITE products and other products developed by the Company, as well as
increased acceptance of the Company's products by MIS professionals. There can
be no assurance that the Internet software market and the relevant segments of
the market will continue to grow, that the Company will be able to respond
effectively to the evolving requirements of the market and market segments, or
that MIS professionals will accept the Company's products. If the
14
<PAGE>
CENTURA SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Company is not successful in developing, marketing, localizing and selling
applications that gain commercial acceptance in these markets and market
segments on a timely basis, the Company's business, operating results and
financial condition could be materially and adversely affected.
DEPENDENCE UPON DISTRIBUTION CHANNELS. The Company relies on 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
strategic relationships with a number of vertical software vendors and other
technology companies for marketing or resale of the Company's products. Any
termination or significant disruption of the Company's relationship with any of
its resellers or distributors, or the failure by such parties to renew
agreements with the Company, could materially and adversely affect the Company's
business, operating results and financial condition. 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 the sales
strategies could have a material adverse effect on the Company.
The distribution channels through which client/server software products are
sold have been characterized by rapid change, including consolidations and
financial difficulties of distributors, resellers and other marketing partners
including certain of the Company's current distributors. The bankruptcy,
deterioration in financial condition or other business difficulties of a
distributor or retailer could render the Company's accounts receivable from such
entity uncollectible, which could result in a material adverse effect on the
Company's business, operating results and financial condition. There can be no
assurance that distributors will continue to purchase the Company's products or
provide the Company's products with adequate promotional support. Failure of
distributors to do so could have a material and adverse effect on the Company's
business, operating results and financial condition.
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 agreements 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.
DEPENDENCE ON THIRD PARTY ORGANIZATIONS. The Company is increasingly
dependent on the efforts of third party "partners", including consultants,
system houses and software developers 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.
15
<PAGE>
CENTURA SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
INTERNATIONAL SALES AND OPERATIONS. A key component of the Company's
strategy is continued expansion into international markets, and the Company
currently anticipates that international sales, particularly in new and emerging
markets, will continue to account for a significant percentage of total
revenues. The Company will need to retain effective distributors, and hire,
retain and motivate qualified personnel internationally to maintain and/or
expand its international presence. There can be no assurance that the Company
will be able to successfully market, sell, localize and deliver its products in
these international markets. In addition to the uncertainty as to the Company's
ability to sustain or expand its international presence, there are certain risks
inherent in doing business on an international level, such as unexpected changes
in regulatory requirements and government controls, problems and delays in
collecting accounts receivable, tariffs, export license requirements and other
trade barriers, difficulties in staffing and managing foreign operations, longer
payment cycles, political and economic instability, fluctuations in currency
exchange rates, seasonal reductions in business activity during summer months in
Europe and certain other parts of the world, restrictions on the export of
critical technology, and potentially adverse tax consequences, which could
adversely impact the success of international operations. Sales of products by
the Company currently are denominated principally in U.S. dollars. Accordingly,
any increase in the value of the U.S. dollar as compared to currencies in
overseas markets would increase the foreign currency-denominated cost of the
Company's products, which may negatively affect the Company's sales in those
markets. In addition, effective copyright and trade secret protection may be
limited or unavailable under the laws of certain foreign jurisdictions. There
can be no assurance that one or more of such factors will not have a material
adverse effect on the Company's international operations and, consequently, on
the Company's business, operating results and financial condition.
PROPRIETARY RIGHTS. The success and ability of the Company to compete is
dependent in part upon the Company's proprietary technology. While the Company
relies on trademark, trade secret and copyright laws to protect its technology,
the Company believes that factors such as the technological and creative skills
of its personnel, new product developments, frequent product enhancements, name
recognition and customer support are more essential to establishing and
maintaining a technology leadership position. The Company has one patent with
respect to its SQLWINDOWS and CENTURA products. The Company believes that the
ownership of patents is not presently a significant factor in its business and
that its success does not depend on the ownership of patents, but primarily on
the innovative skills, technical competence and marketing abilities of its
personnel. Also, there can be no assurance that others will not develop
technologies that are similar or superior to the Company's technology. The
source code for the Company's proprietary software is protected both as a trade
secret and as a copyrighted work. Despite these precautions, it may be possible
for a third party to copy or otherwise obtain and use their products or
technology without authorization, or to develop similar technology
independently. In addition, effective copyright and trade secret protection may
be unavailable or limited in certain foreign countries.
The Company generally enters into confidentiality or license agreements with
its employees, consultants and vendors, and generally controls access to and
distribution of its software, documentation and other proprietary information.
Despite efforts to protect proprietary rights, unauthorized parties may attempt
to copy aspects of the Company's products or to obtain and use information that
is regarded as proprietary. Policing such unauthorized use is difficult. There
can be no assurance that the steps taken by the Company will prevent
misappropriation of the Company's technology or that such agreements will be
enforceable. In addition, litigation may be necessary in the future to enforce
intellectual property rights, to protect trade secrets or to determine the
validity and scope of the proprietary rights of others. Such litigation could
result in substantial costs and diversion of resources and could have a material
adverse effect on the Company's business, operating results and financial
condition.
16
<PAGE>
CENTURA SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
There can be no assurance that third parties will not claim infringement by
the Company with respect to current or future products, and the Company expects
that it will increasingly be subject to such claims as the number of products
and competitors in the client/server and Internet connectivity software market
grows and the functionality of such products overlaps with other industry
segments. In the past, the Company has received notices alleging that its
products infringe trademarks of third parties. The Company has historically
dealt with and will in the future continue to deal with such claims in the
ordinary course of business, evaluating the merits of each claim on an
individual basis. There are currently no material pending legal proceedings
against the Company regarding trademark infringement. Any such third party
claims, whether or not they are meritorious, could result in costly litigation
or require the Company to enter into royalty or licensing agreements. Such
royalty or license agreements, if required, may not be available on terms
acceptable to the Company, or at all. If the Company was found to have infringed
upon the proprietary rights of third parties, it could be required to pay
damages, cease sales of the infringing products and redesign or discontinue such
products, any of which could have a material adverse effect on the Company's
business, operating results and financial condition.
MANAGEMENT OF POTENTIAL GROWTH; INTEGRATION OF POTENTIAL ACQUISITIONS. In
recent years, the Company has experienced both expansion and contraction of its
operations each of which has placed significant demands on the Company's
administrative, operational and financial resources. To manage future growth, if
any, the Company must continue to improve its financial and management controls,
reporting systems and procedures on a timely basis and expand, train and manage
its work force. There can be no assurance that the Company will be able to
perform such actions successfully. The Company intends to continue to invest in
improving its financial systems and controls in connection with higher levels of
operations. Although the Company believes that its systems and controls are
adequate for the current level of operations, the Company anticipates that it
may need to add additional personnel and expand and upgrade its financial
systems to manage any future growth. The Company's failure to do so could have a
material adverse effect upon the Company's business, operating results and
financial condition. In the future, the Company may make acquisitions of
complementary companies, products or technologies. Managing acquired businesses
entails numerous operational and financial risks, including difficulties in
assimilating acquired operations, diversion of management's attention to other
business concerns, amortization of acquired intangible assets and potential loss
of key employees or customers of acquired operations. There can be no assurance
that the Company will be able to effectively achieve growth, or manage any such
growth, and failure to do so could have a material adverse effect on the
Company's operating results.
LEGAL PROCEEDINGS. There are currently no material pending legal
proceedings against the Company or any of its subsidiaries, other than ordinary
routine litigation incidental to the business of the Company. The Company
operates, however, in a complex 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.
17
<PAGE>
CENTURA SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
PART II -- OTHER INFORMATION
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 reached a binding settlement agreement with plaintiffs' counsel
in this lawsuit, and gained court approval on September 30, 1996. Under the
terms of the agreement, the Company would 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 was less than an average price
of $6.00 per share during certain twenty day trading periods specified by the
Court. The Company's directors and officers' liability insurer paid
approximately $2 million of the cash contribution to the settlement fund. The
Company paid the remaining cash settlement during 1996. The 1995 financial
statements include $15.3 million in litigation expense for the agreement and
associated legal expenses. As of March 31, 1997, the Company has distributed all
common stock shares as required by the settlement agreement.
ITEM 2. CHANGES IN SECURITIES -- NOT APPLICABLE
ITEM 3. DEFAULTS IN SENIOR SECURITIES -- NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held a special meeting of shareholders on April 17, 1997, to
consider and vote on a proposal to approve and adopt the Agreement and Plan of
Reorganization dated January 6, 1997 (the "Merger Agreement") by and among the
Company, IS Acquisition Corporation, a wholly owned subsidiary of the Company,
and InfoSpinner, Inc. (the "InfoSpinner Acquisition"). The required quorum was
not achieved as of that date and the special meeting was adjourned until April
28, 1997. The special meeting of shareholders that was adjourned to April 28,
1997, was further adjourned until April 30, 1997. There were no broker non votes
at the meeting on April 30, 1997. Out of 13,783,960 shares of common stock
outstanding, votes received on the April 30, 1997 meeting date were as follows:
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OUTSTANDING
VOTES SHARES
---------- -------------
<S> <C> <C>
Yes 5,775,323 41.90
No 1,928,497 13.99
Abstained 12,038 .09
Not voted 6,068,102 44.02
</TABLE>
ITEM 5. OTHER INFORMATION
On May 27, 1997, Anthony Sun resigned from his position of director on the
Board of Directors with the Company.
18
<PAGE>
CENTURA SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
On July 1, 1997, Richard J. Heaps resigned from his position as Senior Vice
President, Business Development and General Counsel.
On May 15, 1997, Helmut G. Wilke resigned from his position as Vice
President, European Operations. Michael Moore, previously Vice President for
ICON was promoted to Vice President, International Sales.
On August 8, 1997, Michael K. Keddington resigned from his position as Vice
President, Marketing and North American Sales. Doug Domerque, previously
Director, North American Sales was promoted to Vice President, North American
Sales.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
<TABLE>
<C> <S>
10.23 Factoring Agreement dated June 26, 1997, between Centura Software Corporation
and Pacific Business Funding Corporation
10.24 Warrant to Purchase Common Stock issued June 30, 1997 by Centura Software
Corporation to Sand Hill Capital
10.25 1997 Executive Retention Program*
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K -- Not Applicable
* Management Compensatory Plan or Arrangement
19
<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.
CENTURA SOFTWARE CORPORATION
Date: August 14, 1997 By: /s/ RICHARD A. GELHAUS
-----------------------------------------
Richard A. Gelhaus
SENIOR VICE PRESIDENT OF FINANCE AND
OPERATIONS, CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
20
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PACIFIC BUSINESS FUNDING CORPORATION
20195 Stevens Creek Blvd., Suite 220
Cupertino, California 95014
Telephone: (408) 255-9300
Facsimile: (408) 255-9313
FACTORING AGREEMENT
This Factoring Agreement (the "Agreement"), dated as of JUNE 26, 1997,
is entered into by and between CENTURA SOFTWARE CORPORATION a CALIFORNIA
(corporation, ("Seller") having its principal place of business and chief
executive office at the address set forth below Seller's signature, and
Pacific Business Funding Corporation, a California corporation ("Purchaser")
having an office at the address identified above. Capitalized terms used in
this Agreement shall have the meanings assigned to them in Section 13,
Definitions.
1. PURCHASE OF ACCOUNTS.
1.1. SCHEDULE OF ACCOUNTS. Seller may, at any time, request that
Purchaser purchase Accounts. Any such request by Seller shall be made by
delivering to Purchaser a Schedule of Accounts (the "Schedule of Accounts")
which describes in detail the Accounts Seller is requesting Purchaser to
purchase, including, (a) the name and address of the Account Debtor of each
such Account, (b) the amount owed by the Account Debtor of each such Account,
and (c) the date and number of the invoice evidencing each such Account.
Each Schedule of Accounts shall have attached to it an invoice for each
Account described on the Schedule of Accounts, and shall be signed by an
authorized representative of Seller.
1.2. DISCRETIONARY APPROVAL OF ACCOUNTS. Purchaser may, in its sole
discretion, purchase any Account included in a Schedule of Accounts, but is
under no obligation to purchase any such Account. Purchaser may exercise its
sole discretion in approving each Account and the credit of each Account
Debtor before purchasing any Account.
1.3. PAYMENT OF ADVANCE; CREATION OF A BOOK RESERVE. Upon approval, in
Purchaser's sole discretion, of any of the Accounts described on a Schedule
of Accounts, Purchaser shall pay to Seller as the purchase price for any
approved Account Eighty percent (80%) of the face amount of such approved
Account (the "Advance"). Purchaser may, from time to time, in its discretion,
upon notice to Seller, change the percentage of the Advance. Upon payment of
the Advance to Seller, Purchaser shall also create a reserve on Purchaser's
books and records with respect to each Purchased Account in an amount equal to
the face amount of the Purchased Account minus the Advance for such Purchased
Account (the "Reserve"). Notwithstanding the foregoing, in no event shall
the Reserve with respect to all Purchased Accounts outstanding at any time be
less than Twenty percent (20%) of the Account Balance. Purchaser may, in its
discretion, upon notice to Seller, increase the percentage of the Reserve at
any time.
1.4. TRANSFER OF ACCOUNTS. At the time Purchaser pays the Advance with
respect to any Account, such Account shall constitute a Purchased Account,
and Seller hereby absolutely sells, transfers and assigns to Purchaser, all
of Seller's right, title and interest in and to each Purchased Account.
Seller also hereby sells, transfers and assigns to Purchaser all of the goods
represented by each Purchased Account, all of Seller's rights and remedies as
an unpaid seller under the California Uniform Commercial Code and other
applicable law, including the rights of stoppage in transit, replevin,
reclamation, and claim and delivery, and all of Seller's rights in and to all
security for each such Purchased Account and guaranties thereof, and all
rights against third parties with respect hereto. Any goods recovered or
received by Seller shall be set aside, marked with Purchaser's name, and held
for Purchaser's account as owner.
1.5. COLLECTION OF ACCOUNTS. Each Purchased Account shall be collected
directly by Purchaser. At the request of Purchaser, Seller and Purchaser
shall jointly notify each Account Debtor by letter that Purchased Accounts
owed by such Account Debtor have been assigned and are payable to Purchaser.
Such notification shall be in form and substance satisfactory to Purchaser.
Seller shall not take or permit any action to change or revoke any
notification without Purchaser's prior written consent and shall not request
any Account Debtor to pay any Purchased Account to Seller. Notwithstanding
the foregoing, in the event Seller receives any payments of any Purchased
Accounts, Seller shall (A) immediately notify Purchaser of such payment, (B)
hold such payment in trust and safekeeping for Purchaser, and (C) immediately
turn over to Purchaser the identical checks, monies, or other forms of
payment received, with any necessary endorsement or assignment. Purchaser
shall have the right to endorse Seller's name on all payments received in
connection with each Purchased Account and on any other proceeds of
Collateral. If Purchaser receives a check or item which is payment for both a
Purchased Account and a non-Purchased Account, the funds shall first be
applied to the Purchased Account and, so long as there does not then exist an
Event of Default or an event that with notice or lapse of time would
constitute an Event of Default, the excess shall be remitted to Seller. In
the event Purchaser receives any other payments of non-Purchased Accounts,
Purchaser shall remit to Seller the collections of such non-Purchased
Accounts; PROVIDED, that if any Event of Default or event that with notice or
lapse of time or otherwise would constitute an Event of Default then exists,
Purchaser shall have no duty to remit any such collections, which collections
constitute Collateral, and may apply such collections to reduce the
Obligations.
1.6. FULL RECOURSE. The purchase by Purchaser of Purchased Accounts
from Seller shall be with full recourse against Seller. Seller
shall be liable for any deficiency in the event the Obligations
exceed the amount of Purchased Accounts and the other Collateral.
2. FEES AND CUSTOMER PAYMENTS.
2.1. FINANCE FEES. Seller shall pay to Purchaser on each Settlement
Date, a finance fee in an amount equal to 1.2 percent (1.2%) per month of the
average daily Account Balance outstanding during the Settlement Period ending
on such Settlement Date (the "Finance Fees"). Such accrued Finance Fees
shall be netted against the Reserve as described in Section 3.3.
(PAGE 1 OF 5)
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2.2. ADMINISTRATIVE FEE. Seller shall pay to Purchaser on each
Settlement Date, an Administrative Fee equal to ZERO percent (0%) of the face
amount of each Account purchased by Purchaser during the Settlement Period
ending on such Settlement Date (the "Administrative Fee"). All
Administrative Fees shall be netted against the Reserve as described in
Section 3.3.
2.3. MAXIMUM LAWFUL RATE. In no event shall any charges that may
constitute interest hereunder exceed the highest rate permitted under
applicable law. In the event that a court of competent jurisdiction makes a
final determination that Purchaser has received interest hereunder in excess
of the maximum lawful rate, then such excess shall be deemed a payment of
principal and the interest payable hereunder deemed amended to the amount
payable under the maximum lawful rate.
2.4. CREDITING CUSTOMER PAYMENTS. Upon Purchaser's receipt of payment
of a Purchased Account, Purchaser shall promptly credit such customer payment
(the "Customer Payments") to the amount outstanding with respect to such
Purchased Account. Notwithstanding the foregoing, if any Customer Payment is
subsequently dishonored or Purchaser does not receive good funds for any
reason, the amount of such uncollected Customer Payment shall be included in
the Account Balance as if such Customer Payment had not been received, and
Finance Fees shall accrue thereon, and the credit to the specific Purchased
Account shall be reversed. Notwithstanding the foregoing, upon the
occurrence of an Event of Default, Purchaser shall apply all Customer
Payments to Seller's Obligations under this Agreement in such order and
manner as Purchaser shall, in its sole discretion, determine.
2.5. ACCOUNTING. Purchaser shall deliver to Seller after each
Settlement Date, a statement of Seller's account which shall include an
accounting of the transactions for that Settlement Period, including the
amount of all Finance Fees, Administrative Fees, Adjustments, Chargeback
Amounts, Customer Payments and Purchased Accounts. The accounting shall
constitute an account stated and shall be binding on Seller and deemed
correct unless Seller delivers to Purchaser a written objection within thirty
(30) days after such accounting is mailed to Seller.
3. ADJUSTMENT, CHARGEBACKS AND REMITTANCES.
3.1. ADJUSTMENTS. In the event any Account Debtor asserts any offset,
defense, counterclaim, dispute, discount, allowance, right of return, right
of recoupment, or warranty claim with respect to a Purchased Account, or pays
less than the face amount of such Purchased Account (each, an "Adjustment"),
Purchaser may, in its sole discretion, either (A) deduct the amount of the
Adjustment in calculating the Remittance, or (B) chargeback to Seller the
Purchased Account with respect to which the Adjustment is asserted. Seller
shall advise Purchaser immediately upon learning of any Adjustment asserted
by any Account Debtor.
3.2. CHARGEBACKS. Purchaser shall have the right to chargeback to
Seller any Purchased Account:
(A) which remains unpaid ninety (90) calendar days after the
invoice date;
(B) with respect to which there has been a breach of any warranty,
representation, covenant or agreement set forth in this Agreement;
(C) with respect to which the Account Debtor asserts any
Adjustment; or
(D) which is owed by an Account Debtor who has filed, or has had
filed against it, any bankruptcy case, insolvency proceeding,
assignment for the benefit of creditors, receivership or insolvency
proceeding, or who has become insolvent (as defined in the
United States Bankruptcy Code) or who is generally not paying its
debts as such debts become due.
Upon demand by Purchaser, Seller shall pay to Purchaser the full face amount
of any Purchased Account which has been charged back to Seller pursuant to
this Section 3.2, or to the extent partial payment has been made, the amount
by which the face amount of such Purchased Account exceeds such partial
payment, together with any attorneys' fees and costs incurred by Purchaser in
connection with collecting such Purchased Account (collectively, the
"Chargeback Amount"). Purchaser shall advise Seller regarding how the
Chargeback Amount shall be paid, which may be by any one or a combination of
the following, in Purchaser's sole discretion: (1) payment in cash
immediately upon demand; (2) deduction from or offset against any Remittance
that would otherwise be payable to Seller; (3) payment from any Advances that
may otherwise be made to Seller; (4) adjustment to the Reserve pursuant to
Section 1.3 hereof; or (5) delivery of substitute Accounts and a Schedule of
Accounts acceptable to Purchaser, which Accounts shall constitute Purchased
Accounts.
3.3. REMITTANCE. Purchaser shall remit to Seller after the Settlement
Date, the amount, if any, which Purchaser owes to Seller at the end of the
Settlement Period based on the following calculations set forth below (the
"Remittance"); PROVIDED, that if there then exists any Event of Default or
any event or condition that with notice or lapse of time would constitute any
Event of Default, Purchaser shall not be obligated to remit any payments to
Seller. If the amount resulting from the following calculation is a positive
number, such amount is the amount of the Remittance for such Settlement
Period. If the resulting amount is a negative number, such amount is the
amount owed by Seller to Purchaser.
The calculations to be used are as follows:
(A) The sum of the following:
(1) The Reserve as of the beginning of the subject Settlement
Period, PLUS
(2) the Reserve created for each Account purchased during the
subject Settlement Period;
MINUS
(B) The sum of the following:
(1) Finance Fees accrued during the subject Settlement Period;
PLUS
(2) Administrative Fees accrued during the subject Settlement
Period; PLUS
(3) Adjustments during the subject Settlement Period; PLUS
(4) Chargeback Amounts, to the extent Purchaser has agreed to
accept payment of any such Chargeback Amount by deduction
from the Remittance; PLUS
(5) All professional fees and expenses as set forth in Section
10 for which oral or written demand has been made by
Purchaser during the subject Settlement Period; PLUS
(6) the Reserve for the Account Balance as of the first day of
the following Settlement Period in the minimum percentage
set forth in Section 1.3 hereof.
(PAGE 2 OF 5)
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If the foregoing calculations result in a Remittance payable to Seller,
Purchaser shall make such payment by check, subject to Purchaser's rights of
offset and recoupment, and its right to deduct any Chargeback Amount as set
forth in Section 3.2. If the foregoing calculations result in an amount due
to Purchaser from Seller, Seller shall make such payment by any one or a
combination of the methods set forth in Section 3.2 hereof for chargebacks,
as determined by Purchaser in its discretion.
4. POWER OF ATTORNEY. Seller hereby appoints Purchaser and its designees as
Seller's true and lawful attorney in fact, to exercise in Purchaser's
discretion, and regardless of whether an Event of Default is then existing,
all of the following powers, such powers being coupled with an interest: (A)
to notify all Account Debtors with respect to the Purchased Accounts to make
payment directly to Purchaser; (B) to receive, deposit, and endorse Seller's
name on all checks, drafts, money orders and other forms of payment relating
to the Purchased Accounts; (C) to demand, collect, receive, sue, and give
releases to any Account Debtor for the monies due or which may become due on
or in connection with the Purchased Accounts; (D) to compromise, prosecute,
or defend any action, claim, case or proceeding relating to the Purchased
Accounts, including the filing of a claim or the voting of such claims in any
bankruptcy case, all in Purchaser's name or Seller's name, as Purchaser may
elect; (E) to sell, assign, transfer, pledge, compromise, or discharge any
Purchased Accounts; (F) to receive, open, and dispose of all mail addressed
to Seller for the purpose of collecting the Purchased Accounts; (G) to
execute in the name of Seller and file against Seller in favor of
Purchaser such financing statements and other agreements as Purchaser deems
necessary to evidence or perfect its security interest in the Purchased
Accounts and the other Collateral; and (H) to do all acts and things
necessary or expedient, in furtherance of any such purposes. Upon the
occurrence of an Event of Default, all of the power of attorney rights
granted by Seller to Purchaser hereunder shall be applicable with respect to
all Collateral.
5. CONTINUING REPRESENTATIONS, WARRANTIES AND COVENANTS. To induce
Purchaser to enter into this Agreement and purchase Accounts, and with full
knowledge that Purchaser is relying on the truth and accuracy of the
following in determining whether to purchase any Account, Seller represents,
warrants, covenants and agrees as follows, which representations, warranties,
covenants and agreements shall survive the execution and delivery of this
Agreement:
(A) The information contained in each Schedule of Accounts is true and
correct;
(B) Each Schedule of Accounts is signed by an authorized representative
of Seller, and Purchaser shall have the right to rely on such signature
as an authorized signature of Seller;
(C) Seller is the sole and absolute owner of each Account described in
each Schedule of Accounts and has the legal right to sell, transfer and
assign such Account to Purchaser;
(D) Seller has performed all obligations required by the Account Debtor
in connection with each Account described in each Schedule of Accounts
and payment of each such Account is not contingent upon the fulfillment
of any obligation or contract, past or future;
(E) Each Account described on each Schedule of Accounts is correctly
stated therein, is not in dispute, is presently and unconditionally owing
at the time stated in the invoice evidencing such Account as attached to
the Schedule of Accounts, is not past due or in default, represents a
bona fide indebtedness arising from the actual sale of goods or
performance of services to an Account Debtor in the ordinary course of
Seller's business which has been received and finally accepted by the
Account Debtor;
(F) Each Account set forth on each Schedule of Accounts is not subject to
any offset, defense or counterclaim of any kind, whether bona fide or
otherwise, and no agreement has been made under which the Account Debtor
may claim any deduction or discount, except as otherwise stated in the
Schedule of Accounts;
(G) Each Account Debtor identified on each Schedule of Accounts is liable
for the amount set forth on such Schedule of Accounts and will not
object to the payment for, or the quality or quantity of the goods or
services to which any Account described on such Schedule of Accounts
relates;
(H) Seller, and to Seller's best knowledge, each Account Debtor set forth
in each Schedule of Accounts, is and shall remain solvent in that the
present saleable value of such entity's assets exceeds the total of such
entity's liabilities;
(I) Seller has not, as of the time Seller accepts an Advance from
Purchaser, filed or had filed against it a petition for relief under the
United States Bankruptcy Code;
(J) Each Account and all other Collateral are free and clear of any and
all liens, security interests and encumbrances of any kind, other than
those in favor of Purchaser, and Seller will not assign, transfer, or
grant any lien or security interest in any Accounts or other Collateral
to any other party, without Purchaser's prior written consent;
(K) Seller has not sold, assigned, transferred, pledged or otherwise
conveyed any Purchased Accounts to any party other than Purchaser, and
Seller shall not sell, assign, transfer, pledge or otherwise convey any
Collateral without Purchaser's prior consent, except for the sale of
Accounts to Purchaser and the sale of finished inventory in Seller's
normal course of business;
(L) Seller's name and form of organization are as set forth at the
beginning of this Agreement, and Seller's chief executive office, place
of business and place where Collateral and records concerning Accounts
and other Collateral are kept are as set forth below Seller's signature,
and Seller will give Purchaser at least thirty (30) days prior written
notice if such name, organization, place of business, location of
Collateral or records concerning Collateral is to be changed or added and
shall execute any documents necessary to perfect Purchaser's interest in
the Purchased Accounts and the other Collateral; and
(M) Seller shall pay all of its normal gross payroll for employees, and
all federal and state taxes, as and when due, including all payroll and
withholding taxes and state sales taxes.
6. GRANT OF SECURITY INTEREST. To secure the prompt payment and performance
of all of Seller's Obligations to Purchaser, Seller hereby grants to
Purchaser a continuing lien upon and security interest in, and right of set
off with respect to, all of Seller's right, title and interest in and to the
following, whether now owned by or owing to, or hereafter acquired by or
arising in favor of, Seller, and regardless of where located (collectively
the "Collateral"):
(A) All accounts, accounts receivable, chattel paper, contract rights,
documents, instruments, letters of credit, banker's acceptances, drafts,
securities and general intangibles, including all claims, causes of
action, deposit accounts, rights to receive tax
(PAGE 3 OF 5)
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refunds, rights in and claims under insurance policies (including rights
to unearned premiums), customer lists, copyrights, patents, trademarks,
rights under license agreements, and other intellectual property of every
kind and other rights to payment;
(B) All inventory;
(C) All monies, remittances, and other amounts due under this Agreement
and any other agreement between Purchaser and Seller;
(E) All farm products, crops, timber, minerals, and the like (including
oil and gas);
(F) All books and records relating to the foregoing, including all
computer programs, printed output and computer readable data;
(G) All accessions to, and substitutions and replacements for, all of the
foregoing; and
(H) All proceeds and products of the foregoing, whether due to voluntary
or involuntary disposition, including insurance proceeds.
Seller shall sign and deliver to Purchaser UCC financing statements, in form
acceptable to Purchaser. Seller agrees to deliver to Purchaser the originals
of all instruments, chattel paper and documents evidencing or related to
Purchased Accounts and other Collateral.
7. DEFAULT. The occurrence of any one or more of the following shall
constitute an event of default under this Agreement (each, an "Event of
Default"):
(A) Seller fails to pay any amount owed to Purchaser as and when due under
this Agreement or fails to pay any other Obligations as and when due;
(B) Any warranty or representation by Seller to Purchaser under this
Agreement is incorrect or untrue when made or thereafter becomes untrue
or incorrect;
(C) Seller fails to perform or breaches any covenant or agreement set
forth in this Agreement or any other agreement between Purchaser and
Seller;
(D) There shall be commenced by or against Seller any voluntary or
involuntary case under the United States Bankruptcy Code, or any
assignment for the benefit of creditors, or appointment of a receiver or
custodian for any of Seller's assets;
(E) Seller shall become insolvent in that its debts are greater than the
fair value of its assets, or Seller is generally not paying its debts as
they become due or is left with unreasonably small capital;
(F) Any involuntary lien, garnishment, attachment or the like is issued
against or attaches to the Purchased Accounts or the other Collateral;
(G) An event of default shall occur under any guaranty executed by any
guarantor of the Obligations, or any material provision of any such
guaranty shall for any reason cease to be valid or enforceable or any
such guaranty shall be repudiated or terminated, including by operation
of law; or
(H) A default or event of default shall occur under any agreement between
Seller and any creditor of Seller who has entered into a subordination
agreement with Purchaser.
8. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default,
Purchaser may, without notice, (A) without implying any obligation to buy
Accounts, cease buying Accounts; (B) accelerate the payment of all
Obligations by requiring Seller to repurchase all or any portion of the
Purchased Accounts then outstanding for cash in an amount equal to the
Advance made for each Purchased Account, and all accrued Finance Fees,
Administrative Fees, attorneys' fees and other Obligations then outstanding,
which Obligations shall be due and payable in full without demand; (C)
exercise all the rights and remedies under this Agreement and under
applicable law, including the rights and remedies of a secured party under
the California Uniform Commercial Code. Without limiting the generality of
the foregoing, Purchaser may (1) exercise all of the power of attorney rights
described in Section 4 with respect to all Collateral, and (2) collect,
dispose of, sell, lease, use, and realize upon all Purchased Accounts and
other Collateral in any commercially reasonable manner. Seller and Purchaser
agree that any notice of sale required to be given to Seller shall be deemed
to be reasonable if given five (5) days prior to the date on or after which
any sale may be held. All remedies set forth herein shall be cumulative and
none exclusive.
9. ACCRUAL OF INTEREST. If any amount owed by Seller hereunder is not paid
when due, including any amounts due under Section 3.3, Chargeback Amounts,
professional fees and expenses under Section 10 and any other Obligations,
such amounts shall bear interest at a per annum rate equal to the per annum
rate of the Finance Fees until the earlier of (A) payment in good funds or
(B) entry of a final judgment therefor, at which time the principal amount of
any money judgment remaining unsatisfied shall accrue interest at the highest
rate allowed by applicable law.
10. ATTORNEYS' FEES. Seller shall pay to Purchaser immediately upon demand,
all costs and expenses, including reasonable fees and expenses of attorneys
and other professionals, that Purchaser incurs in connection with any and all
of the following: (A) preparing, amending, supplementing, negotiating and
enforcing this Agreement, or any other agreement executed in connection
herewith; (B) perfecting, protecting or enforcing Purchaser's interest in the
Purchased Accounts and the other Collateral; (C) collecting the Purchased
Accounts and the Obligations; (D) defending or in any way addressing claims
made or litigation initiated by or against Purchaser as a result of
Purchaser's relationship with Seller or any guarantor; and (E) representing
Purchaser in connection with any bankruptcy case or insolvency proceeding
involving Seller, any Purchased Account, any other Collateral or any Account
Debtor. Any attorneys' fees and expenses may, at Purchaser's option, be
netted against the reserve as set forth in Section 3.3.
11. TERM AND TERMINATION. The term of this Agreement shall be for one (1)
year from the date hereof, and from year to year thereafter unless terminated
in writing by Purchaser or Seller. Seller and Purchaser shall each have the
right to terminate this Agreement at any time. Notwithstanding the
foregoing, any termination of this Agreement shall not affect Purchaser's
security interest in the Collateral and Purchaser's ownership of the
Purchased Accounts, and this Agreement shall continue to be effective, and
Purchaser's rights and remedies hereunder shall survive such termination,
until all transactions entered into and Obligations incurred hereunder or in
connection herewith have been completed and satisfied in full.
(PAGE 4 OF 5)
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12. MISCELLANEOUS.
12.1. SEVERABILITY. In the event that any provision of this Agreement
is held to be invalid or unenforceable, this Agreement will be construed as
not containing such provision and the remainder of the Agreement shall remain
in full force and effect.
12.2. CHOICE OF LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California, without
giving effect to principles of conflicts of law.
12.3. NOTICES. All notices shall be given to Purchaser and Seller at
the addresses set forth in this Agreement and shall be deemed to have been
delivered and received; (A) if mailed, three (3) calendar days after
deposited in the United States mail, first class, postage prepaid; (B) one
(1) calendar day after deposit with an overnight mail or messenger service;
or (C) on the same date of transmission if sent by hand delivery, telecopy,
telefax or telex.
12.4. TITLES AND SECTION HEADINGS. The titles and section headings used
herein are for convenience only and shall not be used in interpreting this
Agreement.
13. DEFINITIONS. All terms used herein which are defined in the California
Uniform Commercial Code shall have the meaning given therein unless otherwise
defined in this Agreement. The term "including" is not limiting or
exclusive. When used herein, the following terms shall have the following
meanings.
13.1. "ACCOUNT" shall mean all accounts, accounts receivable, chattel
paper, contract rights, documents, general intangibles, instruments, letters
of credit, banker's acceptances, and other rights to payment, and proceeds
thereof.
13.2. "ACCOUNT BALANCE" shall mean, on any given day, the gross face
amount of all Purchased Accounts unpaid on that day.
13.3. "ACCOUNT DEBTOR" shall have the meaning set forth in the
California Uniform Commercial Code and shall include any person liable on any
Purchased Account, including any guarantor of the Purchased Account and any
issuer of a letter of credit or banker's acceptance.
13.4. "ADJUSTMENT(S)" shall have the meaning set in Section 3.1.
13.5. "ADMINISTRATIVE FEE" shall have the meaning as set forth in
Section 2.2.
13.6. "ADVANCE" shall have the meaning set forth in Section 1.3.
13.7. "CHARGEBACK AMOUNT" shall have the meaning set forth in Section
3.2.
13.8. "COLLATERAL" shall have the meaning set forth in Section 6.
13.9. "CUSTOMER PAYMENTS" shall have the meaning set forth in Section
2.4.
13.10. "EVENT OF DEFAULT" shall have the meaning set forth in Section 7.
13.11. "FINANCE FEES" shall have the meaning set forth in Section 2.1.
13.12. "SCHEDULE OF ACCOUNTS" shall have the meaning set forth in Section
1.1.
13.13. "OBLIGATIONS" shall mean all advances, obligations, indebtedness
and duties owing by Seller to Purchaser of any kind or nature, present or
future, arising under or in connection with this Agreement or any other
agreement entered into between Purchaser and Seller, whether direct or
indirect, including all Advances, Finance Fees, Administrative Fees,
Chargeback Amounts, attorneys' fees and expenses.
13.14. "PURCHASED ACCOUNTS" shall mean all Accounts identified on any
Schedule of Accounts delivered by Seller to Purchaser which Purchaser elects
to purchase and for which Purchaser makes an Advance, and all monies due or
to become due thereunder.
13.15. "REMITTANCE" shall have the meaning set forth in Section 3.3.
13.16. "RESERVE" shall have the meaning set forth in Section 1.3.
13.17. "SETTLEMENT DATE" shall mean the last calendar day of each
Settlement Period.
13.18. "SETTLEMENT PERIOD" shall mean each calendar month of each year.
IN WITNESS WHEREOF, Seller and Purchaser have executed this Agreement on the
day and year written above.
"PURCHASER" "SELLER"
PACIFIC BUSINESS FUNDING CORPORATION By /s/ Richard A. Gelhaus
---------------------------------
By /s/ William Chronert Title Senior Vice President and CFO
----------------------------------- -----------------------------
Title President
--------------------------------
ADDRESS OF SELLER, CHIEF EXECUTIVE
OFFICE AND LOCATION OF COLLATERAL
OTHER LOCATIONS OF COLLATERAL,
IF ANY, IN ADDITION TO ABOVE: Street: 1060 Marsh Road
-----------------------------
- ------------------------------------- City: Menlo Park
-------------------------------
- ------------------------------------- County: San Mateo
-----------------------------
- ------------------------------------- State: CA
------------------------------
- ------------------------------------- Zip Code: 94025
---------------------------
Telephone No.: (415) 321-9500
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Facsimile No.: (415) 321-5471
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(PAGE 5 OF 5)
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Centura Software Corporation
Number of Shares: 90,000
Class of Stock: Common
Initial Exercise Price: $2.094 per share
Issue Date: June 30, 1997
Expiration Date: June 30, 2002
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SAND HILL CAPITAL LLC ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the
provisions and upon the terms and conditions set forth of this Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant in whole or
in part by delivering a duly executed Notice of Exercise in substantially the
form attached as Appendix 1 to the principal office of the Company. Unless
Holder is exercising the conversion right set forth in Section 1.2, Holder
shall also deliver to the Company a check for the aggregate Warrant Price for
the Shares being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified
in Section 1.1, Holder may from time to time convert this Warrant, in whole
or in part, into a number of Shares determined by dividing (a) the aggregate
fair market value of the Shares or other securities otherwise issuable upon
exercise of this Warrant minus the aggregate Warrant Price of such Shares by
(b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant Section 1.3.
1.3 FAIR MARKET VALUE. If the Shares are traded in a public market, the
Fair Market Value of the Shares shall be the average of the closing bid and
asked prices of the Common Stock quoted in the over-the-counter market in
which the Common Stock is traded or the closing price quoted on any exchange
on which the Common Stock is listed, whichever is applicable, as published in
the Western Edition of THE WALL STREET JOURNAL for the ten trading days prior
to the date of determination of fair market value. If the Shares are not
traded in a public market, the Board of Directors of the Company shall
determine fair market value in its reasonable good faith judgment.
1.4 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1
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1.5 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of
an indemnity agreement reasonably satisfactory in form and amount to the
Company or, in the case of mutilation, or surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver, in lieu of
this Warrant, a new warrant of like tenor.
1.6 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
1.6.1 "ACQUISITION". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.6.2 ASSUMPTION OF WARRANT. Upon the closing of any Acquisition
the successor entity shall assume the obligations of this Warrant, and this
Warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be
adjusted accordingly.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities
other than common stock) payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common
stock, or, if the Shares are securities other than common stock, subdivides
the Shares in a transaction that increases the amount of common stock into
which the Shares are convertible, then upon exercise of this Warrant, for
each Share acquired, Holder shall receive, without cost to Holder, the total
number and kind of securities to which Holder would have been entitled had
Holder owned the Shares of record as of the date the dividend or subdivision
occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon
exercise or conversion of this Warrant, the number and kind of securities and
property that Holder would have received for the Shares if this Warrant had
been exercised immediately before such reclassification, exchange,
substitution, or other event. Such an event shall include any automatic
conversion of the outstanding or issuable securities of the Company of the
same class or series as the Shares to common stock pursuant to the terms of
the Company's Articles of Incorporation upon the closing of a registered
public offering of the Company's common stock. The Company or its successor
shall promptly issue to Holder a new Warrant for such new securities or other
property. The new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in
this Article 2 including, without limitation, adjustments to the Warrant
Price and to the number of securities or property issuable upon exercise of
the new Warrant. The provisions of this Section 2.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events.
2.3 ADJUSTMENTS FOR DILUTING ISSUANCES. If the Company issues
additional shares after the date of this Warrant and the consideration per
additional share is less than the Warrant Price in effect immediately before
such issue, the Warrant Price in effect immediately before such issue shall
be reduced, concurrently with such issue, to a price (calculated to the
nearest hundredth of a cent) determined by multiplying the Warrant Price by a
fraction:
2
<PAGE>
(a) the numerator of which is the amount of common stock
outstanding immediately before such issue plus the amount of common stock
that the aggregate consideration received by the Company for the additional
shares would purchase at the Warrant Price in effect immediately before such
issue, and
(b) the denominator of which is the amount of common stock
outstanding immediately before such issue plus the number of such additional
shares.
2.4 NO IMPAIRMENT. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Warrant by the Company,
but shall at all times in good faith assist in carrying out of all the
provisions of this Article 2 and in taking all such action as may be
necessary or appropriate to protect Holder's rights under this Article
against impairment.
2.5 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting
forth such adjustment and the facts upon which such adjustment is based. The
Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of
this Warrant is not greater than the Fair Market Value of the Shares as of
the date of this Warrant.
(b) All Shares that may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any
liens and encumbrances except for restrictions on transfer provided for
herein or under applicable federal and state securities laws.
(c) The authorized and issued capital stock of the Company is
as follows:
TYPE AUTHORIZED ISSUED
- ---- ---------- ------
Common Stock 60,000,000 15,238,000 as of 3/31/97
Preferred Stock 2,000,000 -0-
All such shares have been duly authorized, validly issued, fully paid
and nonassessable.
ARTICLE 4. MISCELLANEOUS.
4.1 TERM. This Warrant is exercisable, in whole or in part, at any
time and from time to time on or before the Expiration Date set forth above.
3
<PAGE>
4.2 LEGENDS. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with
applicable federal and state securities laws by the transferor and the
transferee (including, without limitation, the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, as reasonably requested by the Company). The Company shall not
require Holder to provide an opinion of counsel if the transfer is to an
affiliate of Holder or if there is no material question as to the
availability of current information as referenced in Rule 144(c), Holder
represents that it has complied with Rule 144(d) and (e) in reasonable
detail, the selling broker represents that it has complied with Rule 144(f),
and the Company is provided with a copy of Holder's notice of proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.2,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this
Warrant to the Company for reissuance to the transferee(s) (and Holder if
applicable). Unless the Company is filing financial information with the SEC
pursuant to the Securities Exchange Act of 1934, the Company shall have the
right to refuse to transfer any portion of this Warrant to any person who
directly competes with the Company.
4.5 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.6 ATTORNEYS FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees. COMPANY AND
HOLDER WAIVE ANY RIGHT TO A JURY TRIAL OUT OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS WARRANT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN, INCLUDING CONTRACT AND TORT CLAIMS.
4.7 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
CENTURA SOFTWARE CORPORATION
By: /s/ Richard A. Gelhaus
--------------------------------
Richard A. Gelhaus
Title: Senior V.P. and CFO
4
<PAGE>
APPENDIX I
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _____ shares of the Common
Stock of Ventura Software Corporation pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
2. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to _________________ of the Shares
covered by the Warrant.
[Strike paragraph that does not apply.]
3. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
---------------------------
(Name)
---------------------------
---------------------------
(Address)
4. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view
toward the resale or distribution thereof except in compliance with
applicable securities laws.
----------------------------------------
(Signature)
- ---------------------
(Date)
5
<PAGE>
EXHIBIT 10.25
CENTURA SOFTWARE CORPORATION
EXECUTIVE RETENTION PROGRAM
The following is a brief summary of the Executive Retention Program approved
by the Board of Directors of Centura Software Corporation (the "Company") on
June 20, 1997 pursuant to which Key Executive Agreements may be entered into
by the Company with each of Samuel Inman, Michael Keddington, Earl Stahl and
Richard Gelhaus (collectively, "Key Executives"). Terms of the Key Executive
Agreements are as follows.
Upon consummation of any "Sale of the Company" (as defined below), each Key
Executive shall receive, if such Key Executive continues to be employed by
the Company at that time:
- - payment of an amount equal to the Key Executive's total compensation for
fiscal year 1996; and
- - continuing coverage under the Company's standard employee benefits
package for one year following the effective date of the Sale of the
Company.
Definitions:
"Sale of the Company" means:
- - (1) a merger or consolidation that results in more than 50% of the
voting stock of the Company or its successor changing ownership (whether
or not approved by the Board);
or
- - (2) the sale of all or substantially all of the Company's assets.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,812
<SECURITIES> 565
<RECEIVABLES> 11,848
<ALLOWANCES> 2,931
<INVENTORY> 27
<CURRENT-ASSETS> 18,681
<PP&E> 20,864
<DEPRECIATION> 16,122
<TOTAL-ASSETS> 29,859
<CURRENT-LIABILITIES> 40,858
<BONDS> 0
0
0
<COMMON> 69,896
<OTHER-SE> (80,751)
<TOTAL-LIABILITY-AND-EQUITY> 29,859
<SALES> 21,304
<TOTAL-REVENUES> 29,704
<CGS> 2,667
<TOTAL-COSTS> 7,058
<OTHER-EXPENSES> 23,419
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 424
<INCOME-PRETAX> (1,754)
<INCOME-TAX> 35
<INCOME-CONTINUING> (1,789)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,789)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
