|
Previous: WILLIAMS COAL SEAM GAS ROYALTY TRUST, 10-Q, EX-27, 2000-11-14 |
Next: UNITED TEXTILES & TOYS INC, 10QSB, 2000-11-14 |
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 September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to _________
Commission file number 0-21010
Centura Software Corporation (Exact name of Registrant as specified in its Charter)
|
|
|
|
975 Island Drive
Redwood Shores, California 94065
(Address of Principal Executive Offices including Zip Code)
(650) 596-3400
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to section 12(g) of the Act:
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 reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
As of October 31, 2000, there were 42,804,662 shares of the Registrant's
Common Stock outstanding.
CENTURA SOFTWARE CORPORATION
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
CENTURA SOFTWARE CORPORATION
The accompanying notes are an integral part of these condensed
consolidated financial statements.
CENTURA SOFTWARE CORPORATION
The accompanying notes are an integral part of these condensed
consolidated financial statements.
CENTURA SOFTWARE CORPORATION
The accompanying notes are an integral part of these
condensed consolidated financial statements.
CENTURA SOFTWARE CORPORATION
References to "we", "us", "our" or "Centura" means Centura Software Corporation and its
subsidiaries and divisions, and their predecessor companies and subsidiaries.
1. Summary of significant accounting policies Method of preparation The accompanying condensed consolidated balance sheet as of September 30,
2000, the condensed consolidated statement of operations for the three and nine
month periods ended September 30, 2000 and September 30, 1999, and cash flows
for the nine month periods ended September 30, 2000 and September 1999 are
unaudited. In our opinion, all adjustments which are normal, recurring and
necessary for a fair statement of the financial position, results of operations
and of cash flows have been made for all periods presented. The balance sheet as of December 31, 1999 has been derived from our
audited financial statements but does not include all disclosures required by
generally accepted accounting principles. Such disclosures are contained in our
Annual Report on Form 10-K. The results of operations for the three and nine month periods ended
September 30, 2000 are not necessarily indicative of the operating results to be
expected for the full year. This financial data should be reviewed in
conjunction with management's discussion and analysis of financial condition and
results of operation and the audited financial statements and accompanying notes
included in our Annual Report on Form 10-K for the year ended December 31, 1999.
The preparation of financial statements in accordance with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from these estimates. Under present circumstances, our existing cash balances and cash
equivalents are insufficient to meet operating and capital requirements beyond
March 31, 2001. To improve our cash flow, we have begun to implement a
restructuring program designed to help bring our costs in line with our current
and anticipated revenue levels. We have also begun efforts to sell selected
product lines and associated assets. We have available an equity facility agreement with an institutional
investor, MAJJES Limited (the "Investor"), under which we may draw down at our
own discretion, subject to equity market conditions and the terms of the
underlying agreement. See Note 4 for additional information on the equity
facility agreement. We believe that, with the operating costs savings which we expect to
realize upon complete implementation of our restructuring program, the proceeds
from the sale of selected products lines and associated assets, and the proceeds
from sales of our stock under our equity facility (assuming that the price of
our stock remains at or above $2 per share), our existing cash balances will be
sufficient to meet our currently anticipated needs over the next 12 months.
There can be no assurance, however, that we will be able to sell the selected
product lines and associated assets, that the price of our stock will remain at
or above $2 per share and that we will be able to satisfy the other conditions
required for the sale of additional shares of our common stock under the equity
facility. In such an event, ongoing operations and other elements of our
business may be materially and adversely affected. Sales of additional shares of
common stock under our equity facility will dilute existing stockholders. Net loss per share Basic net loss per share is calculated by dividing loss available to
common stockholders by the weighted average number of shares of common stock
outstanding during each respective period. Diluted net loss per share is
calculated giving effect to all dilutive potential shares of common stock that
were outstanding during each respective period. Dilutive potential shares of
common stock could consist of stock options and warrants. However, in periods where we have a reported loss or in cases where stock
options and warrants have an exercise price greater than the market price of the
common shares for the period, they are excluded from the per share calculation
as they are antidilutive. The following table presents the number of shares of
common stock underlying such options and warrants: Comprehensive loss We report components of comprehensive loss in our annual consolidated
statement of stockholders' equity. Other comprehensive loss consists of net loss
and foreign currency translation adjustments. Our total comprehensive loss was
as follows: Recent Accounting Pronouncements In March 2000, the Financial Standards Board issued Interpretation No.
44, or FIN 44, "Accounting for Certain Transactions involving Stock Compensation
an interpretation of APB Opinion No. 25". FIN 44 clarifies the application of
Opinion 25 for (a) the definition of employee for purposes of applying Opinion
25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequences of various modifications
to the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. We have
adopted FIN 44 effective July 1, 2000. The adoption of the provisions of FIN 44
has not had a material impact on our financial position and results of
operations. In December 1999, the Securities and Exchange Commission, or SEC, issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements", or SAB 101. SAB 101 provides guidance for revenue recognition under
certain circumstances. In June 2000, the SEC issued SAB No. 101B to defer the
effective date of implementation of SAB 101 until the fourth quarter of fiscal
2000. In October 2000, the SEC issued Frequently Asked Questions about SAB 101.
We are currently reviewing the effect of SAB 101 on our consolidated results of
operations, financial position and cash flows. In June 1998, the Financial Accounting Standards Board, or FASB, issued FAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", as
amended in June 2000 by FAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", which requires the recognition of
all derivatives as assets or liabilities on the balance sheet and measurement of
those instruments at fair value. Changes in fair value of derivatives are
recorded in earnings or other comprehensive income depending upon the intended
use of the derivative and the resulting designation. The effective date of this
statement has been delayed to fiscal years beginning after June 15, 2000. We are
currently reviewing the impact of adoption of this statement on our consolidated
results of operations, financial position and cash flows. 2. Segment information We are a leading global provider of solutions that mobilize the
enterprise. Our products are used in business-to-business applications, which
allow our customers to extend their business information systems to the Internet
and to wireless information devices. The following table presents information
based on our method of internal reporting and on how we organize our revenue
into groups of similar products: 3. Mandatorily redeemable convertible preferred stock In December 1999, we completed a private placement of 12,500 shares
of our series A preferred stock (and an option to purchase an additional 6,000
shares) resulting in net proceeds of $11,200,000, after deducting expenses
associated with the offering. In accordance with the rights of the preferred stockholders we accrued a
cumulative dividend, at the rate of 4.5% per annum until May 1, 2000, being the
date that the preferred stock was converted into shares of common stock. Had we not been able to register the shares of common stock underlying
the preferred stock with the SEC within 150 days of issuance of the preferred
stock, the preferred stockholders would have been able to redeem the preferred
stock at 125% of face value. To reflect this potential liability we accreted the
preferred stock balance to 125% of the face value of the preferred stock
outstanding, over a period of 150 days, prorated for the three months ended
March 31, 2000. However, as we received notice from the SEC of effective
registration on April 3, 2000, as discussed in the next paragraph, no such
liability exists and we have not accreted further for this event in the six
months ended September 30, 2000. On April 3, 2000 our registration statement on Form S-3, as amended,
registering shares of common stock underlying the mandatorily redeemable
convertible preferred stock issued December 30, 1999 (excluding an option to
purchase an additional 6,000 shares) and associated warrants, was declared
effective. In accordance with the terms of the Certificate of Designation of the
preferred stock (the "Certificate") we then issued a conversion notice to the
holders of the preferred stock requiring them to convert all of their
outstanding preferred stock holdings to common stock over the period beginning
April 17, 2000 and ending May 30, 2000. On May 1, 2000 all of the outstanding
preferred stock was converted to 3,099,000 shares of common stock. In accordance
with the Certificate, during the Company-directed conversion period, the number
of shares issued were determined by dividing the face value of the preferred
stock by the lesser of $5.82 or the lowest of the daily weighted average trading
prices on the Nasdaq Small Cap or National Market 10 days prior to the selected
conversion date within the conversion period, which was $4.093. Mandatorily redeemable convertible preferred stock consists of the
following: 4. Equity Facility In September 2000, we entered into an equity facility agreement with
an institutional investor, MAJJES Limited (the "Investor"), under which we may
require the Investor to purchase up to $100 million of our shares of common
stock over a three-year period, and the Investor may, at its sole option,
purchase up to an additional $20 million of our shares of common stock. We may
draw down this incremental capital at our own discretion, subject to equity
market conditions and the terms of the underlying agreement. During a ten (10) trading day purchase period we may require the Investor
to purchase between $1,000,000 and $20,000,000 of our shares of common stock.
The number of shares issued is determined by dividing the minimum dollar amount
of our shares of common stock, which we require the Investor to purchase in the
purchase period, by the applicable purchase price. The purchase price is
calculated at 96% of the volume weighted average price per share of common stock
of the five (5) trading days, with the lowest daily volume weighted average
price per share ("VWAP") during the purchase period. We will set a minimum
purchase price at our sole discretion at the beginning of the purchase period,
provided that the minimum price may not be less than $2.00 per share. If the volume weighted average price per share of the common stock is
below the set minimum purchase price for five (5) consecutive trading days
during a purchase period, the Investor is not obligated to purchase any shares
during the purchase period. In addition, the Investor is not allowed to purchase shares of common
stock to the extent that such a purchase would result in the Investor owning
more than 4.9% of the issued and outstanding common stock of the company. If during any purchase period we issue shares of common stock (other than
shares issued under the equity facility agreement or upon exercise of employee
stock options or warrants then outstanding, or upon conversion of preferred
stock then outstanding), the Investor may in its sole discretion elect to
purchase the same number of shares so issued and at the same price and on the
same terms, or purchase no shares during the purchase period. Purchase option Under the terms of the equity facility agreement, the Investor has
the right to purchase up to 434,783 shares of our common stock at an exercise
price of $4.60 per share at any time over a three-year period, which began in
September 2000. This purchase option was valued at $1,101,000 using a risk free
rate of 6.05%, a volatility factor of 90% and assuming no payment of dividends.
Both the number of shares underlying the option and the exercise price are
subject to adjustment under the terms of the equity facility agreement to
prevent dilution. The purchase option valuation of $1,101,000 is included on the
balance sheet under "Other assets". Placement agent warrants and fees In consideration for services rendered in relation to securing our
equity facility with the Investor, the placement agent, Rochon Capital Group,
Ltd. received fully exercisable warrants to purchase 216,497 shares of our
common stock at an exercise price of $5.0809 per share. These warrants were
valued at $603,000 using a risk free rate of 5.97%, a volatility factor of 90%
and assuming no payment of dividends. These warrants expire in September 2005.
The warrant valuation of $603,000, along with placement agent fees of $765,000,
are included on the balance sheet under "Other assets". Cost of financing As and when incremental capital is drawn down under the terms of the
equity facility agreement we will reclassify the costs associated with the
equity financing from "Other assets" to "Additional paid in capital", on a
dollar for dollar basis with the amount of incremental capital drawn. As of
September 30, 2000 there is a total of $2,500,000 costs associated with the
equity financing included in "Other assets". If at termination of the agreement
the incremental capital drawn is less than the accumulated costs associated with
this equity facility line, then the residual costs remaining in "Other assets"
will be charged to expenses. Item 2. Management's discussion and analysis of financial condition
and results of operations We are a leading global provider of solutions that
mobilize the enterprise. Our products are used in business-to-business
applications, which allow our customers to extend their information systems to
the Internet and to wireless information devices. Our family of products, which
as a whole provides end-to-end functionality in these environments, includes a
scalable Internet development environment (CTD), a dynamic wireless
connectivity solution (eSNAPP), and a range of powerful, secure embedded
databases (SQLBase SafeGarde, Velocis, RDM and db.star). In
essence, we make the software our customers use to create sophisticated Web and
wireless applications. 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. When used in this report,
the words "anticipate", "believe", "will", "may", "intend" and "expect" and
similar expressions identify forward-looking statements. 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 our business,
prospective investors should carefully consider the following factors in
addition to the other information presented in this report. You should read the following discussion in conjunction with the
unaudited condensed consolidated financial statements and accompanying notes
included in Part I-Item 1 of this quarterly report, the audited consolidated
financial statements and accompanying notes, and management's discussion and
analysis of financial condition and results of operations included in our Annual
Report on Form 10-K for the year ended December 31, 1999. Results of Operations: Net product revenue The following table presents our net product revenues by product line
and approximate percentage of total product revenues for the three months ended
September 30, 2000 and September 30, 1999: Net product revenues decreased $5,539,000, or 71% for the three months
ended September 30, 2000 compared with the three months ended September 30,
1999. This decrease is primarily due to a 82% decline in net sales of
SQLBase, an embedded database product primarily used in desktop
client/server applications. This reflects the acceleration of what we believe is
a market trend wherein customers are shifting incremental information technology
development away from desktop client/server applications to Web-centric
applications, coupled with competitive pressure from large competitors that
offer scalable database environments. Net revenues from our development environment, CTD, decreased
$459,000, or 38% for the three months ended September 30, 2000 compared with the
three months ended September 30, 1999. We believe that the increasing strength
and reliability of network bandwidth have allowed the emergence of application
service providers, or ASPs, as a serious business alternative to in-house, self-
hosted applications. The ASP model involves the hosting of enterprise or other
business application software by a third party, typically in exchange for
monthly remuneration. We believe the ASP model has created a general hesitancy
in buying decisions among corporate information technology professionals and
independent software developers as they evaluate the efficacy of the ASP
approach. This has contributed to what we believe is a general slowdown in major
Internet application projects in which our newly released development
environment CTD 2000 could be implemented. Our new connectivity product offering, eSNAPP, version 2.0, a
general release product, was released at the end of the second quarter of 2000.
There are no significant revenues reported to date for this product, since the
market for this product is slower to develop than anticipated. The following table presents our net product revenues by product line and
approximate percentage of total revenues for the nine months ended September 30,
2000 and September 30, 1999: Net product revenues decreased $8,323,000, or 41%, for the nine months
ended September 30, 2000 compared with the nine months ended September 30, 1999.
The decline is due to the same factors that caused the quarter over quarter
decrease. Net service revenue Net service revenue primarily comprises fees that entitle our
customers to the right to receive product revision upgrades and updates as and
when they become available, telephone support and consulting services. Net service revenue decreased $760,000 or 13% to $5,189,000 for the three
months ended September 30, 2000, from $5,949,000 for the three months ended
September 30, 1999, reflecting decreased amortization of license maintenance and
telephone support, following a trend of decreasing maintenance and telephone
support invoicing, year over year, partially offset by a growth in our
consulting services business. Net service revenue increased $1,297,000 or 8% to $17,902,000 for the
nine months ended September 30, 2000, from $16,605,000 for the nine months ended
September 30, 1999, primarily due to a growth in our consulting services
business following the acquisition of Raima Corporation in June 1999. The
increase in net service revenue may also be attributed to increased amortization
of license maintenance and telephone support in the first half of 2000, due to
the relatively larger deferred revenue balances at the end of 1999. Total net revenues by geographic region The following table presents a summary of operations by geographic
region for the three months ended September 30, 2000 and September 30, 1999.
Revenues have been allocated to geographic regions based primarily upon
destination of product shipment. North American net revenues fell $3,960,000 or 56% for the three months
ended September 30, 2000, compared with the three months ended September 30,
1999, while European net revenues fell $1,816,000 or 34% for the same periods.
This drop in both the North American and the European net revenues primarily
reflects the decline in SQLBase revenue, which fell 89% in North America
and 73% in Europe. This reflects a shift in customer demand to scalable Web-
centric database environments and associated competitive pressures. The rest of
the world revenue fell $523,000 or 40% for the three months ended September 30,
2000, compared with the three months ended September 30, 1999. This drop
reflects a general decline in all product areas, with no one product-grouping
representing a significant part of the revenue mix in these regions. The following table presents a summary of operations by geographic region
for the nine months ended September 30, 2000 and September 30, 1999: North American net revenues fell $4,463,000 or 26% and European net
revenues fell $2,273,000 or 14% for the nine months ended September 30, 2000,
compared with the nine months ended September 30, 1999. Significant declines in
SQLBase sales affected the results for both of these major markets. The
revenues in North America also reflect increases in sales of our Velocis
Database Server and RDM products during the first half of 2000, while
the European results reflect increases in our consulting and other service
revenues during the first half of 2000. Cost of net product revenues Cost of product revenue includes the cost of production and the
amortization of capitalized software. Cost of production includes the cost of
subcontracted production and royalties for third party software. The table below
presents these costs for the three and nine months ended September 30, 2000 and
September 30, 1999: The cost of production was flat for the three months ended September 30,
2000 compared with the three months ended September 30, 1999. Cost of product
revenue as a percentage of net product revenue increased to 30% for the three
months ended September 30, 2000, from 9% for the three months ended September
30, 1999, due to lower royalty costs offset by higher freight and obsolete
inventory charges for the three months ended September 30, 2000, compared with
the three months ended September 30, 1999. We capitalize internal software development costs that are eligible for
capitalization from the time that a project reaches technological feasibility
until the time that the products derived from the project are released for sale.
Software purchased from third parties and included in our products is also
capitalized if technological feasibility for the project has been reached at the
time of purchase. These capitalized costs are then amortized ratably over the
useful life of the products, which is generally estimated to be two to three
years. The amortization of the capitalized software costs was flat for the three
months ended September 30, 2000 as compared with the three months ended
September 30, 1999. Cost of product revenue as a percentage of net product revenue increased
marginally to 15% for the nine months ended September 30, 2000, from 13% for the
nine months ended September 30, 1999, due to both lower royalty costs and lower
amortization of capitalized software for the nine months ended September 30,
2000 compared with the nine months ended September 30, 1999. Cost of net service revenue Cost of service consists primarily of personnel costs related to
product license maintenance, training and technical support. The table below
presents these costs for the three and nine months ended September 30, 2000 and
September 30, 1999: The decrease in the actual cost of service and the relative percentage of
the cost of service revenues is primarily due to a reduction in headcount in the
respective periods. By the end of 1999 we reorganized our support department by
completing the transfer of previously out-sourced support functions back to our
in-house employees, resulting in a lower cost base while maintaining or
improving service levels. Amortization of acquired technology In June 1999, we capitalized $2,670,000 of acquired technology as
part of the acquisition of Raima Corporation. In the three months ended
September 30, 2000, the associated amortization expense was $133,000, and in the
nine months ended September 30, 2000, the associated amortization expense was
$400,000. Sales and marketing expenses Sales and marketing expenses consist principally of salaries, sales
commissions and costs of advertising and marketing campaigns. The table below
presents these costs for the three and nine months ended September 30, 2000 and
September 30, 1999: Sales and marketing expense increased for the three and nine months ended
September 30, 2000 compared to the three and nine months ended September 30,
1999, primarily due to the costs associated the expansion of sales offices and
with an increase in staffing in our sales and marketing organizations to assist
in the launch and promotion of our mobile and embedded products and the
development of this new market. Engineering and product development expenses The table below presents gross engineering and product development
expenses, capitalized software development costs, and net engineering and
product development expenses in dollar amounts and as a percentage of net
revenue for the three and nine months ended September 30, 2000 and September 30,
1999: Net engineering and product development expenses for the three months
ended September 30, 2000 increased $424,000, or 18%, compared with the three
months ended September 30, 1999, largely due to increases in gross engineering
costs. The increase in the gross engineering and product development expenses of
$404,000, or 17%, for the three months ended September 30, 2000 compared with
the three months ended September 30, 1999, is due to increased headcount and to
an increase in research and development outsourced to third party software
development organizations as we expand our efforts to further leverage core
technologies into next generation products. Capitalized software development costs were flat for the three months
ended September 30, 2000 compared with the three months ended September 30,
1999. Net engineering and product development expenses were flat for the nine
months ended September 30, 2000, compared with the nine months ended June 30,
1999, due to increases in gross engineering costs offsetting increases in
capitalized software development costs. The increase in the gross engineering and product development expenses of
$1,335,000, or 19%, for the nine months ended September 30, 2000 compared with
the nine months ended September 30, 1999, is due primarily to increased research
and development undertaken by outside software houses as we expand our efforts
to leverage core technologies into next generation products, combined with
increased personnel related costs as a result of the additional workforce of
Raima Corporation, which we acquired in June 1999. Capitalized software development costs increased by $1,362,000 for the
nine months ended September 30, 2000 compared with the nine months ended
September 30, 1999 due to more product releases having reached technological
feasibility in the first nine months of 2000 compared with the same period in
1999. We believe that the development of new products and the enhancement of
existing products are essential to our continued success, and we intend to
continue to devote substantial resources to new product development. General and administrative expenses General and administrative expenses consist primarily of staffing and
related expenses, rent and facilities expense, depreciation, and outside
services. The table below presents these costs for the three and nine months
ended September 30, 2000 and September 30, 1999: General and administrative expenses increased $572,000, or 32% for the
three months ended September 30, 2000 compared with the three months ended
September 30, 1999 primarily due to an increase in bad debt expense and
increased legal costs regarding employee and trademark matters. General and administrative expenses increased $1,341,000, or 22% for the
nine months ended September 30, 2000 compared with the nine months ended
September 30, 1999 due to the same factors affecting the quarter over quarter
increase and to increased personnel costs and costs from the first half of 2000
associated with relisting on the Nasdaq National Market, and preparing and
mailing our Annual Report on Form 10-K and proxy materials. Amortization of goodwill and workforce intangible As part of our June 1999 acquisition of Raima Corporation, we capitalized
$3,266,000 of goodwill, which is being amortized over its period of benefit of 5
years, and $670,000 of workforce intangible, which is being amortized over its
period of benefit of 3 years. For the three months ended September 30, 2000,
goodwill amortization expense was $173,000 and the workforce intangible
amortization expense was $56,000. For the nine months ended September 30, 2000,
goodwill amortization expense was $770,000 and the workforce intangible
amortization expense was $168,000. Other income (expense), net Other income (expense), net is comprised of interest income, interest
expense and losses or gains on foreign currency transactions. For the three
months ended September 30, 2000 other income (expense), net decreased $275,000
to other expense, net of $168,000 from other income, net of $107,000 in the same
three months of the prior year. This decrease is due to higher interest income
resulting from larger cash balances on deposit following the receipt of funds
from the December 1999 private placement of preferred stock and exercises of
common stock options and warrants which in turn was offset by increased interest
expense resulting from higher interest rates in 2000, compared with 1999, and
from increased foreign currency loss, resulting largely from fluctuations in
European currencies. For the nine months ended September 30, 2000 other income (expense), net
increased $408,000 to other income, net of $14,000 from other expense, net of
$394,000 in the same nine months of the prior year. This increase is due to the
above factors that caused the quarter over quarter decrease, which was more than
offset by the impact of favorable foreign exchange rates in the first quarter of
2000 as compared with the first quarter of 1999. Provision for income taxes The provision for income taxes primarily relates to foreign
withholding taxes. Due to our net losses and the availability of net operating
loss carryforwards arising in prior years, no provision for U.S. income taxes
was made for the three-month or nine-month periods ended September 30, 2000 and
September 30, 1999. Liquidity and Capital Resources: Cash flows Net cash used in operating activities increased $5,572,000 in the
nine months ended September 30, 2000 compared with the same period in 1999. This
increase in usage is primarily due to the larger operating loss incurred during
2000, which was offset in part by a decrease in accounts receivable. Net cash used in investing activities increased $2,979,000 in the nine
months ended September 30, 2000 compared with the nine months ended September
30, 1999. This increase is primarily attributed to higher levels of
capitalization of software development costs due to more product releases
reaching technological feasibility in the nine months ended September 30, 2000
compared with the same period in 1999, and due to higher levels of spending on
property and equipment resulting from the relocation of two offices in the first
half of 2000 following the expiration of their building leases. Net cash from financing activities increased $1,037,000 in the nine
months ended September 30, 2000 compared with the nine months ended September
30, 1999. This is largely due to cash received from the exercises of common
stock options and warrants. Under present circumstances, our existing cash balances and cash
equivalents are insufficient to meet operating and capital requirements beyond
March 31, 2001. To improve our cash flow, we have begun to implement a
restructuring program designed to help bring our costs in line with our current
and anticipated revenue levels. We have also begun efforts to sell selected
product lines and associated assets. We have available an equity facility agreement with an institutional
investor, MAJJES Limited (the "Investor"), under which we may draw down at our
own discretion, subject to equity market conditions and the terms of the
underlying agreement. See Note 4 for additional information on the equity
facility agreement We believe that, with the operating costs savings which we expect to
realize upon complete implementation of our restructuring program, the proceeds
from the sale of selected product lines and associated assets, and the proceeds
from sales of our stock under our equity facility (assuming that the price of
our stock remains at or above $2 per share), our existing cash balances will be
sufficient to meet our currently anticipated needs over the next 12 months.
There can be no assurance, however, that we will be able to sell the selected
products lines and associated assets, that the price of our stock will remain at
or above $2 per share and that we will be able to satisfy the other conditions
required for the sale of additional shares of our common stock under the equity
facility. In such an event, ongoing operations and other elements of our
business may be materially and adversely affected. Sales of additional shares of
common stock under our equity facility will dilute existing stockholders. Working capital At September 30, 2000, our working capital, defined as current assets
less current liabilities, decreased $12,102,000 to $1,942,000 from $14,044,000
at December 31, 1999. This is largely a result of an increase in cash used in
operating activities and a reduction in accounts receivable partly offset by a
reduction in short term borrowings. Excluding the impact of deferred product and support revenue of
$13,260,000, at September 30, 2000 our working capital was $15,202,000. Deferred
product and service revenue reflects a delay in recognition of revenue in
accordance with contractual agreements and requires minimal future monetary
resources of Centura. Our capital requirements also may be affected by
acquisitions of businesses, products and technologies that are complementary to
our business, which we may consider from time to time. We regularly evaluate
such opportunities. Any such transaction, if consummated, may further reduce our
working capital or require the issuance of our common stock. Foreign currency forward contracts As part of a program to reduce the financial exposure arising from
foreign denominated monetary assets and liabilities, at September 30, 2000 we
had $4,890,000 in unsecured foreign currency forward contracts which were
denominated in four European currencies: German Deutschemarks, British Pounds
Sterling, Dutch Guilders and Italian Lire, as well as Australian Dollars and
Mexican Pesos. Debt financing In February 2000, we amended our $5,000,000 asset-based loan facility.
Under this amended agreement, we may borrow up to $5,000,000, collateralized by
our accounts receivable, combined with a $500,000 capital equipment facility.
The loan balance is limited to the lower of $5,000,000, or 85% of our eligible
receivables derived from customers located in the United States and the United
Kingdom, plus 25% of our eligible receivables derived from approved customers
located outside the United States and the United Kingdom. The interest rate is
2.0% above the Bank of America Reference Rate, with provisions for a reduced
interest rate if we achieve certain financial covenants. This agreement matures
at the end of January 2002, at which time we have the option to renew the
agreement for an additional one-year term. If we choose to terminate this
agreement prior to January 2002, we will incur an early termination fee of
$50,000. In consideration for services rendered in relation to securing this debt
financing line, the placement agent, Rochon Capital Group, Ltd received warrants
to purchase 22,535 shares of our common stock at an exercise price of $7.9875
per share. These warrants were valued at $155,000 using a risk free rate of
6.77%, a volatility factor of 90% and assuming no payment of dividends. These
warrants expire in February 2005. The warrant valuation of $155,000, along with
placement agent fees of $100,000, are included on the balance sheet in short
term borrowings, and are being amortized to interest expense over the term of
the loan facility. At September 30, 2000, we had drawn $1,520,000 on the loan facility and were
carrying deferred costs associated with obtaining the debt financing of
$170,000. We were paying an interest rate of 2.0% above the Bank of America
Reference Rate of 9.5% on the facility at September 30, 2000. Equity financing In September 2000, we entered into an equity facility agreement with
an institutional investor, MAJJES Limited (the "Investor"), under which we may
require the Investor to purchase up to $100 million of our shares of common
stock over a three-year period, and the Investor may, at its sole option,
purchase up to an additional $20 million of our shares of common stock. We may
draw down this incremental capital at our own discretion, subject to equity
market conditions and the terms of the underlying agreement. During a ten (10) trading day purchase period we may require the Investor
to purchase between $1,000,000 and $20,000,000 of our shares of common stock.
The number of shares issued is determined by dividing the minimum dollar amount
of our shares of common stock, which we require the Investor to purchase in the
purchase period, by the applicable purchase price. The purchase price is
calculated at 96% of the volume weighted average price per share of common stock
of the five (5) trading days, with the lowest daily volume weighted average
price per share ("VWAP") during the purchase period. We will set a minimum
purchase price at our sole discretion at the beginning of the purchase period,
provided that the minimum price may not be less than $2.00 per share. If the volume weighted average price per share of the common stock is
below the set minimum purchase price for five (5) consecutive trading days
during a purchase period, the Investor is not obligated to purchase any shares
during the purchase period. If during any purchase period we issue shares of common stock (other than
shares issued under the equity facility agreement or upon exercise of employee
stock options or warrants then outstanding, or upon conversion of preferred
stock then outstanding), the Investor may in its sole discretion elect to
purchase the same number of shares so issued and at the same price and on the
same terms, or purchase no shares during the purchase period Under the terms of the equity facility agreement, the Investor has the
right to purchase up to 434,783 shares of our common stock at an exercise price
of $4.60 per share at any time over a three-year period, which began in
September 2000. This purchase option was valued at $1,101,000 using a risk free
rate of 6.05%, a volatility factor of 90% and assuming no payment of dividends.
Both the number of shares underlying the option and the exercise price are
subject to adjustment under the terms of the equity facility agreement to
prevent dilution. The purchase option valuation of $1,101,000 is included on the
balance sheet under "Other assets". In consideration for services rendered in relation to securing our equity
facility with the Investor, the placement agent, Rochon Capital Group, Ltd,
received fully exercisable warrants to purchase 216,497 shares of our common
stock at an exercise price of $5.0809 per share. These warrants were valued at
$603,000 using a risk free rate of 5.97%, a volatility factor of 90% and
assuming no payment of dividends. These warrants expire in September 2005. The
warrant valuation of $603,000, along with placement agent fees of $765,000, are
included on the balance sheet under "Other assets". As and when incremental capital is drawn down under the terms of the
equity facility agreement we will reclassify the costs associated with the
equity financing from "Other assets" to "Additional paid in capital", on a
dollar for dollar basis with the amount of incremental capital drawn. As of
September 30, 2000 there is a total of $2,500,000 costs associated with the
equity financing included in "Other assets". If at termination of the agreement
the incremental capital drawn is less than the accumulated costs associated with
this equity facility line, then the residual costs remaining in "Other assets"
will be charged to expenses. At September 30, 2000 we had not drawn down any incremental capital under
the terms of the equity facility agreement. Recent Accounting Pronouncements: In March 2000, the Financial Standards Board issued Interpretation No.
44, or FIN 44, "Accounting for Certain Transactions involving Stock Compensation
an interpretation of APB Opinion No. 25". FIN 44 clarifies the application of
Opinion 25 for (a) the definition of employee for purposes of applying Opinion
25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequences of various modifications
to the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. We have
adopted FIN 44 effective July 1, 2000. The adoption of the provisions of FIN 44
has not had a material impact on our financial position and results of
operations. In December 1999, the Securities and Exchange Commission, or SEC, issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements", or SAB 101. SAB 101 provides guidance for revenue recognition under
certain circumstances. In June 2000, the SEC issued SAB No. 101B to defer the
effective date of implementation of SAB 101 until the fourth quarter of fiscal
2000. In October 2000, the SEC issued Frequently Asked Questions about SAB 101.
We are currently reviewing the effect of SAB 101 on our consolidated results of
operations, financial position and cash flows. In June 1998, the Financial Accounting Standards Board, or FASB, issued FAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", as
amended in June 2000 by FAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", which requires the recognition of
all derivatives as assets or liabilities on the balance sheet and measurement of
those instruments at fair value. Changes in fair value of derivatives are
recorded in earnings or other comprehensive income depending upon the intended
use of the derivative and the resulting designation. The effective date of this
statement has been delayed to fiscal years beginning after June 15, 2000. We are
currently reviewing the impact of adoption of this statement on our consolidated
results of operations, financial position and cash flows. Factors That May Affect Future Results: We have experienced in the past, and expect in the future to continue to
experience, significant fluctuations in quarterly operating results. We have at
times recognized a substantial portion of our net revenues in the last month or
last few weeks of a quarter. We generally ship products as orders are received
and, therefore, have little or no backlog. As a result, quarterly sales and
operating results generally depend on a number of factors that are difficult to
forecast, including, among others, the volume and timing of and ability to
fulfill orders received within the quarter. Operating results also may fluctuate due to the following factors: As a result, we believe that period-to-period comparisons of our results of
operations are not necessarily meaningful and should not be relied upon as any
indication of future performance. In addition, because our 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 and ability to achieve anticipated revenue levels can cause significant
variations in operating results from quarter to quarter. We may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in sales of our products in
relation to our expectations could have an immediate adverse impact on our
business, operating results and financial condition. In addition, we currently
intend to realign our business so that the emphasis is on growing our mobile
enterprise and embedded device software solutions. This market is in its infancy
and may be slower to develop than we expect and to the extent that such expenses
proceed or are not subsequently followed by increased net revenues, our
business, operating results and financial condition could be materially and
adversely affected. In the future, we 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 we will be able to
effectively complete or integrate acquisitions, and failure to do so could have
a material adverse effect on our operating results. At this time, we have no
understanding or agreement with any other entity regarding any potential
acquisition or combination, the consummation of which is probable. In addition, our quarterly operating results will depend on a number of
other factors that are difficult to forecast, including, but not limited to the
following risk factors. Fluctuations in our quarterly and annual results may
adversely affect our stock price. Our quarterly and annual operating results have fluctuated significantly
in the past and may continue to do so in the future. We have reported losses for
the first three-quarters of 2000, and we expect losses to continue for the rest
of fiscal 2000 and into fiscal 2001. On an annual basis, we reported a loss of
$3.2 million in 1999, a profit of $2.1 million in 1998 and a loss of $0.6
million for 1997. Our future operating results may be below the expectations of
public market analysts or investors. We also 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 and consequently may not be able to adjust
spending in a timely manner to compensate for the shortfalls. Accordingly, any
significant shortfall in sales of our products or services in relation to our
expectations or those of analysts or investors, could have an immediate adverse
impact on the price of our common stock. A number of factors are likely to cause variations in our
quarterly and annual results. From time to time, we or our competitors may
announce new products, product versions, capabilities or technologies that have
the potential to replace or shorten the life cycles of our existing products.
The announcement of currently planned or other new products may also cause
customers to delay their purchasing decisions in anticipation of such products.
We may therefore occasionally experience a reduction in demand for our existing
products and decreased sales. In addition, our revenue recognition in some cases is
dependent upon the business activities of our customers and the timely and
accurate reporting of their activities to us, which makes predictability of the
related revenue extremely uncertain. For example, many of our product licensing
arrangements are subject to revenue recognition on a per-unit-deployed basis
including cases where our deferred obligation to such customers is gradually
extinguished. Delays in the introduction or availability of new hardware and
software products from third parties may also negatively affect sales of our
products. Seasonal factors, including year and quarter end purchasing and the timing of
marketing activities, such as industry conventions and tradeshows, may cause our
operating results to fluctuate. Although we have operated historically with
little or no backlog of traditional boxed product shipments, we have experienced
a seasonal pattern of product revenue, contributing to variation in quarterly
worldwide product revenues and operating results. We have generally realized
lower revenues in the first quarter as compared with the immediately preceding
fourth quarter of any given year and lower European revenues in the third
quarter as compared to the rest of the year. We have also experienced a pattern
of recording a substantial portion of our 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. Our 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. Volatility in our stock price may limit our ability to draw down incremental
capital under our equity financing arrangement. In September 2000, we entered into an equity facility agreement with
an institutional investor, MAJJES Limited (the "Investor"), under which we may
require the Investor to purchase up to $100 million of our shares of common
stock over a three-year period; and the Investor may, at its sole option,
purchase up to an additional $20 million of our shares of common stock. We may
draw down this incremental capital at our own discretion, subject to equity
market conditions and the terms of the underlying agreement. During a ten (10) trading day purchase period we may require the Investor
to purchase between $1,000,000 and $20,000,000 of our shares of common stock.
The number of shares issued is determined by dividing the minimum dollar amount
of our shares of common stock, which we require the Investor to purchase in the
purchase period, by the applicable purchase price. The purchase price is
calculated at 96% of the volume weighted average price per share of common stock
of the five (5) trading days, with the lowest daily volume weighted average
price per share ("VWAP") during the purchase period. We will set a minimum
purchase price at our sole discretion at the beginning of the purchase period,
provided that the minimum price may not be less than $2.00 per share. If the
VWAP of our common stock is below the minimum purchase price for five (5)
consecutive trading days during a purchase period, the Investor is not obligated
to purchase any shares during the purchase period. Our inability to obtain additional financing on favorable terms will harm
our ability to grow our business and may require us to scale back operations in
the future. Under present circumstances, our existing cash balances and cash
equivalents are insufficient to meet operating and capital requirements beyond
March 31, 2001. To improve our cash flow, we have begun to implement a
restructuring program designed to help bring our costs in line with our current
and anticipated revenue levels. We have also begun efforts to sell selected
products lines and associated assets. We have available an equity facility agreement with an institutional
investor, MAJJES Limited (the "Investor"), under which we may require the
Investor to purchase up to $100 million of our shares of common stock over a
three-year period, and the Investor may, at its sole option, purchase up to an
additional $20 million of our shares of common stock. We may draw down this
incremental capital at our own discretion, subject to equity market conditions
and the terms of the underlying agreement. We believe that, with the operating costs savings which we expect to
realize upon complete implementation of our restructuring program, the proceeds
from the sale of selected product lines and associated assets, and the proceeds
from sales of our stock under our equity facility (assuming that the price of
our stock remains at or above $2 per share), our existing cash balances will be
sufficient to meet our currently anticipated needs over the next 12 months.
There can be no assurance, however, that we will be able to sell the selected
products lines and associated assets, that the price of our stock will remain at
or above $2 per share and that we will be able to satisfy the other conditions
required for the sale of additional shares of our common stock under the equity
facility. In such an event, ongoing operations and other elements of our
business may be materially and adversely affected. Sales of additional shares of
common stock under our equity facility will dilute existing stockholders. The lack of timely market delivery of our products and services or the
inability to achieve market acceptance may result in negative publicity and
losses. The markets for our 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. If one or more competitors
introduce products that better address customer needs, we may lose our market
position and our revenues will decrease. We are transitioning our business to focus on the substantial
emerging mobile and embedded markets. In the second quarter of 2000 we released
new versions of our primary products for this market, eSNAPP, RDM,
Velocis Database Server and db.star, and our success depends on the
ability of these products to perform well in various business hardware and
software application environments, and on the ability of our consulting
organization to successfully assist customers in their solutions development.
Any failure to deliver these products and services as scheduled or their failure
to achieve market acceptance as a result of competition, rapid technological
change, failure to timely release new versions or upgrades, failure of such
upgrades to achieve market acceptance or otherwise, could result in negative
publicity and decreased sales. Like many software companies, we have in the past experienced delays in the
development of new products and product versions, which resulted in loss or
delays of product revenues. There can be no assurance that we will not
experience further delays in connection with our current product development or
future development activities. We are also increasingly dependent on the efforts of third-party partners,
including value-added resellers, and software developers, to develop, implement,
service and support our products. These third parties increasingly have
opportunities to select from a very broad range of products from our
competitors, many of whom have greater resources and market acceptance than
ours. In order for our products and services to succeed in the market, we must
actively recruit and sustain relationships with these third parties. Future issuance of our common stock according to option plans, exercise of
warrants or capital draw down on the equity facility will dilute the beneficial
ownership of our existing stockholders, and the sale of such shares could
negatively affect our stock price. As of September 30, 2000, we had outstanding warrants to purchase
1,151,000 shares of our common stock, options to purchase 8,992,000 shares of
our common stock and a purchase option held by the Investor to purchase 435,000
shares of our common stock. Future issuance of such shares of our common stock
according to any of these outstanding securities or pursuant to the equity
facility agreement with the Investor will dilute the beneficial ownership of our
stockholders. In addition, sales, including block sales, of a significant number
of shares of common stock, or the potential for such sales, could adversely
affect the prevailing stock market price for our common stock. This effect may
be particularly significant because these shares represent a large percentage of
our total outstanding stock. Item 3. Quantitative and qualitative disclosure about market risk We are exposed to market risk from changes in foreign
currency exchange rates and interest rates that could impact our results of
operations and financial condition. We manage our exposure to foreign currency exchange risk using derivative
financial instruments (forward contracts) as a risk management tool and not for
speculative or trading purposes. We use these foreign exchange contracts to
reduce significant exposure to the risk that the eventual net cash flows
resulting largely from the sale of products and services to non-U.S. customers
will be adversely affected by changes in exchange rates. These instruments allow
us to reduce our overall exposure to exchange rates as the gains and losses on
the contracts offset the losses and gains on the assets, liabilities and assets
being hedged. Annual gains and losses in the future may differ materially from this
analysis, however, based on the changes in the timing and amount of foreign
currency exchange rate movements and our actual exposures and hedges. At September 30, 2000, we had a total of $4,890,000 in 30-day forward
contracts. The US dollar equivalent balance at September 30, 2000 for each of
the currencies held was as follows: German Deutschemarks ($1,179,000), British
Pounds Sterling ($1,850,000), Dutch Guilders ($239,000), Italian Lire
($279,000), Australian Dollars ($329,000) and Mexican Pesos ($1,014,000). The
carrying value of these financial instruments approximates their respective fair
values. While we hedge certain foreign currency transactions, the decline in value of
non-U.S. dollar currencies may adversely impact our ability to contract for
sales in U.S. dollars, and our products and services may become more expensive
to purchase in U.S. dollars for local customers doing business in the countries
of the affected currencies. Our international business is also subject to risks customarily encountered
in foreign operations, including changes in a country or region's political or
economic conditions, trade protection measures, import or export licensing
requirements, unexpected changes in regulatory requirements and natural
disasters. We are subject to interest rate risk on our investment portfolio. However,
our portfolio consisted of only cash and cash equivalents at September 30, 2000,
and thus our interest rate risk was immaterial. We are further subject to interest rate risk on our asset-based loan
facility; however, we believe that the adverse movements of interest rates would
not have a material effect on our consolidated financial position, results of
operations or cash flows. PART II OTHER INFORMATION Item 1. Legal proceedings As of September 30, 2000, to the best of our knowledge there
were no pending actions, potential actions, claims or proceedings against us
that could reasonably be expected to result in damages to us which would have a
material adverse effect on our business, results of operations or financial
condition. We exist 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 us, our officers and directors, and as such no
estimate is made in our financial statements for such unknown claims or
liabilities. Item 2. Changes in securities and use of proceeds Not applicable Item 3. Defaults in senior securities Not applicable Item 4. Submission of matters to a vote of security holders Not applicable Item 5. Other information Not applicable Item 6. Exhibits and reports on Form 8-K 27.1 Financial data schedule Current report on Form 8-K, filed on September 19, 2000 reported that we had
entered into an equity facility agreement. 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.
November 14, 2000
NONE
COMMON STOCK, $.01 PAR VALUE PER SHARE
FORM 10-Q for the Quarter Ended September 30, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements and Supplementary Data
Condensed Consolidated Balance Sheets at September 30, 2000 and
December 31, 1999
Condensed Consolidated Statements of Operations for the
three and nine months ended September 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 2000 and 1999
Notes to condensed consolidated financial statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
September 30, December 31,
2000 1999
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents........................ $11,026 $20,614
Accounts receivable, less allowances
of $1,292 and $1,209........................... 9,751 14,394
Other current assets............................. 4,597 4,970
------------ ------------
Total current assets........................... 25,374 39,978
Property and equipment, net......................... 4,612 3,541
Capitalized software, net........................... 2,031 1,035
Goodwill, net....................................... 2,158 2,694
Other intangible assets, net........................ 3,000 3,686
Other assets........................................ 3,047 546
------------ ------------
Total assets................................... $40,222 $51,480
============ ============
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations......... $456 $430
Accounts payable................................. 3,699 2,782
Accrued compensation and related expenses........ 1,699 1,759
Short-term borrowings............................ 1,350 3,302
Other accrued liabilities........................ 2,968 3,738
Deferred revenue................................. 13,260 13,923
------------ ------------
Total current liabilities...................... 23,432 25,934
Other long-term liabilities......................... 134 501
------------ ------------
23,566 26,435
------------ ------------
Mandatorily redeemable convertible preferred
stock............................................ -- 10,360
------------ ------------
Stockholders' Equity:
Common stock..................................... 428 375
Additional paid-in capital....................... 111,919 95,978
Accumulated other comprehensive loss............. (321) (452)
Accumulated deficit.............................. (95,370) (81,216)
------------ ------------
Total stockholders' equity .................... 16,656 14,685
------------ ------------
Total liabilities and stockholders' equity .... $40,222 $51,480
============ ============
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ----------
Net revenues:
Product............................. $2,284 $7,823 $12,124 $20,447
Service............................. 5,189 5,949 17,902 16,605
--------- --------- --------- ----------
Net revenues...................... 7,473 13,772 30,026 37,052
--------- --------- --------- ----------
Cost of revenues:
Product............................. 695 673 1,828 2,634
Service............................. 930 1,290 2,776 3,252
Amortization of acquired technology. 133 134 400 179
--------- --------- --------- ----------
Cost of revenues.................. 1,758 2,097 5,004 6,065
--------- --------- --------- ----------
Gross profit...................... 5,715 11,675 25,022 30,987
--------- --------- --------- ----------
Operating expenses:
Sales and marketing................. 8,433 6,955 23,948 20,072
Engineering and product development. 2,751 2,327 6,655 6,682
General and administrative.......... 2,380 1,808 7,445 6,104
Amortization of goodwill and
workforce intangible.............. 229 199 938 260
--------- --------- --------- ----------
Total operating expenses.......... 13,793 11,289 38,986 33,118
--------- --------- --------- ----------
Operating income (loss).......... (8,078) 386 (13,964) (2,131)
Other income (expense):
Interest income..................... 349 33 894 142
Interest expense.................... (258) (80) (516) (234)
Foreign currency gain (loss)........ (259) 154 (364) (302)
--------- --------- --------- ----------
Income (loss) before income taxes...... (8,246) 493 (13,950) (2,525)
Provision for income taxes............. 123 31 204 70
--------- --------- --------- ----------
Net income (loss)...................... ($8,369) $462 ($14,154) ($2,595)
========= ========= ========= ==========
Accretion of mandatorily redeemable
convertible preferred stock to
redemption value..................... -- -- (4,125) --
Mandatorily redeemable convertible
preferred stock dividend............. -- -- (188) --
--------- --------- --------- ----------
Net income (loss) available to common
stockholders......................... ($8,369) $462 ($18,467) ($2,595)
========= ========= ========= ==========
Net loss per share - basic and diluted. ($0.20) $0.01 ($0.46) ($0.08)
Basic and diluted weighted average
common shares........................ 42,575 35,413 40,711 32,045
========= ========= ========= ==========
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(IN THOUSANDS)
Nine Months Ended
September 30,
---------------------
2000 1999
---------- ----------
Cash flows from operating activities:
Net loss................................................ ($14,154) ($2,595)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization......................... 3,552 2,817
Provision for (reduction in) doubtful accounts,
sales returns and allowances......................... 337 (211)
Issuance of stock options for services................ 239 --
Changes in assets and liabilities:
Accounts receivable................................... 4,408 808
Other current assets.................................. (390) 633
Other assets.......................................... 5 181
Accounts payable and accrued liabilities.............. 452 (777)
Deferred revenue...................................... (663) (1,498)
---------- ----------
Net cash used in operating activities............... (6,214) (642)
---------- ----------
Cash flows from investing activities:
Net cash acquired on acquisition........................ -- 23
Maturities of investments............................... -- 60
Acquisition of property and equipment................... (2,669) (726)
Capitalization of software costs........................ (1,671) (308)
Purchase of other intangibles........................... (155) (52)
Proceeds from payment on note receivable................ 513 --
---------- ----------
Net cash used in investing activities............... (3,982) (1,003)
---------- ----------
Cash flows from financing activities:
Repayment of short-term borrowings, net................. (1,952) (257)
Repayment of capital lease obligation................... (363) (303)
Placement agent fees for equity finance line............ (796) --
Proceeds from issuance of common stock, net............. 3,588 --
---------- ----------
Net cash provided by (used in)financing activities.. 477 (560)
---------- ----------
Effect of exchange rate changes on cash and cash
equivalents.............................................. 131 (27)
---------- ----------
Net decrease in cash and cash equivalents................. (9,588) (2,232)
Cash and cash equivalents at beginning of period.......... 20,614 6,414
---------- ----------
Cash and cash equivalents at end of period................ $11,026 $4,182
========== ==========
Supplemental disclosure of non cash financing activities:
Issuance of common stock in connection with
acquisition.......................................... $ -- $5,980
========== ==========
Accretion of mandatorily redeemable convertible
preferred stock to redemption value................. $4,125 $ --
========== ==========
Mandatorily redeemable convertible preferred
stock dividend...................................... $188 $ --
========== ==========
Conversion of operating lease to capital lease.......... $ -- $1,300
========== ==========
Conversion of mandatorily redeemable convertible
preferred stock to common stock..................... $14,673 $ --
========== ==========
Issuance of stock warrants and purchase option in
connection with equity line........................ $1,704 $ --
========== ==========
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30,
-------------------
2000 1999
--------- ---------
(in thousands)
Antidilutive potential shares of
common stock at period end:
Warrants............................ 1,151 2,686
Options............................. 8,992 8,218
Equity financing purchase options... 435 --
--------- ---------
10,578 10,904
========= =========
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands)
Net loss............................ ($8,369) $462 ($14,154) ($2,595)
Other comprehensive gain (loss)..... 61 (194) 131 (27)
--------- --------- --------- ---------
Total comprehensive gain (loss)..... ($8,308) $268 ($14,023) ($2,622)
========= ========= ========= =========
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands)
Embedded databases.................... $1,210 $5,855 $8,103 $15,153
Application development environment... 744 1,203 3,022 3,747
Other tools and connectivity software. 330 765 999 1,547
--------- --------- --------- ---------
Total net product revenue........... $2,284 $7,823 $12,124 $20,447
========= ========= ========= =========
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands)
Balance at beginning of period........ $ -- $ -- $10,360 $ --
Dividend.............................. -- -- 188 --
Accretion to redemption value......... -- -- 4,125 --
Conversion to shares of common stock.. -- -- (14,673) --
--------- --------- --------- ---------
$ -- $ -- $ -- $ --
========= ========= ========= =========
Three Months Ended September 30,
---------------------------------------
2000 1999
------------------- -------------------
in % of in % of
thousands) total thousands) total
Embedded databases................... $1,210 53% $5,855 75%
Application development environment.. 744 33% 1,203 15%
Other tools and connectivity software 330 14% 765 10%
--------- --------- --------- ---------
Total net product revenue.......... $2,284 100% $7,823 100%
========= ========= ========= =========
Nine Months Ended September 30,
---------------------------------------
2000 1999
------------------- -------------------
in % of in % of
thousands) total thousands) total
Embedded databases................... $8,103 67% $15,153 74%
Application development environment.. 3,022 25% 3,747 18%
Other tools and connectivity software 999 8% 1,547 8%
--------- --------- --------- ---------
Total net product revenue.......... $12,124 100% $20,447 100%
========= ========= ========= =========
Three Months Ended September 30,
---------------------------------------
2000 1999
------------------- -------------------
in % of in % of
thousands) total thousands) total
North America........................ $3,160 42% $7,120 52%
Europe............................... 3,522 47% 5,338 39%
Rest of the world.................... 791 11% 1,314 10%
--------- --------- --------- ---------
Total net revenues................. $7,473 100% $13,772 100%
========= ========= ========= =========
Nine Months Ended September 30,
---------------------------------------
2000 1999
------------------- -------------------
in % of in % of
thousands) total thousands) total
North America........................ $12,461 42% $16,924 46%
Europe............................... 14,250 47% 16,523 44%
Rest of the world.................... 3,315 11% 3,605 10%
--------- --------- --------- ---------
Total net revenues................. $30,026 100% $37,052 100%
========= ========= ========= =========
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands)
Cost of production.................... $439 $449 $1,250 $1,791
Amortization of capitalized software.. 256 224 578 843
--------- --------- --------- ---------
Total cost of product revenues...... $695 $673 $1,828 $2,634
========= ========= ========= =========
As a percentage of net product
revenues............................ 30% 9% 15% 13%
========= ========= ========= =========
As a percentage of net product
revenues, excluding amortization
of capitalized software............. 19% 6% 10% 9%
========= ========= ========= =========
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands)
Total cost of service revenues........ $930 $1,290 $2,776 $3,252
========= ========= ========= =========
As a percentage of net service
revenues............................ 18% 22% 16% 20%
========= ========= ========= =========
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands)
Total sales and marketing expenses.... $8,443 $6,955 $23,948 $20,072
========= ========= ========= =========
As a percentage of total net
revenues............................ 113% 51% 80% 54%
========= ========= ========= =========
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands)
Gross engineering and product
development costs................... $2,784 $2,380 $8,326 $6,991
Capitalized software
development costs................... (33) (53) (1,671) (309)
--------- --------- --------- ---------
Net engineering and product
development costs................... $2,751 $2,327 $6,655 $6,682
========= ========= ========= =========
As a percentage of net revenues:
Gross engineering and product
development costs................... 37% 17% 28% 19%
========= ========= ========= =========
Net engineering and product
development costs................... 37% 17% 22% 18%
========= ========= ========= =========
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands)
Total general and administrative
expenses............................ $2,380 $1,808 $7,445 $6,104
========= ========= ========= =========
As a percentage of total net
revenues............................ 32% 13% 25% 16%
========= ========= ========= =========
Nine Months Ended
September 30,
-------------------
2000 1999
--------- ---------
(in thousands)
Cash and cash equivalents at
beginning of period................. $20,614 $6,414
Net cash (used in) provided by:
Operating activites................. (6,214) (642)
Investing activities................ (3,982) (1,003)
Financing activities................ 477 (560)
Effect of exchange rate changes
on cash and cash equivalents......... 131 (27)
--------- ---------
Cash and cash equivalents at
end of period....................... $11,026 $4,182
========= =========
CENTURA SOFTWARE CORPORATION
(Registrant)
By:
/s/ Richard Lucien
Richard Lucien
Senior Vice President, Finance and
Chief Financial Officer
(Principal Finance and Accounting Officer)
|