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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
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 0-25472
VIASOFT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2892506
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3033 NORTH 44TH STREET, PHOENIX, ARIZONA 85018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (602) 952-0050
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $0.001 par value per share
Preferred Share Purchase Rights
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At July 31, 1998, the aggregate market value of common stock held by
non-affiliates of the Registrant was approximately $244,734,090 based upon the
closing sale price of the common stock on such date, as reported on The Nasdaq
Stock Market.
At July 31, 1998, the number of shares of common stock outstanding was
19,326,796.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1998 Annual Meeting of
Stockholders are incorporated by reference in Part III.
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VIASOFT, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 1998
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business 1
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 20
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters 20
Item 6. Selected Consolidated Financial Data 21
Item 7. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations 25
Item 8. Consolidated Financial Statements and Supplementary Data 33
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures 33
PART III
Item 10. Directors and Executive Officers of the Registrant 33
Item 11. Executive Compensation 34
Item 12. Security Ownership of Certain Beneficial Owners and Management 34
Item 13. Certain Relationships and Related Transactions 34
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 34
SIGNATURES 37
FINANCIAL STATEMENTS F-1
Viasoft(R), Analytical Engine(TM), Application Knowledge Repository(TM),
Existing Systems Workbench(R), ESW(R), VIA/Insight(R), Visual Recap(TM),
VIA/SmartEdit(R), VIA/SmartTest(R), VIA/Renaissance(TM), VIA/SmartDoc(R),
VIA/Alliance(R), VIA/ValidDate(R), VIA/AutoChange(TM), VIA/AutoTest(TM),
VIA/SmartQuest(TM), OnMark(TM), OnMark 2000(TM), Visual Process(TM),
ChangeWorks(TM), Viasoft's Insourcing(R), Viasoft's Enterprise 2000(R),
Viasoft's Estimate(TM), Viasoft's FastPath 2000SM, Viasoft's Impact 2000SM,
Viasoft's Plan 2000SM, Bridge(TM), Viasoft's Legacy Transitions SM, Independent
Verification and ValidationSM, IV & VSM and Rochade(TM) are trademarks and
service marks of the Company. This report also includes trade names, trademarks
and references to intellectual property owned by other companies.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Viasoft, Inc., a Delaware corporation ("Viasoft" or the "Company"), provides
business solutions that help organizations worldwide understand, manage, evolve,
reuse, transition and modernize mission-critical applications that support their
fundamental business processes. These business solutions are provided through
integrated software products and specialized professional consulting services.
Business and governmental organizations rely on large-scale computer
applications to help manage their businesses. These applications, many of which
are mission-critical, contain the core knowledge and processes required to run
the major operations of these organizations. Enormous investments have been made
in these applications and organizations need to modernize and extend their
existing applications to leverage that investment and address changing
information requirements, as well as migrate to new computer architectures and
languages and integrate into the Web.
The overall strategy of the Company is to provide products and consulting
services to support the application modernization needs of large organizations
worldwide. Over the years, Viasoft has come to thoroughly understand mission
critical applications: how they are put together, and how to extract the
business value from them. The Company's business solutions are designed to
assist its customers in cost effectively leveraging their investment and the
business value within their existing systems by managing applications and data,
adding proven, repeatable processes to their development and maintenance
initiatives, improving the quality of the applications and assisting in
specialized and complex redevelopment initiatives. With the Existing Systems
Workbench, a comprehensive, integrated toolset that enables management of
existing systems, and the Rochade repository product line, together with the
know-how gained from considerable experience working with mission critical
applications, the Company has also established a solid base on which to build
additional application modernization solutions in the future.
Viasoft was founded in 1983 under the name Software Renovation Technology as
a California corporation. In 1986, the Company changed its name to Viasoft, Inc.
and reincorporated in Delaware. The Company's executive offices are located at
3033 North 44th Street, Phoenix, Arizona 85018, and its telephone number is
(602) 952-0050.
VIASOFT PRODUCTS
Viasoft offers a range of products that support its application
modernization strategy. These products enable organizations to understand,
manage, evolve, reuse, transition and modernize their existing mission-critical
enterprise applications. The Company's three primary product lines include the
Existing Systems Workbench, a comprehensive, integrated toolset that enables the
management of existing systems, Rochade, an enterprise repository environment,
and OnMark 2000, a suite of tools for the desktop and client/server year 2000
century date conversion.
THE EXISTING SYSTEMS WORKBENCH
The Existing Systems Workbench ("ESW") is an integrated suite of software
tools built around two core technologies, the Analytical Engine and the
Application Knowledge Repository. ESW products are available as a complete suite
or as individual products that address each phase of the existing applications
maintenance and redevelopment life-cycle.
The Analytical Engine extracts and builds comprehensive information on
programs and applications, including overall structure, logic, data and control
flow, data definitions and usage, cross references, interface information,
standards exceptions, system metrics and business functions. This information is
automatically stored in the Application Knowledge Repository, which makes the
information immediately available for use with all ESW
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products. The Analytical Engine and Application Knowledge Repository support an
integrated suite of products with a common look and feel that enables management
of multi-task projects without interruption and eliminates the need to switch
between different vendors' products for separate tasks. The Analytical Engine
and Application Knowledge Repository technology were designed to promote
integration and extensibility.
Each component product of ESW is described briefly below:
VIA/ALLIANCE: APPLICATION UNDERSTANDING. VIA/Alliance is designed to
determine the scope of an application and the number of changes required to
deliver a specified enhancement by analyzing different components of an
application and revealing the interrelationships between these components.
VIA/Alliance is also used to plan and estimate maintenance, enhancement and
redevelopment projects and to facilitate projects involving file or database
conversions, enabling and populating repositories or integrating new
applications and packaged software.
VISUAL RECAP: PORTFOLIO ANALYSIS AND REPORTING. Visual Recap is the decision
support component of ESW. Visual Recap allows information systems managers to
measure and gauge objectively the quality, complexity and business value of
applications and programs by providing industry-accepted measurements and
standards, including automation of the counting of function points.
VIA/INSIGHT: PROGRAM UNDERSTANDING. VIA/Insight automates the process of
analyzing and understanding complex COBOL logic. VIA/Insight is designed to
enable users to automate routine maintenance tasks and allow programmers to
assess the impact of changes, estimate the time changes will take and determine
the level of difficulty involved in making proposed changes.
VIA/SMARTEDIT: CODE CHANGE. VIA/SmartEdit is designed to provide automated,
COBOL-intelligent change facilities and automatic syntax checking in the MVS
operating system's editing environment. VIA/SmartEdit automatically identifies
program components directly and indirectly related to a proposed program change.
VIA/SMARTTEST: CODE TESTING. VIA/SmartTest is designed to promote speed and
accuracy in code testing and debugging. VIA/SmartTest is designed to analyze a
program's structure, data relationships and execution paths and reveals both the
locations and the underlying causes of bugs and structural problems in program
code. VIA/SmartTest is also designed to allow programmers to monitor and change
program logic, data values and memory interactively from within the test
session, and automatically apply COBOL changes to the source code without
recompiling.
VIA/SMARTDOC: PROGRAM DOCUMENTATION. VIA/SmartDoc is designed to synthesize
comprehensive program information directly from the source code and organize it
into convenient reports, graphical charts and listings. VIA/SmartDoc provides
advanced source listings, program structure charts, enhanced data
cross-reference reports, control flow and data flow information and a variety of
industry-accepted software metrics concerning complexity, architecture and
software quality.
VIA/RENAISSANCE: PROGRAM RE-ENGINEERING. VIA/Renaissance is designed to
isolate and extract specific business functions from a program such as reports,
calculations, computational variables, input/output definitions and transactions
and generate compilable, executable programs or modules. The results provided by
VIA/Renaissance assist in reuse of existing COBOL code, enabling customers to
build libraries of reusable and shared code for new development, modularization
or redevelopment projects. In addition, re-engineered programs or modules can be
transferred to different platforms as part of a system conversion or
client/server implementation.
Along with the component products of ESW, the Company has developed and
acquired complementary products that are either customized to address
specialized redevelopment initiatives or assist in the ongoing management of
existing systems. These products are described briefly below:
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VIASOFT'S BRIDGE AND CHANGE TOOLS
VIASOFT'S BRIDGE PRODUCTS. Viasoft has bridging technology based on a
windowing technique to support large conversion projects of its customers, such
as the year 2000 and Euro conversions. The primary benefits of bridging include
the protection of data integrity, speed in the conversion process and
preservation of historical data, among others. Viasoft's Bridge 2000 is designed
to automatically translate two-digit date formats in customer data files to the
four-digit formats required by programs that have been converted for year 2000
compliance. Viasoft's Bridge for Euro is a data-converter utility designed to
support dual-currency conversion handling.
CHANGE TOOLS. Viasoft has two product lines of tools designed to analyze and
assess required changes for large conversion projects and automate the process
of making those changes.
VIASOFT'S ESTIMATE. Viasoft's Estimate is a tool for analyzing and assessing
the size of the programming effort required for year 2000 date conversions. The
Estimate product is also capable of analyzing the impact of other programming
projects that require location of specific numerical or other fields. For
example, additional functionality is being added to the product for use in Euro
conversion projects. Estimate for Euro is currently planned to be available by
the end of the calendar year.
VIA/AUTOCHANGE. VIA/AutoChange is an interactive tool that guides the user
through the process of changing large quantities of source code on an automated
basis. VIA/AutoChange allows the user to assign a conversion strategy to each
impacted data item in the conversion set and automatically apply the desired
changes to the source code. VIA/AutoChange also provides audit and reporting
capabilities so the user may monitor the status of program changes that have
been made. The Company is currently developing VIA/AutoChange for Euro, which
will be used in conjunction with Viasoft's Bridge for Euro to address the Euro
currency transition.
VIASOFT'S TESTING AND VALIDATION PRODUCTS
VIA/AUTOTEST. VIA/AutoTest automates the testing process for single
programs, individual applications or an entire enterprise, by capturing business
functions, and automatically creating scripts for playback. VIA/AutoTest assists
the user in monitoring and managing the entire testing process, including
regression, stress, load and performance testing. VIA/AutoTest allows tests to
be scheduled and conducted in unattended mode and provides the ability to share
tests across any number of applications.
VIA/VALIDDATE. VIA/ValidDate tests the manner in which programs will respond
to future dates without altering the operating system. VIA/ValidDate provides an
alternate, running clock that allows the user to monitor run times for programs
with simulated dates. VIA/ValidDate also provides a logging facility, which
enables the user to audit the programs run through the VIA/ValidDate testing.
VIA/SMARTQUEST. The VIA/SmartQuest products are automated fault diagnosis
tools that intercept abends, pinpoint problems and present the failure
information to programmers in a readable format. Each of the VIA/SmartQuest
products, VIA/SmartQuest for CICS and VIA/SmartQuest for Batch, supports the
COBOL, Assembler and PL/I mainframe environments.
VIA/SMARTTEST. The Company also markets VIA/SmartTest, a component of ESW,
as a separate product in its testing and validation solutions.
SERENA TESTING PRODUCTS. To extend its testing capabilities, the Company
entered into a Reseller Agreement with Serena Software International to provide
the following testing functionality: (i) source and version reconciliation
(Concurrent Development Facility); (ii) comparison capabilities for database,
load module and test comparisons (Comparex); (iii) editing capabilities for year
2000 conversions and complex file and data
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management tasks (StarTool); (iv) data-aging capabilities that expedite the
testing process and protect the accuracy of date-related program changes
(StarWarp) and (v) automated tracking of system and application dataset changes
as they occur (Synctrac).
ROCHADE
Rochade is based on an open, enterprise-wide repository software technology
that is designed to help businesses better capture, manage, monitor,
disseminate, reuse and change their information technology for both mainframe
computers and distributed computing environments. Rochade provides a unified,
open method for viewing and sharing information about systems, tools, techniques
and processes across platforms that is easily accessible to a broad range of
users, allowing users to search, query and report on business data as they need
it.
The Company believes that an enterprise-wide repository is necessary to
fully manage cross-application dependencies, plan and execute large-scale
conversion projects, and extend information models to accommodate new
application components, languages and execution environments. Rochade enhances
the Company's repository technology by permitting the storage of greater volumes
of information at the enterprise level. Rochade is designed to allow more
efficient access to, and understanding and management of, customers'
applications and data utilizing a variety of computer languages, operating
systems and non-Viasoft products.
The Company is currently marketing several enhancements to the Rochade
repository technology that the Company believes increase the ease of use and
extend the openness of the repository. These enhancements include EdgeworX Plus,
a fully integrated development environment that builds interactive, Web-enabled
Rochade applications, and the ODBC Driver, which provides open access to
information stored in Rochade by utilizing the SQL language.
Viasoft is continuing to enhance the Rochade repository technology for
integration with Viasoft's ESW product line and professional services solutions.
The Company believes that the Rochade repository provides significant additional
benefits to customers as part of a suite of integrated products and solutions,
compared to repositories offered as standalone products. Viasoft also believes
Rochade permits greater flexibility to create repository information models to
accommodate data warehousing, process management, project tracking and similar
initiatives. As an open enterprise-wide repository, Rochade also provides an
additional foundation in the Company's strategy to develop and market new
integrated products and solutions.
For example, the Company currently expects to release a new product in early
1999 that is designed to assist customers in inventorying, tracking, planning,
analyzing and managing application resources across multi-technology
environments. This enterprise-wide analysis tool will allow customers to view
information about the components in their business systems and the manner in
which such components are interrelated. This product integrates Rochade and ESW
technology and is designed to give customers the ability to examine all of their
applications at the enterprise level to provide valuable information for
managing and modernizing their applications.
ONMARK 2000
OnMark 2000 is an end-to-end solution designed to address each phase of year
2000 conversion for desktop and client/server applications. The OnMark 2000
product suite delivers a solution to address hardware, application and
data-related year 2000 issues. The core product within the OnMark 2000 product
suite, OnMark 2000 Assess, was acquired by the Company through its acquisition
of EraSoft Technologies, Inc. ("EraSoft"). The Company also entered into license
agreements with three software companies for the rights to distribute certain
desktop software tools that complete the Company's OnMark 2000 product line. See
"Product Development -- Acquisitions and Strategic Relationships" and Note 2 of
the Consolidated Financial Statements.
The Company believes that the primary benefits of the OnMark 2000 product
suite are the reduction of time and resources an organization must dedicate to
its desktop and client/server year 2000 century date conversion through the
automated identification of hardware and software that is not year 2000
compliant and the leverage of
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information for reuse by creating an inventory portfolio of all hardware and
software in an organization. Each of the OnMark 2000 products is described
briefly below:
ONMARK 2000 SURVEY. OnMark 2000 Survey performs an automated inventory of
all of the personal computers in an organization's enterprise throughout the
organization's corporate network. Customized year 2000 reports are generated to
assist in measuring year 2000 compliance.
ONMARK 2000 ASSESS. OnMark 2000 Assess is a risk assessment tool that
determines the impact of the year 2000 change on the hardware and software
information obtained with OnMark 2000 Survey. OnMark 2000 Assess is designed to
analyze hardware, software, source code, data files, databases and spreadsheets,
including spreadsheets written in MS-Excel, Lotus 1-2-3 and Quattro Pro, to
determine the year 2000 impact on each personal computer in an organization. The
Assess product shows the data that may require change for the year 2000
conversion and ranks areas of risk by severity level.
ONMARK 2000 WORKBENCHES. The OnMark 2000 Workbenches are interactive
workbenches that assist programmers in analyzing and remediating (i)
spreadsheets written in MS-Excel, (ii) databases, forms, tables, queries, macros
and embedded VBA code in MS-Assess and (iii) client/server applications written
in C/C++, Visual Basic, PowerBuilder and UNIX Shell Scripts.
VIASOFT SERVICES
Historically, the Company's professional services provided processes,
technology and expertise to address complex, large-scale maintenance and
redevelopment requirements of large organizations. Most of these projects have
been related to year 2000 conversion. During the past fiscal year, the Company
focused its efforts in the services business in two areas: (i) completion of a
single, large, fixed price engagement for converting applications for year 2000
compliance, and (ii) performing smaller enablement projects, designed to assist
and train customers to perform the projects in-house, with their own resources.
Larger-scale professional services projects with the Company's customers were
referred to services companies and integrators that have strategic relationships
with the Company. The large, fixed price conversion project was completed in
June 1998. While the Company was disappointed with the financial results of this
two-year project, management considered the project a success because the
project was completed on time and provided a valuable reference account for the
Company's larger-scale service capabilities. In hindsight, management believes
that this limited focus of its services business during fiscal 1998 was
unsuccessful in helping to establish a services business to complement sales of
its software products.
Going forward, management believes that professional consulting services
will be an important component of the Company's application modernization
strategy, as customers will need to establish proven, repeatable processes for
their new development and revitalization efforts. To this end, the Company has
refocused its efforts on the services business and plans to offer a broad range
of solutions. In addition, the Company has made management changes and put an
experienced team in place to consolidate and manage the services organization on
a worldwide basis. Finally, the Company acquired the exclusive rights to market,
sell and enhance a knowledge-driven process management tool, SHL TRANSFORM. See
Note 11 of the Consolidated Financial Statements. Viasoft currently intends to
deliver all of its current and future service solutions within this process
management tool, which will be called Visual Process. See "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations."
The Company's current service solution offerings are briefly described
below:
VIASOFT'S ENTERPRISE 2000
Viasoft's Enterprise 2000 is the umbrella solution offering under which the
Company markets its year 2000 analysis, planning, conversion and testing
solutions. The Company performs these solutions through a
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combination of professional services, its ESW technology and its Bridge and
Change tools. A brief description of these solutions follows:
VIASOFT'S FASTPATH 2000. FastPath 2000 is designed to provide the primary
components of year 2000 century date conversion, including inventory of
components, conversion planning and code changing and testing, on an application
level, rather than an enterprise-wide level. FastPath 2000 allows customers to
begin their year 2000 century date conversion by addressing their most critical
applications, one at a time. Viasoft also provides training through FastPath
2000 to enable customers to perform planning and conversion tasks using internal
resources.
VIASOFT'S YEAR 2000 DESKTOP SOLUTION. The Company has extended its FastPath
2000 methodology to the personal computer environment with its FastPath 2000
Desktop solution. FastPath 2000 Desktop utilizes the OnMark 2000 product suite
to provide the primary components of year 2000 century conversion on an
application level in the personal computer environment.
CHANGEWORKS. ChangeWorks provides companies with an "assembly line" approach
to in-house code remediation and maintenance. ChangeWorks assists customers that
have completed the assessment phase and are ready to begin code conversion by
customizing the change process to work in conjunction with the customer's
existing hardware and infrastructure resources.
VIASOFT'S TESTING AND VALIDATION SOLUTIONS
FASTPATH 2000 TESTING. FastPath 2000 Testing provides testing and validation
for programs that have been changed or impacted by change as a result of year
2000 century date conversion. A repeatable testing process is defined, which
includes test planning, test data generation, script creation, test execution
and test results comparison, customized for the customer's environment. FastPath
Testing is a component of the full FastPath 2000 solution, but is also provided
separately for customers seeking an independent party to plan the testing phase
of year 2000 conversions.
INDEPENDENT VERIFICATION AND VALIDATION. Viasoft's Independent Verification
and Validation ("IV&V") solution assesses the risk of failure for applications
previously modified for the year 2000 conversion. IV&V combines Viasoft's ESW
technology and its testing and validation products with onsite professional
services to provide an evaluation of the conversion and testing activities
performed to date. IV&V provides an independent evaluation of: (i) the
inventory, which verifies that a comprehensive inventory was used during
conversion; (ii) the impact analysis, which identifies the impacted components
for each application and compares such components to the impact analysis created
by the customer's conversion team; (iii) code changes, which reviews the changes
made to source code by the conversion team and identifies errors or
discrepancies; (iv) test plans and validation of test execution, which evaluates
the year 2000 testing program performed by the customer's conversion team and
(v) the implementation plan, which assesses the code migration procedures in
place during the year 2000 conversion project and the plan defined for the
migration of the converted code into production. The purpose of the IV&V
solution is to provide an outside evaluation of the conversion process used,
primarily for audit purposes.
VIASOFT'S INSOURCING
To assist organizations that desire to increase productivity in their
maintenance and redevelopment activities while avoiding the loss of control over
their systems associated with outsourcing, the Company offers a solution known
as Viasoft's Insourcing. Viasoft's Insourcing combines Viasoft's ESW technology
with onsite professional services to enable customers to successfully implement
enhanced, repeatable processes for maintenance and redevelopment of existing
applications. The Company believes that the combination of its expertise,
technology and professional services can free significant existing customer
programming resources for redeployment by increasing productivity and reducing
the costs, time and effort required to maintain existing applications.
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VIASOFT'S LEGACY TRANSITIONS
Many organizations are implementing a transition from exclusive reliance on
mainframe computers to the use of the mainframe together with distributed
computing environments for certain applications. Viasoft offers services and
technology designed to enable organizations to reuse existing mainframe
applications in new computing architectures, including distributed computing
environments, and to integrate existing mainframe applications with these
architectures. The Company believes that use of its technology and services
should improve customers' ability to leverage their existing mainframe
applications by increasing flexibility to integrate mission-critical
applications with new architectures and systems, or by migrating and reusing
existing mainframe code in these new environments.
EDUCATION SERVICES
The Company provides a variety of training services designed to enable
customers to utilize fully the Company's technology solutions. These training
offerings are generally conducted at the customer's site by specialists, and
range from introductory courses in using the Company's products to advanced
techniques courses. The Company also offers customized training for specific
customers and instructs customer personnel to conduct ongoing training of their
information systems staff. Computer-based training is also available for some of
the Company's ESW products.
CUSTOMER SUPPORT
The Company offers maintenance for each of its products, entitling the
customer to receive technical support and advice, including problem resolution
services, installation assistance, error corrections and any product
enhancements released during the maintenance period. Under the Company's
standard license agreements, maintenance is renewable on an annual basis, and is
generally priced at a percentage of the then current list price. While
maintenance is provided without charge for the mainframe products during the
first year, maintenance fees for personal computer products are charged from the
outset of the contract. In addition, the Company provides its personal computer
product customers with the option of purchasing maintenance on a per phone call
basis. While most mainframe customers renew maintenance on an annual basis, a
significant number of PC product customers do not purchase maintenance services
from the Company. See "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations." In the fiscal years ended June
30, 1998, 1997 and 1996, maintenance fees represented approximately 25%, 25% and
33%, respectively, of the Company's total revenues. Maintenance and support
services are provided primarily by telephone from the Company's Phoenix,
Arizona, headquarters and its Westford, Massachusetts office, as well as certain
offices of the Company's international subsidiaries and distributors.
SALES, MARKETING AND DISTRIBUTION
Viasoft markets its products and services principally to Global 5000 and
similarly sized business and governmental organizations worldwide. The Company's
sales efforts are implemented through its domestic and international direct
sales organizations, through a number of foreign independent distributors
located in Europe, the Far East, South Africa and Latin America, and through a
new reseller channel established during fiscal 1998 primarily to sell the OnMark
2000 product line.
DIRECT SALES
The Company sells and supports its products and services in North America
and portions of South America from its Phoenix, Arizona, headquarters and eight
primary field offices in the United States. As of June 30, 1998, the Company had
58 salespersons worldwide, including 32 located at the Company's headquarters
and the United States field offices. These offices cover the territories of the
United States, Canada, Mexico, Central America and certain countries in South
America. Internationally, the Company's subsidiary offices sell directly to
customers primarily in Australia, Austria, Belgium, Canada, France, Germany,
Luxembourg, the Netherlands, New Zealand, Switzerland and the United Kingdom.
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INTERNATIONAL DISTRIBUTORS
Viasoft markets its products to international customers both directly and
through independent distributors. Distributors are authorized by Viasoft to
license the Company's software products to end-users. In addition to its
subsidiary offices, the Company markets Rochade and/or the ESW product line
internationally in 36 countries through 16 independent distributors. To date,
the Company has not offered significant professional services through its
distributors.
ONMARK 2000 RESELLER CHANNEL
Along with the direct marketing of OnMark 2000 products through the
Company's domestic offices and international subsidiaries, the Company
indirectly markets the OnMark 2000 product line worldwide through a new reseller
channel established during fiscal 1998, which includes master resellers,
integrators and dealers. Master resellers are authorized by Viasoft to license
the Company's OnMark 2000 products to dealers and end-users and, depending on
the nature of the reseller's business, some are limited to a specific geographic
area and some are worldwide. Integrators and dealers are authorized by Viasoft
to license the Company's OnMark 2000 products to end-users. Integrators are
typically limited to specific territories and dealers are typically assigned for
administrative purposes to a particular master reseller. As of June 30, 1998,
the Company had entered into agreements with four master resellers, 37
integrators and 15 dealers.
COMPETITION
PRODUCTS
The market for the Company's software products is intensely competitive and
is characterized by rapid change in technology and user needs and the frequent
introduction of new products. Most of the Company's competitors and many
potential competitors have substantially greater financial, marketing and
technology resources than the Company. Major competitors for software product
license sales include Computer Associates International, Inc., Compuware
Corporation, Micro Focus Group Public Limited Company, Network Associates, Inc.,
Platinum Technology, Inc. and WRQ, Inc. The Company believes that the principal
factors affecting competition in its product markets include compatibility with
customers' platforms and languages, product functionality, quality of support,
product performance and reliability, ability to respond to changing customer
needs, ease of use and price.
CONSULTING SERVICES
The market for the types of professional services provided by the Company is
also highly competitive. Major competitors of the Company's services business
are primarily the consulting organizations of the Big Five accounting firms, as
well as Computer Horizons Corp., Data Dimensions Inc., Electronic Data Systems
Corporation, IBM's Global Services, Keane, Inc., and Platinum Technology, Inc.
Other system integrators and application outsourcers also compete to perform
professional services competitive to Viasoft's solutions and position themselves
as long-term business partners, able to lower an organization's staff and
maintenance costs and improve control of information systems functions with
well-established work practices. Many smaller local or regional organizations
also compete in the services market, which is fragmented and characterized by
low barriers to entry. The Company's principal competitors and many potential
competitors have significantly greater financial, marketing, recruiting and
technological resources than the Company. The principal competitive factors
affecting the market for the Company's professional services include
responsiveness to customer needs, availability and productivity of personnel,
the ability to demonstrate achievement of results, depth of technical skills,
price and reputation.
THE YEAR 2000 MARKET
With the growth of the year 2000 market in the last several years,
significant competition has emerged and is expected to continue through the year
2000. The consulting services segment of the market is characterized by low
barriers to entry. The principal competitive factors affecting this market
include functionality, performance and
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reliability of technology and methodology, availability and productivity of
personnel, the ability to demonstrate achievement of results, depth of
experience in year 2000 projects, price and reputation. There are generally four
categories of competitors for Viasoft in the year 2000 market, each focusing on
a different market segment.
SOFTWARE VENDORS. Software vendors provide tools targeted for the year 2000
market. Many of these products focus on a particular phase of a year 2000
project, such as inventory and assessment, scanning, parsing, conversion,
testing and documentation. Competitive factors include the tool's compatibility
with customers' platforms and languages, the vendor's ability to deliver
training and ongoing support during the customers' implementation of the tools,
and the value of the tool to an organization beyond the year 2000. Primary
competitors in this category include Computer Associates International, Inc.,
Compuware Corporation, Micro Focus Group Public Limited Company and Platinum
Technology, Inc.
CONSULTING ORGANIZATIONS. Competitors in this category range from large,
generalized consulting firms to small- to medium-sized consulting firms that
have become highly focused on the year 2000 problem. These companies provide
supplemental personnel and contract programming resources to customers and some
have licensed tools from software vendors to enhance their offerings. These
companies are often selected by customers based on the skills, experience and
process that each firm uses. Competitors in this category include Andersen
Consulting LLP, CIBER, Inc., Computer Horizons Corp., Computer Task Group, Inc.,
Data Dimensions, Inc., Ernst & Young LLP and Keane, Inc.
SYSTEMS INTEGRATORS AND APPLICATION OUTSOURCERS. Large systems integrators
and outsourcing firms have also entered the year 2000 market. These are
companies that may already have relationships with customers and are able to
include year 2000 conversion services with the maintenance and data processing
services they already provide. They provide a customer with an alternative to
managing the year 2000 conversion project themselves by outsourcing the whole
project to an organization with an established relationship and a working
knowledge of the customer's systems. Some integrators/outsourcers offer licensed
tools from software vendors. Competitors in this category include CapGemini,
Computer Sciences Corp., Electronic Data Systems Corporation, IBM's Global
Services and most Big Five accounting firms.
DESKTOP YEAR 2000 MARKET. Software vendors are beginning to focus on desktop
year 2000 problems as well as mainframe issues, and the Company has started to
see increasing competition to its OnMark 2000 products. Major competitors
include Network Associates, Inc., Platinum Technology, Inc. and WRQ, Inc.
PRODUCT DEVELOPMENT
Historically, Viasoft's development of new products has been accomplished
primarily with in-house development personnel and resources. Beginning in fiscal
1996 and continuing through the current year, Viasoft has expanded its strategy
to acquire and/or license new products and technologies to complement, expand
and enhance its existing products and services. The Company expects to continue
its reliance on this strategy and plans to continue to devote research and
development resources to the enhancement and integration of acquired and
licensed technologies, as well as internal development of new products.
RESEARCH AND DEVELOPMENT
As of June 30, 1998, the Company had 181 employees engaged in research,
development and support. Of the Company's research and development personnel,
101 were software and solutions developers with the balance divided between
customer support, documentation, administration and quality assurance.
Substantially all of these employees are located at either the Company's
Phoenix, Arizona, headquarters, the OnMark research and development facilities
in Calgary, Canada or the Rochade research and development facilities in
Chemnitz and Munich, Germany. In addition to developing new products, the
Company continually updates its existing products through enhancements and new
releases, develops new products and technologies to facilitate its service
solutions and integrates and develops enhancements to acquired and licensed
technologies and products.
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During the fiscal years ended June 30, 1998 and 1997, research and
development expenditures were $16,392,000 and $7,893,000, respectively,
excluding charges for in-process research and development of $8.6 million in
connection with the acquisition of EraSoft and a fault diagnostic tool marketed
as VIA/SmartQuest in fiscal 1998, and $27.0 million in connection with the
acquisition of Rottger & Osterberg Software - Technik GmbH ("R&O") in fiscal
1997. Research and development expenses in fiscal 1998 include approximately
$3.2 million in charges for third party development of certain technologies
included in the OnMark 2000 product suite. The Company anticipates that it will
continue to commit substantial resources to research and development in the
future. See "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations" and Note 2 of the Consolidated Financial
Statements.
ACQUISITIONS AND STRATEGIC RELATIONSHIPS
The Company has continued its strategy to acquire and/or license new
products and technologies to complement, expand and enhance its existing
products and services. During the last two fiscal years, the Company acquired
two companies. In the second quarter of fiscal 1997, the Company acquired the
core technology for its Rochade product line through its acquisition of R&O. In
the third quarter of fiscal 1998, the Company acquired the core technology of
its OnMark 2000 product suite through its acquisition of EraSoft. See Note 2 of
the Consolidated Financial Statements.
Along with company acquisitions, Viasoft has acquired certain products and
technologies that have added to the Company's product and solution offerings. In
the first quarter of fiscal 1997, the Company entered into an agreement with
Tadiran Information Systems, Ltd. to acquire a date bridging technology that
developed into the Company's Bridge 2000 product. In the fourth quarter of
fiscal 1998, the Company acquired the rights to VIA/SmartQuest. In July 1998,
the Company acquired the exclusive rights to SHL TRANSFORM, a knowledge driven
process management tool, from SHL Systemhouse Co. The Company expects to
integrate the SHL TRANSFORM product into all its service solutions and market it
under the name Visual Process. See Notes 2 and 11 of the Consolidated Financial
Statements.
In addition to company and product acquisitions, the Company has entered
into strategic relationships to further expand its product and solution
offerings. The Company's strategic relationships have provided Viasoft with the
right to, among other things, license and market certain (i) testing and
assessment products, (ii) products that comprise a portion of the Company's
OnMark 2000 product line and (iii) products that address the Euro conversion
transition. See Note 2 of the Consolidated Financial Statements.
INTELLECTUAL PROPERTY
Viasoft relies on a combination of copyright, trade secret and trademark
laws, and contractual provisions to establish and protect its rights in its
software products and proprietary technology. The Company protects the source
code version of its products as a trade secret and as an unpublished copyrighted
work. Despite these precautions, it may be possible for unauthorized parties to
copy certain portions of the Company's products or reverse engineer or obtain
and use information that the Company regards as proprietary. The Company
presently has very limited patent rights and existing copyright and trade secret
laws offer only limited protection. Certain provisions of the license and
distribution agreements generally used by the Company, including provisions
protecting against unauthorized use, copying, transfer and disclosure, may be
unenforceable under the laws of certain jurisdictions and the Company is
required to negotiate limits on these provisions from time to time. In addition,
the laws of some foreign countries do not protect the Company's proprietary
rights to the same extent as do the laws of the United States. The Company has
been and may be required from time to time to enter into source code escrow
agreements with certain customers and distributors, providing for release of
source code in the event the Company breaches its support and maintenance
obligations, files bankruptcy or ceases to continue doing business.
The Company's competitive position may be affected by its ability to protect
its proprietary information. However, because the software industry is
characterized by rapid technological change, the Company believes that patent,
trademark, copyright, trade secret and other legal protections are less
significant to the Company's success
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than other factors such as the knowledge, ability and experience of the
Company's personnel, new product and service development, frequent product
enhancements, customer service and ongoing product support.
While the Company has no knowledge that it is infringing the proprietary
rights of any third party, there can be no assurance that such claims will not
be asserted in the future with respect to existing or future products. Any such
assertion by a third party could require the Company to pay royalties, to
participate in costly litigation and defend licensees in any such suit pursuant
to indemnification agreements, or to refrain from selling an alleged infringing
product or service. See "Factors that May Affect Future Results -- Importance of
Proprietary Rights."
EMPLOYEES
The Company had 561 full-time employees as of June 30, 1998, including 219
in sales, sales support and marketing, 181 in research, development and support,
82 in professional services and 79 in domestic and international corporate
operations, administration and support. The future success of the Company will
depend in large part upon its continued ability to attract and retain highly
skilled and qualified personnel. Competition for such personnel is intense in
the computer software industry, particularly for talented software developers,
service consultants and sales and marketing personnel. None of the Company's
employees is represented by a collective bargaining agreement. The Company
believes that its relations with its employees are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers and their ages as of August 31, 1998 are as
follows:
NAME AGE POSITION
---- --- --------
Steven D. Whiteman ........ 47 Chairman of the Board and
Chief Executive Officer
Kevin M. Hickey ........... 40 President and Chief Operating Officer
Mark R. Schonau ........... 42 Senior Vice President, Finance &
Administration, Chief Financial Officer
and Treasurer
Catherine R. Hardwick ..... 39 Vice President, General Counsel and
Secretary
Colin J. Reardon .......... 45 Senior Vice President, International
Operations
Jean-Luc G. Valente ....... 38 Senior Vice President, Marketing
Abbott H. Ezrilov ......... 57 Vice President, Channel Sales and Vendor
Relationships
David M. Lee .............. 31 Vice President, Development
Robert K. Young ........... 39 Vice President, Global Services
Kevin J. Donoghue.......... 38 Vice President, Sales - The Americas
Steven D. Whiteman has served as Chief Executive Officer and a director of
the Company since January 1994 and as Chairman of the Board since April 1997.
Mr. Whiteman was President of the Company from May 1993 to April 1998. Prior to
serving as President, Mr. Whiteman served as Vice President of Sales and
Marketing of the Company from December 1990 to May 1993. Before joining Viasoft,
Mr. Whiteman served as Senior Vice President, Sales and International Operations
of Systems Center, Inc., a developer and marketer of network and systems
management software, from January 1989 to October 1990. Mr. Whiteman is a
director of Unify Corporation, Actuate Software Corporation and NetPro
Computing, Inc.
Kevin M. Hickey has served as President and Chief Operating Officer since
April 1998. Prior to serving as President, Mr. Hickey served as Executive Vice
President and Chief of Operations since July 1997. Mr. Hickey served as Senior
Vice President, Americas Operations of the Company from January 1994 to July
1997. Mr. Hickey joined Viasoft in February 1993 to manage the domestic sales
organization of the Company. Prior to joining Viasoft, Mr. Hickey had been
employed by International Business Machines Corporation as a Business Unit
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Executive in the Phoenix office from January 1991 through January 1993, as an
Administrative Assistant from November 1989 to December 1990 and as Marketing
Manager from January 1988 through October 1989.
Mark R. Schonau has served as Senior Vice President, Finance &
Administration, since July 1997 and as Chief Financial Officer and Treasurer
since September 1996. Mr. Schonau also served as Vice President, Finance &
Administration, from September 1996 to July 1997. He had consulted with the
Company for a short period of time prior to his employment. Before joining
Viasoft, Mr. Schonau served as Chief Financial Officer, Corporate Secretary and
Treasurer of CyCare Systems, Inc., a healthcare software company, from October
1989 to August 1996.
Catherine R. Hardwick has served as Vice President of the Company since July
1997 and as Secretary and General Counsel of the Company since January 1996.
Prior to holding these offices, Ms. Hardwick served as Corporate Counsel for the
Company from February 1995. Before joining the Company, Ms. Hardwick practiced
law with the law firm of Meyer, Hendricks, Victor, Osborn & Maledon, P.A. in the
areas of corporate and securities law and intellectual property licensing.
Colin J. Reardon has served as Senior Vice President, International
Operations of the Company since July 1997. Mr. Reardon served as Vice President,
International Operations of the Company from August 1994 to July 1997. Prior to
joining Viasoft, Mr. Reardon served as Vice President of International Marketing
of Sterling Software, Inc., a systems management software and services company,
from July 1993 through July 1994. Mr. Reardon was previously employed by Systems
Center, Inc., a developer and marketer of network and systems management
software, where Mr. Reardon served as Vice President of European Operations from
November 1992 through June 1993 and Managing Director of its United Kingdom
operations from July 1988 through October 1992.
Jean-Luc G. Valente has served as Senior Vice President, Marketing since
July 1997. Mr. Valente served as Vice President, Marketing, from April 1996
through July 1997. Prior to joining the Company in April 1996, Mr. Valente was
employed by Computer Associates International, Inc., a software manufacturer,
where he served as Vice President, Strategic Marketing from July 1993 through
April 1996, Regional Marketing Manager from March 1992 through June 1993 and a
Marketing Director, from March 1991 through March 1992.
Abbott H. Ezrilov was named Vice President, Channel Sales and Vendor
Relationships in August 1998. Mr. Ezrilov served as Vice President, Sales - The
Americas from April 1998 through August 1998, Vice President of Sales from July
1996 through April 1998 and Vice President Sales, Western Region from November
1992 through July 1996.
David M. Lee has served as Vice President, Development since September 1997.
Prior to joining the Company in September 1997, Mr. Lee was employed by Tivoli
Systems, Inc., a computer software and information services company, where he
served as Manager, Development from January 1993 through September 1997.
Robert K. Young has served as Vice President, Global Services since June
1998. Prior to joining the Company in June 1998, Mr. Young was employed by IBM
Global Services, a software/hardware services company, where he served as an
executive from January 1997 through May 1998. Mr. Young was previously employed
by Lockheed Martin, an aerospace engineering company, where he served as a
manager from May 1986 to January 1996.
Kevin J. Donoghue was named Vice President, Sales - The Americas in August
1998. Mr. Donoghue served as Vice President, Western Region from January 1998
through August 1998, Western Region Sales Director, August 1996 through January
1998 and Account Manager, Sales Representative from December 1993 through August
1996. Prior to joining the Company, Mr. Donoghue was employed by International
Business Machines Corporation where he served as Account Executive from January
1992 to December 1993, Marketing Manager from January 1990 to December 1991 and
Marketing Representative from June 1983 to December 1989.
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FACTORS THAT MAY AFFECT FUTURE RESULTS
DEPENDENCE ON YEAR 2000 MARKET
Throughout the Company's 15-year existence, Viasoft's growth has been
attributable to its ability to assist its customers in maintaining and
renovating their existing systems. However, the growth in the Company's revenue
during fiscal years 1998 and 1997 resulted primarily from increased demand for
the Company's year 2000 century date conversion products and solutions for
mainframe applications and desktop environments. Should the demand for the
Company's year 2000 products and solutions decline significantly as a result of
new technologies, competition or any other factors, the Company's revenues would
be materially and adversely affected. The Company anticipates that demand in the
year 2000 market will decline, perhaps rapidly, following the year 2000. It is
the Company's strategy to leverage customer relationships and knowledge of
customer application systems derived from its year 2000 solutions to market
other products and services beyond the year 2000 market. However, there can be
no assurance that this strategy will be successful, and should the Company be
unable to market other products and services as demand in the year 2000 market
declines, whether as a result of competition, technological change or other
factors, the Company's business, results of operations and financial condition
will be materially and adversely affected.
VOLATILITY OF COMMON STOCK PRICE
The Company's stock price has been highly volatile since its initial public
offering. The Company believes that factors such as quarterly fluctuations in
results of operations, changing perceptions of the year 2000 problem,
announcements of new products and acquisitions by the Company or by its
competitors, changes in the mix of revenues from software licenses and
professional services, changes in revenue or earnings estimates by securities
analysts, developments in litigation affecting the Company, changes in
accounting principles or their application and other factors may cause the
market price of the Company's stock to continue to fluctuate, perhaps
substantially. In addition, stock prices for many technology companies fluctuate
widely for reasons that may be unrelated to operating results. Due to market and
securities analysts' expectations of continued growth, any shortfall in meeting
such expectations may have a rapid and significant adverse effect on the trading
price of the Company's stock. These fluctuations, as well as general economic,
market and other conditions may adversely affect the market price of the
Company's stock in the future. Fluctuations in the market price of the Company's
stock may in turn adversely affect the Company's ability to complete any
targeted acquisitions, its access to capital and financing and its ability to
attract and retain qualified personnel. See "Market for the Registrant's Common
Stock and Related Stockholder Matters."
FLUCTUATING QUARTERLY RESULTS
The Company has experienced significant quarterly and other fluctuations in
revenues and operating results and expects these fluctuations to continue in the
future. The Company believes that these fluctuations have been attributable to
the budgeting and purchasing practices of its customers, the length of the
customer product evaluation process for the Company's products, the timing of
its customers' system conversions, the timing and significance of releases by
the Company or its competitors of new enhancements, products and solutions and,
to a lesser extent, the Company's sales commission practices, which are based
partly on quarterly incentives and annual quotas, and other factors. The
Company's revenues and results of operations may also be affected by seasonal
trends which have resulted in higher revenues in the Company's second and fourth
fiscal quarters and lower revenues in its first and third fiscal quarters. This
seasonality is a result of many customers' annual purchasing and budgetary
practices, the Company's sales commission practices, lower revenues in the
summer months (particularly in Europe) when many businesses make fewer
purchases, and other factors. The Company's professional services revenues tend
to fluctuate due to the completion or commencement of significant projects,
which may continue over multiple quarters, the number of working days in a
quarter and the utilization rate of professional services personnel. Future
revenues and operating results may fluctuate as a result of these and other
factors, including the demand for the Company's products and services, the
timing and cost of new product and service introductions and product
enhancements, changes in the mix of products and services sold and in the mix of
sales by distribution channels, timing of any acquisitions and associated costs,
the size and timing of customer orders, changes in
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pricing policies by the Company or its competitors, the timing of collection of
accounts receivable and related reported days' sales outstanding, changes in
foreign currency exchange rates, competitive conditions in the industry and
general economic conditions. Furthermore, as a result of these and other
factors, it is likely that in some future quarter the Company's revenues or
operating results will be below the expectations of securities analysts or
investors, in which case the price of the Common Stock could likely be
materially and adversely affected, as was the case in the third quarter of
fiscal 1998. See "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations."
Historically, the Company has had little or no backlog. Quarterly revenues
and operating results therefore depend primarily on the volume and timing of
orders received during the quarter, which are difficult to forecast. The Company
has often recognized a substantial portion of its license fees in the last month
of each quarter, frequently in the last week. A significant portion of the
Company's operating expenses is relatively fixed, since personnel levels and
other expenses are based upon anticipated revenues. Because a substantial
portion of the Company's revenues may not be generated until the end of each
quarter, the Company may not be able to reduce spending in response to sales
shortfalls or delays. These factors, many of which are not within the Company's
control, can cause significant variations in operating results from quarter to
quarter. Accordingly, the Company believes that quarter to quarter comparisons
of its financial results are not necessarily meaningful and should not be relied
upon as an indication of future performance.
RISKS ASSOCIATED WITH PROFESSIONAL SERVICES
During the past fiscal year, the Company experienced difficulty in managing
its professional services business. See "Business -- Viasoft Services" and
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations." Historically, the services business had constituted 28%
and 26% of total revenue in fiscal 1997 and 1996, respectively. The Company's
services business decreased to 17% of total revenue during fiscal 1998. The
Company is refocusing its efforts and broadening its service solutions in an
effort to increase its revenues attributable to professional services. The
Company will continue to be subject to the risks generally associated with a
services business, including volatility of workload, increased overhead
associated with services personnel, particularly because the Company will be
adding staff to grow its services business both domestically and
internationally, and the related difficulty in adjusting costs to respond to
fluctuations in revenue, dependence on the Company's ability to attract and
retain qualified technical personnel in a very competitive market, managing
profit margins in a lower margin business than software product licensing and
intense competition in an environment of rapidly changing customer needs and
expectations. In addition, customers may require fixed price contracts, where
profitability is more difficult to manage due to greater risk of cost overruns.
See "Business -- Viasoft Services" and "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations."
RISKS FROM INTERNATIONAL OPERATIONS
Approximately 32%, 32% and 25% of the Company's total revenues in the fiscal
years ended June 30, 1998, 1997 and 1996, respectively, were attributable to
international sales. The Company believes that international business will
continue to account for a significant portion of its revenues, due in part to
the continued expansion of its OnMark 2000, Rochade and ESW product lines
internationally and the Euro conversion transition, which is expected to have a
significant effect on international organizations. International operations are
subject to a number of risks, including longer accounts receivable payment
cycles, exchange rate fluctuations, difficulty in enforcing agreements and
collecting accounts receivable, tariffs and other restrictions on foreign trade,
U.S. export requirements, withholding and other tax consequences, economic and
political instability, restrictions on repatriation of earnings and the burdens
of complying with a wide variety of foreign laws. The Company has experienced
longer payment cycles from some of its foreign distributors. Sales made through
the Company's foreign distributors are denominated in U.S. dollars except in
Italy and Spain, where they are denominated in lira and pesetas, respectively.
Sales by the Company's foreign subsidiaries are principally denominated in the
currencies of the countries where sales are made. The Company experienced losses
of approximately $302,000 from foreign currency fluctuations in the fiscal year
ended June 30, 1998. The Company has not to date sought to hedge the risks
associated with fluctuations in foreign exchange rates. The Company continues to
evaluate the
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relative costs and benefits of hedging and may seek to hedge these risks in the
future, if appropriate. The Company's foreign operations are also affected by
general economic conditions in its international markets. A prolonged economic
downturn in its foreign markets could have a material adverse effect on the
Company's business. In addition, the laws of certain countries do not protect
the Company's products and intellectual property rights to the same extent as do
the laws of the United States. There can be no assurance that the factors
described above will not have an adverse effect on the Company's future
international revenues and, consequently, on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations," "Business -- Sales,
Marketing and Distribution" and Note 9 to Consolidated Financial Statements.
In addition, approximately 7%, 5% and 11% of the Company's total revenues
and 21%, 15% and 45% of international revenues were realized through the sales
and marketing efforts of its international independent distributors in the
fiscal years ended June 30, 1998, 1997 and 1996, respectively. The efforts
expended and results achieved by independent distributors are less within the
control of the Company than its direct sales operations. A reduction in sales by
the Company's distributors or a termination of their relationships with the
Company could have a material adverse effect on the Company's international
revenues, its business, results of operations and financial condition.
DEPENDENCE ON ACQUISITIONS
The Company expects to continue its strategy of identifying, acquiring and
developing businesses, products and technologies to complement and extend its
software product line and solution offerings, including acquisitions that could
be material in size and scope. The Company believes that the continued success
of its existing businesses, as well as its future growth, depends, in large
part, upon the success of this strategy. The Company anticipates that demand in
the year 2000 market will decline following the year 2000 and that it will be
dependent, in large part, on acquisitions to enhance and expand its software
product line and solution offerings to replace revenue it currently receives
from its year 2000 solutions. Acquisitions involve a number of special risks and
factors, including increasing competition for attractive acquisition candidates
in the Company's markets, the technological enhancement and incorporation of
acquired products into existing product lines and services, the assimilation of
the operations and personnel of the acquired companies, adverse short-term
effects on reported operating results, the amortization of acquired intangible
assets, the assumption of undisclosed liabilities of any acquired companies, the
failure to achieve anticipated benefits such as cost savings and synergies, as
well as the diversion of management's attention during the acquisition and
integration process. The success of the Company's acquisition strategy will
depend on the effective management of the foregoing risks and its ability to
identify, complete and integrate strategic acquisitions on favorable terms.
PRODUCT CONCENTRATION; DEPENDENCE ON MAINFRAME SYSTEMS
Historically, most of the Company's software license fee revenues and
maintenance fee revenues have been derived from products in the Company's
primary product line, the Existing Systems Workbench. In addition, a substantial
portion of the Company's professional services fee revenues have been derived
from customers that also license ESW products. Although the Company expects that
a greater percentage of its license revenue in fiscal 1999 will be attributable
to OnMark 2000 product offerings in comparison to fiscal 1998, the Company
believes that a substantial portion of its revenues will continue to be derived
from ESW and solutions that incorporate the ESW technology. If license sales,
maintenance renewals or pricing levels of ESW products were to decline
materially, whether as a result of technological change, competition or any
other factors, the Company's business, results of operations and financial
condition would be materially and adversely affected. See "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations." The Company's principal software products and services are designed
for users of IBM and IBM-compatible mainframe computers utilizing IBM's MVS/XA
or MVS/ESA operating systems. Future revenues from sales of products and
services and recurring maintenance revenues are therefore dependent on continued
use of such mainframe computers and related operating system software. In
addition, because Viasoft products require the use of IBM's MVS operating
systems, the Company will be required to adapt its products to any changes made
to these IBM operating systems in the future. The Company's inability to adapt
to future changes in the MVS operating systems, or delays in doing
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so, could have a material adverse effect on the Company's business, results of
operations and financial condition. See "-- Ability to Respond to Technological
Change."
ABILITY TO MANAGE CHANGE
The Company has experienced changes in its operations and in the software
industry in the last several fiscal years that have placed increased demands on
its managerial, operational and financial resources. The Company expects its
business and the industry as a whole to continue to undergo rapid change. The
Company's integration of the OnMark 2000 product line and the Rochade business,
its plans to continue expansion of its professional services offerings and its
plans to continue expansion of its international operations, together with
ongoing required product development and future acquisition activity in response
to changes in the industry and customer needs, will require Viasoft to manage
effectively its operations in a rapidly changing environment. The Company's
future performance will depend in part on its ability to manage change in both
its domestic and international operations and will require the Company to
continue to hire additional management, technical and professional services
personnel with specialized expertise. The Company has experienced difficulties
in recruiting and retaining qualified personnel and anticipates that these
efforts will remain difficult, as industry sources predict an insufficient
supply of programmers and consultants to meet demand. The failure of the
Company's management team to manage changing technological and business
conditions as well as the growth of its own business, should it occur, could
have a material adverse impact on the Company's business, results of operations
and financial condition.
INTENSE COMPETITION
The market for the Company's software products is intensely competitive and
is characterized by rapid change in technology and user needs and the frequent
introduction of new products. The market for the type of professional services
provided by the Company is also highly competitive. With the growth of the year
2000 market, significant competition has emerged and is expected to increase
through the year 2000. The professional services segment of the market is
characterized by low barriers to entry. The principal competitive factors
affecting the year 2000 market include functionality, performance and
reliability of technology and methodology, availability and productivity of
personnel, the ability to demonstrate achievement of results, depth of
experience in year 2000 projects, price and reputation. There are generally four
categories of competitors for Viasoft in the year 2000 market: software vendors,
consulting organizations, system integrators and application outsourcers and
desktop software vendors that provide tools targeted for the year 2000 market.
Competitive factors include tools' compatibility with customers' platforms and
languages, vendors' ability to deliver training and ongoing support during
customers' implementation of the tools, and the value of the tools to an
organization beyond the year 2000. Consulting organizations that compete in the
year 2000 market range from large, generalized consulting firms to small- to
medium-sized consulting firms that have become highly focused on the year 2000
problem. These companies provide supplemental personnel and contract programming
resources to customers and some have licensed tools from software vendors to
enhance their offerings. Large systems integrators and outsourcing firms have
entered the year 2000 market to include year 2000 conversion services with the
maintenance and data processing services they already provide to their existing
market and customer base. Some integrators/outsourcers offer licensed tools from
software vendors. Software vendors are also beginning to focus on desktop year
2000 problems as well as mainframe issues. The Company has started to see
increasing competition to its OnMark 2000 products from desktop software
vendors.
Most of the Company's competitors and potential competitors have
substantially greater financial, marketing, recruiting and technology resources
than the Company. Major competitors for software product license sales include
Computer Associates International, Inc., Compuware Corporation, Micro Focus
Group Public Limited Company, Network Associates, Inc., Platinum Technology,
Inc. and WRQ, Inc. The Company believes that the principal factors affecting
competition in its product markets include compatibility with customers'
platforms and languages, product functionality, quality of support, product
performance and reliability, ability to respond to changing customer needs, ease
of use and price. Major competitors of the Company's professional services
business are primarily the consulting organizations of the Big Five accounting
firms. Other competitors of the Company's professional services business include
Data Dimensions, Inc., Electronic Data Systems Corporation, Keane, Inc.,
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IBM Global Services and Platinum Technology, Inc. The principal competitive
factors affecting the market for the Company's professional services include
responsiveness to customer needs, availability and productivity of personnel,
the ability to demonstrate achievement of results, depth of technical skills,
price and reputation. Major competitors to the Company's desktop year 2000
products include Network Associates, Inc., Platinum Technology, Inc. and WRQ,
Inc.
The Company's ability to compete successfully in the sale of both its
products and services will depend in large part upon its ability to implement
successfully its strategy of selling products and services as a total solution
as well as its ability to attract new customers, sell new products and services,
deliver and support product enhancements to its existing customers and respond
effectively to continuing technological change by developing and acquiring new
products and services. There can be no assurance that the Company will be able
to compete successfully in the future, nor that future competition for product
sales and professional services will not have a material adverse effect on the
business, results of operations and financial condition of the Company. See
"Business -- Competition."
ABILITY TO RESPOND TO TECHNOLOGICAL CHANGE
The Company's future success will depend significantly on its ability to
enhance its current products and develop or acquire and market new products that
keep pace with technological developments and evolving industry standards as
well as respond to changes in customer needs. There can be no assurance that the
Company will be successful in developing or acquiring product enhancements or
new products to address changing technologies and customer requirements
adequately, that it can introduce such products on a timely basis, or that any
such products or enhancements will be successful in the marketplace. The
Company's delay or failure to develop or acquire technological improvements or
to adapt its products to technological change would have a material adverse
effect on the Company's business, results of operations and financial condition.
RISKS ASSOCIATED WITH PRODUCTS CURRENTLY UNDER DEVELOPMENT
The Company is currently developing and enhancing certain products that are
unfinished, untested and unproven in the marketplace. These products include,
but are not limited to: enhancements to further integrate and complement the
Rochade line of products acquired by the Company, including a product that
integrates the Rochade and ESW technology with a graphical user interface;
products to address the Euro conversion transition for existing mainframe
applications and desktop environments and testing and assessment products and
solutions. There can be no assurance that these products will be completed and
commercially introduced at the times scheduled by the Company, or that if
completed and introduced, that these products will function in accordance with
the Company's and its customers' current expectations or be able to compete
successfully in the marketplace.
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend in part upon the retention of key senior
management and technical personnel. The Company does not have employment
agreements with most of its key personnel, nor does it maintain key man life
insurance on any of these persons. Several senior management personnel are
relatively new to the Company and the Company's success will depend in part on
the successful assimilation and performance of these individuals. The Company
believes that its future success will also depend upon its ability to attract
and retain additional highly skilled technical, professional services, sales
managers and product management personnel. The market for these individuals has
historically been, and the Company expects that it will continue to be,
intensely competitive. The Company has experienced difficulties in recruiting
and retaining qualified personnel and anticipates that these efforts will remain
difficult. The loss of one or more of its key employees or the Company's
inability to attract and retain other qualified employees could have a material
adverse effect on the Company's business.
17
<PAGE>
PRODUCT LIABILITY
The Company provides business solutions that help large organizations
worldwide understand, manage, evolve, reuse, transition and modernize
mission-critical enterprise applications that support their fundamental business
processes. In addition, a large portion of the Company's business is devoted to
addressing the year 2000 problem, which affects the performance and reliability
of many mission-critical systems. The Company's agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product and service liability claims. It is possible, however, that
the limitation of liability provisions contained in the Company's customer
agreements may not be effective as a result of existing or future federal,
state, local or foreign laws or ordinances or unfavorable judicial decisions.
The Company maintains errors and omissions insurance, but there is no guarantee
that the insurance policy would cover any or all claims made against the Company
or that the coverage provided would be adequate. Although the Company has not
experienced any material product or service liability claims to date, the sale
and support of its products and services may entail the risk of such claims,
particularly in the year 2000 market, which could be substantial in light of the
use of its products and services in mission-critical applications. A successful
product or service liability claim brought against the Company could have a
material adverse effect upon the Company's business, operating results and
financial condition.
IMPORTANCE OF PROPRIETARY RIGHTS
The Company regards its software products and some of the methodology and
processes it uses in connection with performing professional services as
proprietary and attempts to protect them under a combination of copyright, trade
secret and trademark laws and contractual restrictions on employees and third
parties. Despite these precautions, it may be possible for unauthorized parties
to copy the Company's software or to reverse engineer or obtain and use
information the Company regards as proprietary. The Company has very limited
patent rights and existing trade secret and copyright laws provide only limited
protection. Certain provisions of the license and distribution agreements
generally used by the Company, including provisions protecting against
unauthorized use, copying, transfer and disclosure, may be unenforceable under
the laws of certain jurisdictions and the Company is required to negotiate
limits on these provisions from time to time. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights to the same
extent as do the laws of the United States. To the extent that the Company
increases its international activities, its exposure to unauthorized copying and
use of its products and proprietary information may increase. Also, the Company
licenses a portion of its desktop software under "click-wrap" and "shrink-wrap"
licenses. Certain click-wrap or shrink-wrap license provisions protecting the
Company against unauthorized use, copying, transfer and disclosure of the
licensed program may be unenforceable under the laws of certain jurisdictions
and foreign countries. In addition, there is generally more software piracy and
copyright infringement in the PC software business, which the Company entered
when it introduced OnMark 2000. There can be no assurance that the protections
put in place by the Company will be adequate.
In 1996, the Company acquired the date bridging technology incorporated in
its Bridge 2000 product, together with a pending patent application. In fiscal
1998, the Company acquired a pending patent application for certain technology
in the EraSoft acquisition. The Company is continuing to prosecute patent
applications on both of these technologies. However, there can be no assurance
that a patent will issue as a result of either application, nor as to the extent
of the protection any such patent might afford.
Significant and protracted litigation may be necessary to protect the
Company's intellectual property rights, to determine the scope of the
proprietary rights of others or to defend against claims of infringement.
Although the Company is not currently involved in any litigation with respect to
intellectual property rights, infringement claims against software developers
are likely to increase as the number of functionally similar products in the
market increases. There can be no assurance that third-party claims, with or
without merit, alleging infringement will not be asserted against the Company in
the future. Such assertions can be time-consuming and expensive to defend and
could require the Company to discontinue the use of certain software or
processes, to cease the manufacture, use and sale of infringing products and
services, to incur significant litigation costs and expenses and to develop or
acquire noninfringing technology or to obtain licenses to the alleged infringing
technology. There can be no assurance that the Company would be able to develop
or acquire alternative technologies or to obtain such licenses
18
<PAGE>
or, if licenses were obtainable, that the terms would be commercially acceptable
to the Company. See "Business -- Intellectual Property."
ANTI-TAKEOVER EFFECT OF CHARTER, BYLAWS AND STOCKHOLDER RIGHTS PLAN
Certain provisions of the Company's Amended and Restated Bylaws impose
certain procedures and limitations applicable to stockholders' meetings,
proposals of business and nominations of directors that could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. These provisions
may limit the price that certain investors may be willing to pay in the future
for shares of the Company's common stock. These provisions may also reduce the
likelihood of an acquisition of the Company at a premium price by another person
or entity. In addition, under the Company's Restated Certificate of
Incorporation, the Board of Directors has the authority to fix the rights and
preferences of, and issue shares of, Preferred Stock without further action of
the stockholders. Therefore, Preferred Stock could be issued, without
stockholder approval, that could have voting, liquidation and dividend rights
superior to that of existing stockholders. The issuance of Preferred Stock could
adversely affect the voting power of holders of common stock and the likelihood
that such holders would receive dividend payments and payments on liquidation
and could have the effect of delaying, deferring or preventing a change in
control of the Company. The Company has no present plan to issue any shares of
Preferred Stock. In addition, the Company adopted a stockholder rights plan in
fiscal 1998 that could delay or make more difficult a merger, tender offer or
proxy contest involving the Company that the Board of Directors has not
approved. See "Market for the Registrant's Common Stock and Related Stockholder
Matters."
YEAR 2000 CONSIDERATIONS
The Company has established and continues to evaluate and update its formal
program to address any potential year 2000 compliance issues relating to its (i)
internal operating systems, (ii) vendors, facilities and other third parties and
(iii) software products that it licenses to customers. The success of the
Company's compliance program will depend in a large part on the efforts of third
parties with whom the Company does business and whose activities are not within
the Company's control. The Company has not completed its evaluation of the year
2000 readiness of those third parties. In addition, to date, the Company has not
completed its contingency plans in the event that its internal operating
systems, distributors, resellers, vendors, facilities or products, or any other
components of its business operations, fail to operate in compliance with the
year 2000 century date change. The Company expects to develop its contingency
plans by the end of fiscal 1999. The cost of the Company's year 2000 compliance
program has not had and is not expected to have a material effect on the
Company's results of operations or liquidity. However, there can be no assurance
that the Company will not experience material adverse consequences in the event
that the Company's year 2000 compliance program is not successful or its
distributors, resellers, vendors or landlords are unable to resolve their year
2000 compliance issues in a timely manner. In addition, if any of the Company's
products are not year 2000 compliant in a timely manner, the Company's sales may
decline materially, customers and those with whom they do business may assert
product liability and other claims, and the Company's business, results of
operations and financial condition would be materially and adversely affected.
See "Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations."
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Form 10-K contains
express or implied forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act and the Company
intends that such forward-looking statements be subject to the safe harbors
created thereby. Additional written or oral forward-looking statements may be
made by the Company from time to time in filings with the Securities and
Exchange Commission, in its press releases, quarterly conference calls or
otherwise. The words "believes", "expects", "anticipates", "intends",
"forecasts", "projects", "plans", "estimates" and similar expressions identify
forward-looking statements. Such statements reflect the Company's current views
with respect to future events and financial performance or operations and speak
only as of the date the statements are made. Such forward-looking statements
involve risks and uncertainties and readers are cautioned not to place
19
<PAGE>
Undue reliance on forward-looking statements. The Company's actual results may
differ materially from such statements. Factors that cause or contribute to such
differences include, but are not limited to, those discussed above in "Factors
That May Affect Future Results," as well as those discussed elsewhere in this
Form 10-K including in the Notes to Consolidated Financial Statements and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the documents incorporated herein by reference. Although the
Company believes that the assumptions underlying its forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the results contemplated in such forward-looking
statements will be realized. The inclusion of such forward-looking information
should not be regarded as a representation by the Company or any other person
that the future events, plans or expectations contemplated by the Company will
be achieved. The Company undertakes no obligation to publicly update, review or
revise any forward-looking statements to reflect any change in the Company's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statements is based.
ITEM 2. PROPERTIES
The Company's principal administrative and marketing facilities are located
in approximately 34,000 square feet of space in Phoenix, Arizona. The Company
occupies these premises under a lease agreement expiring on December 31, 1999,
subject to certain renewal options. The Company's research and development and
customer support facilities are located in approximately 37,000 square feet of
space in Phoenix, Arizona. The Company occupies these premises under a lease
agreement expiring on May 31, 2001.
In addition, the Company maintains field offices and executive suite sales
offices within the United States located in leased space aggregating
approximately 18,000 square feet as of June 30, 1998. The Company also leased an
aggregate of approximately 47,000 square feet of space as of June 30, 1998 in
Australia, Belgium, Canada, France, Germany, Japan, the Netherlands and the
United Kingdom for operations of its international branch offices and
subsidiaries.
The Company believes that its facilities are adequate for its current needs
and that suitable additional space will be available as needed.
ITEM 3. LEGAL PROCEEDINGS
Viasoft is subject to certain legal proceedings and claims that arise in the
conduct of its business. In the opinion of management, the amount of liability,
if any, as a result of these claims and proceedings is not likely to have a
material effect on the financial condition or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock has been traded on The Nasdaq Stock Market under
the symbol VIAS since the Company's initial public offering in March 1995. Prior
to that offering, there was no public market for the common stock of the
Company. The Company has never paid cash dividends on its capital stock and
currently anticipates that it will retain future earnings, if any, to fund the
development and growth of its business.
The number of holders of record of the Company's common stock was
approximately 399 on July 31, 1998. In addition, there are approximately 12,500
beneficial owners of common stock on July 31, 1998.
The following table presents quarterly information on the price range of the
common stock for the last two
20
<PAGE>
fiscal years. The prices have been adjusted to give retroactive effect to the
Company's two-for-one stock split that was payable on September 13, 1996 to
stockholders of record as of August 30, 1996. This information indicates the
high and low reported sale prices on the Nasdaq National Market.
HIGH LOW
---- ---
FISCAL 1998:
First quarter......................... 65 1/4 47
Second quarter........................ 54 5/8 32 1/2
Third quarter......................... 43 7/8 25 3/4
Fourth quarter........................ 29 3/8 12 3/8
FISCAL 1997:
First quarter......................... 49 1/4 14 3/8
Second quarter........................ 61 39 1/2
Third quarter......................... 65 1/4 27 1/4
Fourth quarter........................ 55 3/8 30 3/8
In April 1998, the Board of Directors adopted a Shareholder Rights Plan (the
"Rights Plan") and declared a non-taxable dividend of one Right on each
outstanding share of the Company's common stock to stockholders of record on May
8, 1998. The Rights Plan is designed to enable all stockholders to receive fair
and equal treatment in any proposed takeover of the Company. Each Right
initially will entitle the holder to purchase one one-thousandth of a share of a
new series of junior participating preferred stock of the Company at an exercise
price of $180.00. The Rights will become exercisable if a person or group
acquires 15% or more of the Company's outstanding common stock or commences or
announces a tender offer or exchange offer for 15% or more of the common stock,
unless in the case of a tender or exchange offer the Board of Directors delays
exercisability. If a person or group acquires 15% or more of the outstanding
common stock, all holders of Rights other than the acquirer will be entitled to
purchase, at the then-current exercise price of the Rights, a number of Viasoft
common shares having a market value of twice the exercise price. In addition,
after such a 15% stock acquisition, if the Company is acquired in a merger or
other business combination transaction, or sells 50% or more of its assets or
earning power, each Right will entitle its holder (other than the acquirer) to
purchase, at the then-current exercise price of the Rights, a number of the
acquiring company's common shares having a market value of twice the exercise
price. Until the Rights become exercisable, the Rights will trade as a unit with
the common stock. At any time before a person or group has acquired beneficial
ownership of 15% or more of the Company's outstanding common stock, the Rights
are redeemable for one cent per Right at the option of the Board of Directors.
The terms of the Rights may be amended at any time by the Board of Directors
without the consent of the holders, with certain exceptions. The Rights will
expire on April 20, 2008, unless otherwise extended by the Board of Directors.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations" included elsewhere herein. The selected
consolidated financial data presented below has been derived from the Company's
consolidated financial statements which have been audited by Arthur Andersen
LLP, independent public accountants, whose report covering the financial
statements as of June 30, 1998 and 1997 and for each of the three years in the
period ended June 30, 1998 also is included elsewhere herein. The consolidated
statements of operations data for the years ended June 30, 1995 and 1994 and the
consolidated balance sheet data as of June 30, 1995 and 1994 are derived from
audited financial statements not included herein.
21
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license fees ....................... $ 65,122 $ 40,292 $17,824 $14,311 $ 13,029
Maintenance fees ............................ 28,865 21,010 14,305 12,059 10,041
Professional services fees .................. 19,615 23,832 11,307 4,387 2,715
Other ....................................... 85 178 121 194 199
-------- -------- ------- ------- --------
Total revenues ........................ 113,687 85,312 43,557 30,951 25,984
-------- -------- ------- ------- --------
Operating expenses:
Cost of software license and maintenance fees 12,737 4,345 2,788 2,661 1,544
Cost of professional services fees .......... 18,537 18,316 8,025 4,052 2,522
Sales and marketing ......................... 42,131 31,573 18,137 13,517 11,993
Research and development .................... 16,392 7,893 4,237 3,193 3,291
Write-off of purchased in-process
research and development(1) ............... 8,559 26,958 -- -- --
General and administrative .................. 7,849 6,319 3,567 2,643 2,480
-------- -------- ------- ------- --------
Total operating expenses .............. 106,205 95,404 36,754 26,066 21,830
-------- -------- ------- ------- --------
Income (loss) from operations ................. 7,482 (10,092) 6,803 4,885 4,154
Total other income (expense) .................. 4,595 718 1,257 490 (22)
-------- -------- ------- ------- --------
Income (loss) before income taxes ............. 12,077 (9,374) 8,060 5,375 4,132
Provision for income taxes .................... 4,142 6,062 1,843 183 487
-------- -------- ------- ------- --------
Net income (loss) ............................. $ 7,935 $(15,436) $ 6,217 $ 5,192 $ 3,645
======== ======== ======= ======= ========
Basic earnings (loss) per common share (2) .... $ .42 $ (.90) $ .38 $ .38 $ .30
======== ======== ======= ======= ========
Weighted average number of common
shares outstanding (2) .................... 18,999 17,212 16,390 13,660 12,116
======== ======== ======= ======= ========
Diluted earnings (loss) per common and
common share equivalent(2) ................ $ .40 $ (.90) $ .36 $ .36 $ .29
======== ======== ======= ======= ========
Weighted average number of common
and common share equivalents outstanding(2) 19,799 17,212 17,391 14,584 12,720
======== ======== ======= ======= ========
JUNE 30,
---------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 37,809 $ 8,501 $ 5,009 $ 7,680 $ 4,099
Working capital................................ 96,257 9,856 25,388 17,950 1,149
Total assets................................... 162,377 64,601 46,591 32,614 14,257
Deferred revenue (current)..................... 20,843 18,227 9,985 8,482 7,679
Deferred revenue (long term)................... 542 230 298 185 182
Total stockholders' equity..................... 115,858 28,696 28,259 20,423 3,039
</TABLE>
- ----------
(1) See Note 2 to Consolidated Financial Statements and "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations."
(2) Reflects the conversion of all issued and outstanding shares of preferred
stock into 8,847,814 shares of Common Stock upon the closing of the
Company's initial public offering on March 8, 1995. Also reflects the
effect of a two-for-one stock split effected in the form of a dividend,
with a record date of August 30, 1996. See Notes 1 and 6 to Consolidated
Financial Statements.
22
<PAGE>
PRO FORMA COMBINED FINANCIAL DATA
The following pro forma financial data of the Company presents the Company's
unaudited pro forma combined statements of operations for the fiscal years ended
June 30, 1997 and 1996, adjusted to give effect to the R&O acquisition as if it
had been consummated as of the beginning of each period.
On December 5, 1996, the Company acquired all of the capital stock of R&O.
The Company initially paid $10.8 million in cash and issued approximately
425,000 shares of restricted Common Stock valued at $12.8 million to the selling
stockholders of R&O. Additional consideration of $2.0 million was paid on
February 28, 1997 based on the achievement of certain financial performance
criteria. The Company also assumed liabilities of approximately $9.4 million and
recorded other direct costs of approximately $3.8 million related to the
acquisition. The acquisition has been accounted for as a purchase in accordance
with Accounting Principles Board Opinion No. 16. See "Management's Discussion
and Analysis of Consolidated Financial Condition and Results of Operations" and
Note 2 to Consolidated Financial Statements.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
YEAR ENDED JUNE 30, 1996
---------------------------------------------------------
BUSINESS PRO FORMA PRO FORMA
HISTORICAL ACQUIRED ADJUSTMENTS COMBINED
---------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Software license
fees ........... $17,824 $ 11,318 $ -- $29,142
Maintenance fees . 14,305 4,262 -- 18,567
Professional
services fee ... 11,307 3,448 -- 14,755
Other ............ 121 169 -- 290
------- -------- -------- -------
Total revenues . 43,557 19,197 -- 62,754
------- -------- -------- -------
Operating expenses:
Cost of software
license and
maintenance
fees ........... 2,788 1,787 400(1) 4,975
Cost of
professional
services fees .. 8,025 4,214 (221)(2) 12,018
Sales and
marketing ...... 18,137 6,022 (721)(2,4) 23,438
Research and
development .... 4,237 4,077 (257)(2,4) 8,057
General and
administrative . 3,567 2,598 (495)(1,2,3,4) 5,670
------- -------- -------- -------
Total operating
expenses ..... 36,754 18,698 (1,294) 54,158
------- -------- -------- -------
Income (loss) from
operations ....... 6,803 499 1,294 8,596
------- -------- -------- -------
Total other income
(expense) ........ 1,257 (308) 227(6) 1,176
------- -------- -------- -------
Income (loss) before
income taxes ..... 8,060 191 1,521 9,772
Provision for income
taxes ............ 1,843 -- 394(7) 2,237
------- -------- -------- -------
Net income (loss) .. $ 6,217 $ 191 $ 1,127 $ 7,535
======= ======== ======== =======
Diluted earnings per
common and common
share equivalent . $ .36 $ .42
======= =======
Weighted average
number of common
and common share
equivalents
outstanding ...... 17,391 425(8) 17,816
======= ======== =======
YEAR ENDED JUNE 30, 1997
--------------------------------------------------
BUSINESS PRO FORMA PRO FORMA
HISTORICAL ACQUIRED ADJUSTMENTS COMBINED
---------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Software license
fees ........... $40,292 $ 2,435 $ -- $42,727
Maintenance fees . 21,010 2,147 -- 23,157
Professional
services fee ... 23,832 1,249 -- 25,081
Other ............ 178 122 -- 300
------- -------- -------- -------
Total revenues . 85,312 5,953 -- 91,265
------- -------- -------- -------
Operating expenses:
Cost of software
license and
maintenance
fees ........... 4,345 959 167(1) 5,471
Cost of
professional
services fees .. 18,316 1,374 (161)(2) 19,529
Sales and
marketing ...... 31,573 2,243 (623)(2,4) 33,193
Research and
development .... 7,893(5) 1,511 (269)(2,4) 9,135
General and
administrative . 6,319 1,311 (828)(1,2,3,4) 6,802
------- -------- -------- -------
Total operating
expenses ..... 68,446 7,398 (1,714) 74,130
------- -------- -------- -------
Income (loss) from
operations ....... 16,866 (1,445) 1,714 17,135
------- -------- -------- -------
Total other income
(expense) ........ 718 (144) 138(6) 712
------- -------- -------- -------
Income (loss) before
income taxes ..... 17,584 (1,589) 1,852 17,847
Provision for income
taxes ............ 6,062 -- 93(7) 6,155
------- -------- -------- -------
Net income (loss) .. $11,522 $(1,589) $ 1,759 $11,692
======= ======== ======== =======
Diluted earnings per
common and common
share equivalent . $ .64 $ .64
======= =======
Weighted average
number of common
and common share
equivalents
outstanding ...... 18,086(9) 184(8) 18,270
======= ======== =======
- ---------
23
<PAGE>
(1) To adjust amortization expense to reflect amortization of the cost in
excess of the fair value of net assets acquired over a 5-year period and
for amortization of other identifiable intangible assets over the
appropriate periods.
(2) To adjust payroll and employee benefits related to the reduction of
duplicate or redundant positions identified by the Company as part of the
acquisition.
(3) To adjust other operating expenses to reflect expenditures which would not
have been incurred had the acquisition of R&O occurred at the beginning of
the respective periods.
(4) To reflect a reduction in expenses related to excess office space that
would not have been incurred by the Company had the acquisition occurred at
the beginning of the periods presented.
(5) Excludes a charge of approximately $27.0 million for write-off of purchased
in-process research and development.
(6) To adjust interest expense to reflect the payoff of R&O debt assumed in the
acquisition, as of the beginning of the periods presented.
(7) To adjust income taxes to reflect the tax effect of the adjustments
described above.
(8) To adjust weighted average number of common and common share equivalents
outstanding as if the Common Stock issued in connection with the acquisition
of R&O had been outstanding since the beginning of the periods presented.
(9) Adjusted to include additional common share equivalents as a result of
excluding a charge of approximately $27.0 million for write-off of purchased
in-process research and development. See Note (5) above.
The foregoing unaudited pro forma combined financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto. The
unaudited pro forma combined financial data is provided for illustrative
purposes only and is not necessarily indicative of the combined results of
operations that would have been reported had the R&O acquisition occurred on the
dates indicated, nor does it represent a forecast of the combined results of
operations for any future period. No pro forma adjustments have been included
herein which reflect the potential effect of (i) any efficiencies which may be
obtained by combining the Company and R&O operations or (ii) the costs of
restructuring, integrating or consolidating their operations. Certain statements
in this Form 10-K concerning the R&O acquisition, including descriptions of the
acquisition and pro forma financial information, are forward-looking statements
that involve risks and uncertainties. There can be no assurance that the R&O
acquisition will have the desired benefits or that it will not have an adverse
effect on the Company's business, financial condition or results of operations.
Actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, among others, those
discussed herein under "Factors That May Affect Future Results" and "Special
Note on Forward-Looking Statements," as well as those discussed elsewhere in
this Form 10-K and in the documents incorporated herein by reference.
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS REGARDING
FUTURE EVENTS AND THE COMPANY'S PLANS AND EXPECTATIONS. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED ABOVE IN "FACTORS THAT MAY AFFECT FUTURE RESULTS", AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THIS FORM 10-K OR INCORPORATED HEREIN BY REFERENCE. SEE
"SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS."
OVERVIEW
The Company derives its revenues primarily from software license fees,
software maintenance fees and professional services fees. The Company's software
is licensed primarily to Global 5000 companies and similarly-sized business and
governmental organizations worldwide. Professional services are provided in
conjunction with software products and are also provided separately to similar
large organizations. The Company's products and services are marketed through
its domestic and international direct sales organizations, through a number of
foreign independent distributors located in Europe, the Far East, South Africa
and Latin America, and through a new reseller channel established during fiscal
1998 primarily to sell the OnMark 2000 product line.
Revenue is recognized in accordance with Statement of Position 97-2,
"Software Revenue Recognition." Accordingly, revenue from software licensing is
recognized when delivery of the software has occurred, a signed non-cancelable
license agreement has been received from the customer or a purchase order from a
reseller after receipt of an executed reseller agreement and any remaining
obligations under the license agreement are insignificant. Revenue from software
license fees related to the Company's obligation to provide certain
post-contract customer support without charge for the first year of the license
is unbundled from the license fee at its fair value and is deferred and
recognized straight-line over the contract support period. Revenue from annual
or other renewals of maintenance contracts (including long-term contracts) is
deferred and recognized straight-line over the term of the contracts. Revenues
from professional services fees are recognized generally as related services are
provided. Professional services do not involve significant customization,
modification or production of the licensed software.
25
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain expense and income items:
YEAR ENDED JUNE 30,
1998 1997 1996
---- ---- ----
Revenues:
Software license fees........................... 57% 47% 41%
Maintenance fees................................ 26 25 33
Professional services fees...................... 17 28 26
Other........................................... 0 0 0
--- --- ---
Total revenues.......................... 100 100 100
--- --- ---
Operating expenses:
Cost of software license and maintenance fees... 11 5 7
Cost of professional services fees.............. 16 22 18
Sales and marketing............................. 37 37 41
Research and development........................ 14 9 10
Write-off of purchased in-process research and
development.................................. 8 32 --
General and administrative...................... 7 7 8
--- --- ---
Total operating expenses................ 93 112 84
--- --- ---
Income (loss) from operations..................... 7 (12) 16
Total other income, net................. 4 1 3
--- --- ---
Income (loss) before income taxes................. 11 (11) 19
Provision for income taxes........................ 4 7 4
--- --- ---
Net income (loss)....................... 7% (18)% 15%
=== ==== ===
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1998 AND JUNE 30, 1997
REVENUES
Total revenues were $113,687,000 in fiscal 1998, an increase of 33% from
$85,312,000 in fiscal 1997. Software license fees were $65,122,000 in fiscal
1998, an increase of 62% from $40,292,000 in fiscal 1997. Software license fees
increased both domestically and internationally primarily as a result of the
continued demand for the Company's tools to assist in addressing the year 2000
century date change problem both for the mainframe and desktop environments.
Mainframe license revenue increased year over year and desktop license revenue
from OnMark 2000, introduced in the third quarter of fiscal 1998, accounted for
$16,586,000 of total license revenue in fiscal 1998. The Company anticipates
desktop license revenue to continue to increase as a percentage of license
revenue and, as a result, mainframe license revenue may decrease as the Company
capitalizes on the growing opportunities in the desktop marketplace.
Maintenance fees were $28,865,000 in fiscal 1998, an increase of 37% from
$21,010,000 in fiscal 1997. The increase was due to the R&O acquisition, as well
as new software licenses, customer system upgrades and increases in the fees
charged for annual maintenance. With the Company's entry into the desktop
software market with the OnMark 2000 product line, it has experienced that a
large number of OnMark customers do not purchase maintenance services. As a
result, there could be some erosion in maintenance revenue growth to the extent
that license sales of OnMark 2000 continue to grow as a percentage of revenues.
Professional services fees were $19,615,000 in fiscal 1998, a decrease of
18% from $23,832,000 in fiscal 1997. Historically, the Company's professional
services provided processes, technology and expertise to address complex,
large-scale maintenance and redevelopment requirements of large organizations.
Most of these projects have been related to year 2000 conversion. During fiscal
1998, the Company focused its efforts in the services business in two areas:
completion of a single, large, fixed price engagement for converting
applications for year 2000 compliance, and performing smaller enablement
projects, designed to assist and train customers to perform the
26
<PAGE>
projects in-house, with their own resources. Larger scale professional services
projects were referred to services companies and integrators that have strategic
relationships with the Company.
Professional services fees decreased in fiscal 1998 due to this limited
focus of the services business which, in hindsight, management believes was
unsuccessful in helping to establish a services business to complement sales of
its software products. As a result of the Company's focus on selling enablement
projects, the number and size of services engagements performed in fiscal 1998
declined, resulting in lower revenues, year-over-year. Also, the revenues
recognized from the single large year 2000 conversion project decreased compared
to the previous year. The Company re-evaluated this project in the fourth
quarter of fiscal 1997 and determined that the level of effort required to
complete the engagement was more than originally estimated, resulting in a
decrease in the amount of revenue recognized for that contract during fiscal
1998. The project was completed in June 1998.
Going forward, management believes that professional consulting services
will be an important component of the Company's application modernization
strategy, and the Company has refocused its efforts on the services business and
plans to offer a broad range of solutions. Management believes, from its
experience in fiscal 1998, that customers in this market demand more
comprehensive project management and professional services, as well as software
products. In addition to continuing to provide its enablement services, the
Company will also refocus the services business to target large consulting
projects and make its project management expertise available to customers to
manage large application conversion or re-engineering projects. The Company has
made management changes and put an experienced team in place to consolidate and
manage the services organization on a worldwide basis. Management believes that
these efforts will increase its revenues attributable to professional services.
The Company will closely monitor its progress in this area from both a revenue
generation and profitability standpoint. See "Business - Viasoft Services."
COST OF REVENUES
Cost of software license and maintenance fees, which includes royalties,
cost of customer support and packaging and product documentation, was
$12,737,000 in fiscal 1998, an increase of 193% from $4,345,000 in fiscal 1997.
Gross margins on software license and maintenance fees decreased to 86% compared
to 93% in fiscal 1998 and 1997, respectively. The expense increase and margin
decrease are primarily due to additional royalty expenses, which represented 49%
of cost of software license and maintenance fees, in fiscal 1998, as compared to
12% in fiscal 1997. The increase in royalty expense is due to sales of the
OnMark 2000 product line, which require payments of royalties to third parties.
Other products require payment of royalties to third parties, but sales of these
products are not as significant as OnMark 2000. Increases in customer support
personnel and their related costs, increased salaries and outside consultants,
amortization of the purchased research and development from the R&O and EraSoft
acquisitions and increased costs of product documentation as a result of higher
sales volumes and new version releases of existing products contributed to the
increase in cost of software license and maintenance fees. At this time,
management anticipates that the cost of license and maintenance fees will
continue to increase and the gross margin will continue to decrease
year-over-year due to increased sales of products requiring royalties to third
parties.
Cost of professional services fees, which consists principally of personnel
costs, third party subcontracting costs, and other costs related to the
professional services business, was $18,537,000 in fiscal 1998, an increase of
1% from $18,316,000 in fiscal 1997. The increase in expenses is primarily a
result of additional personnel and their related costs, higher salaries and
travel expenses offset by reduced subcontractor costs and bonuses due to
decreased revenues. The overall gross margin on professional services fees in
fiscal 1998 was 6% compared to 23% in fiscal 1997. The decrease in margins is a
result of the decline in services revenue discussed above. Also, the Company
added resources to the fixed-price contract discussed above in order to complete
the project in time. Management believes that services margins will improve
during fiscal 1999 as changes in the services business model are implemented.
27
<PAGE>
SALES AND MARKETING
Sales and marketing expenses, which consist primarily of salaries,
commissions and related benefits and administrative costs allocated to the
Company's sales and marketing personnel, were $42,131,000 in fiscal 1998, an
increase of 33% from $31,573,000 in fiscal 1997. This increase is attributable
primarily to an increase in personnel, including the R&O personnel, and the
associated costs, higher salaries, increased travel, marketing and promotion
costs and the cost of recruiting qualified sales and marketing personnel. Sales
and marketing expenses as a percentage of total revenues was 37% in both fiscal
1998 and 1997.
RESEARCH AND DEVELOPMENT
Research and development expenditures consist primarily of personnel costs
of the research and development staff and the facilities, computing, benefits
and other administrative costs allocated to such personnel and third-party
development costs. Research and development expenditures were $16,392,000 in
fiscal 1998, an increase of 108% from $7,893,000 in fiscal 1997. These
expenditures exclude charges for in-process research and development of
approximately $8.5 million in connection with the acquisition of EraSoft and a
fault diagnostic testing technology license in fiscal 1998 and $27.0 million in
connection with the acquisition of R&O in fiscal 1997. See Note 2 to the
Consolidated Financial Statements. Research and development expenses also
include approximately $3.2 million in charges for the development of certain
technologies included in OnMark 2000, see Note 2 to the Consolidated Financial
Statements. Research and development costs in fiscal 1998 were $16,392,000, an
increase of 108% over the same period in fiscal 1997. These increases resulted
from the $3.2 million charge noted above, additional personnel and the
associated costs, including EraSoft and R&O research and development staff, as
well as general salary increases, external consulting costs and the cost of
recruiting personnel. As a percentage of total revenues, research and
development costs were 14% in fiscal 1998 compared to 9% for the same period in
fiscal 1997. The increase in research and development cost as a percentage of
revenue is primarily due to the $3.2 million in charges noted previously and the
costs associated with the increase in personnel.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include the costs of finance and
accounting, legal, human resources, corporate information systems, and other
administrative functions of the Company. General and administrative expenses
were $7,849,000 in fiscal 1998, representing an increase of 24% compared to
$6,319,000 in fiscal 1997. This increase is a result of additional
administrative personnel, including R&O personnel, and their related costs,
general salary increases, amortization of intangibles related to the R&O and
EraSoft acquisitions, additional legal and consulting fees and travel costs. As
a percentage of total revenues, general and administrative expenses was 7% in
both fiscal 1998 and 1997.
OTHER INCOME (EXPENSE)
Interest income in fiscal 1998 was $4,917,000, compared to $1,309,000 in
fiscal 1997. This increased was due primarily to interest income generated from
the $75,361,000 raised from the Company's public offering of common stock
completed on September 22, 1997. Other expense in fiscal 1998 was $317,000 as
compared to an expense of $546,000 in fiscal 1997, as foreign currency exchange
losses decreased in fiscal 1998. See "Effects of Inflation and Foreign Currency
Exchange Fluctuations."
PROVISION FOR INCOME TAXES
The provision for income taxes was $4,142,000 and $6,062,000 in fiscal 1998
and 1997, respectively. The Company's effective tax rate was 34% in fiscal 1998,
compared to 35%, excluding the effect of the nondeductible purchased in-process
research and development charge, for the same period in 1997.
28
<PAGE>
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1996
REVENUES
Total revenues were $85,312,000 in fiscal year 1997, an increase of 96%
from $43,557,000 in fiscal 1996. Software license fees were $40,292,000 in
fiscal 1997, an increase of 126% from $17,824,000 in fiscal year 1996. Software
license fees increased both domestically and internationally as a result of the
demand for the Company's tools to assist in addressing the year 2000 century
date change problem. The increase in international software license fees was
attributable primarily to a 387% improvement in results from the Company's
direct operations over the same period in the prior year, due primarily to sales
of the Company's year 2000 solutions in the United Kingdom and growth of the
German and Australian operations. In addition, license fees increased due to the
acquisition of R&O, which contributed license fees of $7,398,000 since the
December 5, 1996 acquisition date. See Note 2 to Consolidated Financial
Statements.
Maintenance fees were $21,010,000 in fiscal 1997, an increase of 47% from
$14,305,000 in fiscal 1996. The increase was due in part to the R&O acquisition,
which contributed $3,219,000 in maintenance revenue, with the remainder
attributable to new software licenses, customer system upgrades and increases in
the fees charged for annual maintenance.
Professional services fees were $23,832,000 in fiscal 1997, an increase of
111% from $11,307,000 in fiscal 1996. The Company continued to expand its
professional services business throughout most of fiscal 1997 to continue to
meet the increasing demand for its year 2000 solution offerings, Viasoft's
Enterprise 2000. Viasoft's Enterprise 2000 solution offerings comprised 72% and
75% of the Company's professional services revenues during fiscal 1997 and 1996,
respectively. In addition, R&O contributed $1,818,000 in professional services
fee revenue in fiscal 1997. During the fourth quarter of fiscal 1997, the
Company began to enhance its year 2000 solution offerings. The Company's initial
offering was focused on a three-phase, enterprise level solution for the year
2000 problem using Viasoft's Impact 2000, Viasoft's Plan 2000, and Viasoft's
Operation 2000. In the fourth quarter of fiscal 1997, the Company introduced
Viasoft's FastPath 2000, which is designed to provide the primary components of
a successful year 2000 conversion on an application level, rather than an
enterprise-wide level. This resulted in decreased utilization of personnel
during the quarter due to training required for this new solution. During the
fourth quarter of fiscal 1997, the Company also re-evaluated certain of its
service engagements and determined that the level of effort to complete these
engagements was more than originally estimated. As such, the Company revised the
amount of revenue recognized per day on a percentage of completion basis under
the engagements. The impact was to reduce professional services fees by
approximately $700,000 compared to the third quarter of fiscal 1997. The
combination of these revenue adjustments and the decreased personnel utilization
associated with the FastPath 2000 introduction caused a slowdown in revenue
growth in professional services fees during the fourth quarter of fiscal 1997.
COST OF REVENUES
Cost of software license and maintenance fees was $4,345,000 for the fiscal
1997, an increase of 56% from $2,788,000 during the fiscal 1996. The increase
was primarily due to additional R&O expenses of $1,074,000. Without the R&O
costs, these expenses would have increased 17%. Gross margins on software
license and maintenance fees remained relatively consistent at 93% compared to
91% for fiscal 1997 and fiscal 1996, respectively. The expense increase is
primarily due to additional personnel in the customer support area and increased
salaries, as well as amortization of the purchased research and development from
the R&O acquisition.
Cost of professional services fees was $18,316,000 in fiscal 1997, an
increase of 128% from $8,025,000 in fiscal 1996. The increase in expenses is a
result of additional personnel hired and their related costs as well as
third-party costs to deliver the Company's solutions in response to increased
customer demand, both domestically and internationally, and to a lesser extent,
additional expenses incurred by R&O of $1,681,000. The overall gross margin on
professional services fees for fiscal 1997 was 23% compared to 29% for fiscal
1996. Excluding the R&O professional services business, the gross margin on
other professional services business was 24%. During the fourth quarter of
fiscal 1997, the Company experienced lower margins as a result of its
introduction of FastPath
29
<PAGE>
2000, noted above, and the related costs incurred to train the professional
services organization. In addition, the percentage of completion revenue
adjustments noted above also reduced the margins on professional services.
Overall, the Company expects a decrease in professional services margins as it
continues to integrate the R&O professional services organization with its own
operations.
SALES AND MARKETING
Sales and marketing expenses were $31,573,000 in fiscal 1997, an increase of
74% from $18,137,000 in fiscal 1996. Of this increase, R&O expenses accounted
for $4,027,000. Excluding R&O expenses, sales and marketing expenses increased
52%. This increase is attributable primarily to an increase in personnel and the
associated costs, including higher salaries, travel and bonuses, as well as
general salary increases, increased commissions as a result of revenue growth,
increased marketing costs, and an increase in bad debt expense due to the
absolute dollar increase in accounts receivable. Sales and marketing expenses as
a percentage of total revenues declined to 37% in fiscal 1997, compared to 42%
in fiscal 1996, due primarily to the increase in revenues.
RESEARCH AND DEVELOPMENT
Total expenditures for research and development were $7,893,000 in fiscal
1997, excluding an approximate $27.0 million charge for purchased in-process
research and development in connection with the R&O acquisition, an increase of
86% from $4,237,000 in fiscal 1996. The increase in expenses includes costs
associated with R&O's research and development of $1,728,000. Excluding costs
related to R&O, research and development costs increased 46% in fiscal 1997 as a
result of general salary increases, the addition of personnel and the related
cost of recruiting, costs of external consultants and increased expenses for
external service bureau computing costs. As a percentage of total revenues,
research and development costs were 9% for fiscal 1997 (excluding the
approximate $27.0 million purchased in-process research and development charge)
compared to 10% for the same period in fiscal 1996, due primarily to the
increase in revenue.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $6,319,000 in fiscal year 1997,
representing an increase of 77% compared to $3,567,000 in fiscal year 1996. The
increase included $1,158,000 in general and administrative expenses related to
R&O. Excluding those expenses and the one-time charge of $350,000 incurred in
the third quarter of fiscal 1996 related to the change in the CFO position,
general and administrative expenses increased 60%. This increase is a result of
additional legal fees and administrative personnel and their related costs,
general salary increases, additional bonuses, amortization of intangibles
related to the R&O acquisition, increased external consulting costs and
additional insurance costs. As a percentage of total revenues, general and
administrative expenses were 7% for fiscal 1997 compared to 8% for period in
fiscal 1996, due primarily to the increase in revenues.
OTHER INCOME (EXPENSE)
Interest income in fiscal 1997 was $1,309,000, compared to $1,350,000 in
fiscal 1996. This decrease was due primarily to the decrease in funds available
for short-term investment as a result of the R&O acquisition, net of cash
generated from operations during the year. Other expense for fiscal 1997
increased to $546,000 as compared to $82,000 for the same period in fiscal 1996,
primarily due to exchange losses on transactions with the Company's subsidiaries
in Germany and the United Kingdom, which are valued in their local currencies,
as well as certain transactions with its Italian distributor which are valued in
lira. This was primarily a result of the strengthening of the U.S. dollar
against various European currencies during the second half of fiscal 1997. See
"Effects of Inflation and Foreign Currency Exchange Fluctuations."
PROVISION FOR INCOME TAXES
The provision for income taxes was $6,062,000 and $1,843,000 for fiscal 1997
and 1996, respectively. The Company's effective tax rate was 35% in fiscal 1997,
excluding the effect of the non-deductible purchased
30
<PAGE>
in-process research and development charge, compared to 23% in fiscal 1996. The
Company's effective tax rate in fiscal 1997 was affected by the decreased
availability of net operating loss carryforwards, which were fully utilized in
fiscal 1996, and certain tax credit carryforwards, which were mostly utilized in
fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash and cash equivalents and investments
of $103,605,000, representing an increase of $75,030,000 from the total of
$28,575,000 at June 30, 1997. The increase is primarily a result of the
successful completion of the Company's public offering of its common stock on
September 22, 1997, which raised $75,361,000.
The Company's net cash provided by operating activities was $13,842,000 and
$15,136,000 for fiscal 1998 and 1997, respectively. Net cash provided from
operations for fiscal 1998 was composed primarily of net income excluding
non-cash charges for the write-off of purchased in-process research and
development for the EraSoft acquisition and license of the fault diagnostic
technology, see Note 2 to the Consolidated Financial Statements, depreciation
and amortization, and offset by an increase in working capital, primarily from
an increase in accounts receivable and prepaid assets. Net cash provided by
operations for fiscal 1997 was composed primarily of net loss offset by non-cash
charges for the write-off of the purchased in-process research and development
related to the R&O acquisition, see Note 2 to the Consolidated Financial
Statements, depreciation and amortization, and a net increase in working capital
primarily as a result of an increase in deferred revenue.
The Company's investing activities used cash of $60,263,000 and $9,371,000
in fiscal 1998 and 1997, respectively. In fiscal 1998, cash was used for the
purchase of investments in excess of investment maturities, and to a lesser
extent, business and technology acquisitions, see Note 2 to the Consolidated
Financial Statements and the purchase of furniture, fixtures, equipment and
software, as well as for the acquisition of a customer list for the Company's
new direct operation in France. In fiscal 1997, the primary use of cash was for
the purchase of R&O and to a lesser extent, the purchase of furniture, fixtures
and equipment, offset by investment maturities exceeding purchases.
The Company's financing activities provided cash of $76,002,000 and used
cash of $1,942,000 in fiscal 1998 and 1997, respectively. In fiscal 1998, cash
was primarily provided by the completion of the Company's public offering of its
common stock, net of offering costs. This was offset by $2,181,000 used to
repurchase 135,000 shares under the Company's stock repurchase program announced
in April 1998. See Note 6 to the Consolidated Financial Statements. In fiscal
1997, cash was used primarily for payment of R&O debt acquired, offset in part
by the sale of common stock through the employee stock purchase plan and the
exercise of stock options.
As of June 30, 1998, the Company did not have any material commitments for
capital expenditures. In fiscal 1999, the Company anticipates capital
expenditures of approximately $9.7 million, of which $5.0 million is estimated
to be spent for completion of two internal software systems projects and the
remainder is for computer hardware and software to continue to update the
Company's network infrastructure. See Note 1 to the Consolidated Financial
Statements. In addition, the Company anticipates continuing its stock repurchase
program in fiscal 1999.
On September 22, 1997, the Company received net proceeds in an amount of
$75,361,000 from a public offering of 1,465,000 shares of its common stock. The
Company expects that the proceeds of this offering and existing working capital,
together with cash from operations, will be sufficient for the foreseeable
future to meet its capital and liquidity needs for existing operations and
general corporate purposes, potential acquisitions of businesses, products and
technologies, the stock repurchase program, as well as the addition of direct
sales and professional services personnel.
YEAR 2000 CONSIDERATIONS
The Company is aware of the problems associated with the year 2000 date
change and has established and continues to evaluate and update its program to
address any potential year 2000 compliance issues relating to its
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<PAGE>
(i) internal operating systems, (ii) vendors, facilities and other third
parties, and (iii) software products that it licenses to customers.
INTERNAL OPERATING SYSTEMS. The Company has completed its assessment of all
of its major internal operating systems (including non-IT assets) and is
continuing to monitor any new additions to its internal operating systems for
year 2000 compliance. As a result of such assessment and because of changing
business requirements as well, the Company is currently installing new
enterprise-wide systems relating to the Company's accounting and customer
relationship management needs, each of which has been warranted by the vendor to
be year 2000 compliant. To date, the Company has incurred approximately $2.0
million in costs of the $7.0 million budgeted by the Company for these two
projects. The customer support and sales automation system is currently up and
running and the Company is in the process of rolling it out to the Company's
international subsidiaries, which is currently scheduled to be completed by the
third quarter of fiscal 1999. The Company expects the installation of the new
accounting system to be completed by the end of fiscal 1999. The Company has
just started a review of its desktop year 2000 issues which include software
packages and PC hardware. The Company is using its own product suite, OnMark
2000, to assess its desktop concerns. The Company expects this assessment to be
complete by the third quarter of fiscal 1999. If the Company's major internal
operating systems are not year 2000 compliant in a timely manner, the Company's
business operations would be materially and adversely affected and the Company
may be required to incur unanticipated expenses to remedy any problems not
addressed by these compliance efforts.
VENDORS, FACILITIES AND OTHER THIRD PARTIES. The Company is currently
evaluating the year 2000 readiness of its material vendors, facilities and
distributors and resellers with respect to IT, as well as non-IT, assets. The
Company has forwarded questionnaires to many of its material vendors,
distributors and resellers and will evaluate responses on a case-by-case basis.
The Company will place the emphasis of its review on its primary vendors, such
as payroll services, computer services and phone systems. The Company is also in
the process of beginning its assessment of the year 2000 readiness of each of
its facilities. As part of this assessment, the Company will contact each of the
landlords of its primary office locations to determine (i) the status of year
2000 compliance at each property, (ii) contingency plans at each property in the
event that the year 2000 compliance issues are not resolved on a timely basis
and (iii) associated costs of year 2000 compliance that may affect the Company.
In the event that the Company's distributors and resellers are not year 2000
compliant in a timely manner, the Company could experience material adverse
consequences with respect to the marketing and sale of its products and, as a
result, the Company's business, results of operations and financial condition
would be materially and adversely affected. If the Company's major vendors or
facilities are not year 2000 compliant in a timely manner, the Company's
business operations would be materially and adversely affected and the Company
may be required to incur unanticipated expenses to remedy any problems.
PRODUCTS. The Company's development of products and technology is
accomplished through (i) in-house development, and (ii) acquisition or license
from third parties. See "Business -- Product Development." The Company has
completed and continues to evaluate and update its assessment of all of its
internally developed and third-party developed products for year 2000 readiness,
and believes that all of such products have been designed to satisfy the
Company's year 2000 specifications. The Company will continue to monitor newly
developed or acquired products for year 2000 compliance. In the event that any
of the Company's developed or acquired products are not year 2000 compliant in a
timely manner, the Company's sales may decline materially, customers and those
with whom they do business may assert product liability and other claims, and
the Company's business, results of operations and financial condition would be
materially and adversely affected. See "Factors That May Affect Future Results -
Product Liability."
To date, the Company has not completed its contingency plans in the event
that its internal operating systems, vendors, facilities, distributors,
resellers or products, or any other components of its business operations, fail
to operate in compliance with the year 2000 century date change. The Company
expects to develop its contingency plans by the end of fiscal 1999.
The cost of the Company's year 2000 compliance program has not had and is
not expected to have a material effect on the Company's results of operations or
liquidity. However, there can be no assurance that the Company
32
<PAGE>
will not experience material adverse consequences in the event that the
Company's year 2000 compliance program is not successful or its vendors,
facilities, distributors or resellers are unable to resolve their year 2000
compliance issues in a timely manner. See "Factors That May Affect Future
Results -- Year 2000 Considerations."
EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATIONS
The results of operations of the Company for the periods discussed above
have not been significantly affected by inflation or (except as described below)
foreign currency fluctuations. Sales made through the Company's foreign
distributors are denominated in U.S. dollars, except in Italy and Spain, where
they are denominated in local currency. Sales by the Company's foreign
subsidiaries are principally denominated in the currencies of the countries
where sales are made. The Company experienced losses of approximately $302,000
from foreign currency fluctuations in fiscal 1998 compared to $704,000 in fiscal
1997. The Company's unhedged foreign currency exposure at June 30, 1998
consisted of the following (in thousands):
<TABLE>
<CAPTION>
NET SHORT-TERM
--------------
RECEIVABLES (PAYABLES) NET RECEIVABLES
---------------------- ---------------
WITH FOREIGN NET INVESTMENT IN FROM FOREIGN
------------ ----------------- ------------
SUBSIDIARIES FOREIGN SUBSIDIARIES DISTRIBUTORS TOTAL
------------ -------------------- ------------ -----
<S> <C> <C> <C> <C>
Canada $ 1,611 $ 7,183 $ -- $ 8,794
United Kingdom 1,457 (1,014) -- 443
Australia 1,011 243 -- 1,254
Germany (7,535) 11,407 -- 3,872
France 2,227 (249) -- 1,978
Belgium 576 (384) -- 192
Netherlands 232 (82) -- 150
Mexico 29 (19) -- 10
Spain -- -- 685 685
Italy -- -- 712 712
-------- ------- ------ -------
TOTAL $ (392) $17,085 $1,397 $18,090
======== ======= ====== =======
</TABLE>
The Company has not to date sought to hedge the risks associated with
fluctuations in foreign exchange rates. The Company continues to evaluate the
relative costs and benefits of hedging and may seek to hedge these risks in the
future, if appropriate. Gains and losses relating to translation of the
financial statements of the Company's foreign subsidiaries are included as a
separate component of stockholders' equity in the Company's Consolidated
Financial Statements. See "Factors That May Affect Future Results -- Risks From
International Operations."
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Consolidated Financial Statements, the Notes
thereto and Report of Independent Public Accountants thereon commencing at page
F-1 of this Report, which Consolidated Financial Statements, Notes and Report
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOuNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the directors of the Company set forth in the
Proxy Statement to be delivered to stockholders in connection with the Company's
1998 Annual Meeting of Stockholders under the heading "Election of Directors" is
incorporated herein by reference, as is the information concerning the
directors, officers, and more
33
<PAGE>
than 10% stockholders of the Company under the heading "Section 16(a)
Compliance." The name, age and position of each executive officer of the Company
set forth under the heading "Business -- Executive Officers of the Registrant"
in Part I of this report is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning executive compensation set forth in the Proxy
Statement under the heading "Management" is incorporated herein by reference.
Information contained in the Proxy Statement under the captions "Report of the
Compensation Committee" and "Company Stock Performance Graph" is not
incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership of certain beneficial owners
and management set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management" is incorporated by
reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information concerning certain relationships and transactions set forth
in the Proxy Statement under the heading "Certain Transactions" is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS ANNUAL REPORT ON
FORM 10-K:
(1) Consolidated Financial Statements.
See Index to Consolidated Financial Statements on page F-1 of this
report.
(2) Consolidated Financial Statement Schedules.
Report of Independent Public Accountants. See page F-2 of this report.
Schedule I, Valuation and Qualifying Accounts and Reserves. See page
F-24 of this report.
(3) Exhibits:
The following exhibits are filed herewith or incorporated by reference.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
2.1 Stock Purchase Agreement among Viasoft, Inc., LfA-Gesellschaft fur
Vermogensverwaltung mbH (LfA-GV), Werner Dreesbach, Elga Dreesbach,
Christoph Rottger, and Valerie Rottger, dated November 11, 1996
(incorporated herein by reference to Exhibit 2.1 to the Company's
Form 8-K dated December 20, 1996)
2.2(5) Stock Purchase Agreement dated as of the 12th day of January, 1998,
between Viasoft, Inc., Michael Howatt Mabey, Nashirali Samanani, and
certain other sellers (incorporated herein by reference to Exhibit
2.1 to the Company's Form 10-Q for the quarter ended December 31,
1997)
34
<PAGE>
3.1 Restated Certificate of Incorporation (incorporated herein by
reference to Exhibit 10.20 to the Company's Form 10-K for fiscal year
1995)
3.2 Amended and Restated Bylaws of the Company (incorporated herein by
reference to Exhibit 3(e) to the Company's Registration Statement on
Form S-1 (Registration No. 33-88366))
3.3 Certificate of Amendment to the Restated Certificate of
Incorporation, filed November 17, 1997 (incorporated herein by
reference to Exhibit 3.1(a) to the Company's Form 10-Q for the
quarter ended December 31, 1997)
3.4 Restated Certificate of Incorporation, as amended through November
17, 1997 (incorporated herein by reference to Exhibit 3.1(b) to the
Company's Form 10-Q for the quarter ended December 31, 1997)
4.1 Form of Certificate for Common Stock (incorporated herein by
reference to Exhibit 4(a) to the Company's Registration Statement on
Form S-1 (Registration No. 33-88366))
4.2 Form of Warrant to Purchase Common Stock (incorporated herein by
reference to Exhibit 4(b) to the Company's Registration Statement on
Form S-1 (Registration No. 33-88366))
4.3 Rights Agreement, dated as of April 20, 1998, between the Company and
Harris Trust and Savings Bank (incorporated herein by reference to
Exhibit 1 to the Company's Form 8-A dated April 22, 1998)
4.4(1) Certificate of Designation of Series A Junior Participating Preferred
Stock
10.1 Office Lease dated June 5, 1992 between the Company and the Mutual
Life Insurance Company of New York, as amended (incorporated herein
by reference to Exhibit 10(e) to the Company's Registration Statement
on Form S-1 (Registration No. 33-88366))
10.2(2) Form of Indemnification Agreement between the Company and each of its
directors (incorporated herein by reference to Exhibit 10(f) to the
Company's Registration Statement on Form S-1 (Registration No. 33-
88366))
10.3(2) Viasoft, Inc. 1986 Stock Option Plan (incorporated herein by
reference to Exhibit 10(g) to the Company's Registration Statement on
Form S-1 (Registration No. 33-88366))
10.4(2) 1994 Equity Incentive Plan (incorporated herein by reference to
Exhibit 10(l) to the Company's Registration Statement on Form S-1
(Registration No. 33-88366))
10.5(2) Employee Stock Purchase Plan, as amended (incorporated herein by
reference to Exhibit 10(m) to Amendment No. 2 to the Company's
Registration Statement on Form S-1 (Registration No. 33-88366))
10.6(2) Employment Agreement dated July 28, 1994 between the Company and
Colin J. Reardon (incorporated herein by reference to Exhibit 10(o)
to the Company's Registration Statement on Form, S-1 (Registration
No. 33-88366))
10.7(2)(3) Viasoft FY97 Executive Bonus Plan (incorporated herein by reference
to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended
September 30, 1996)
10.8(2)(3) FY 97 Incentive Plan for Senior Vice President, Americas
(incorporated herein by reference to Exhibit 10.2 to the Company's
Form 10-Q for the quarter ended September 30, 1996)
10.9(2)(3) FY 97 Incentive Plan for Vice President, International Operations
(incorporated herein by reference to Exhibit 10.3 to the Company's
Form 10-Q for the quarter ended September 30, 1996)
10.10(2)(3)Consulting and Employment Agreement between the Company and Mark R.
Schonau (incorporated herein by reference to Exhibit 10.4 to the
Company's Form 10-Q for the quarter ended September 30, 1996)
10.11 Outside Director Stock Option Plan (incorporated herein by reference
to Exhibit A of the Company's Definitive Schedule 14A Proxy Statement
for the 1995 Annual Meeting of Stockholders)
10.12(2) Employee Stock Purchase Plan (as amended and restated as of April 24,
1997) (incorporated herein by reference to the Company's Form 10-K
for fiscal year 1997)
10.13 Assignment, Assumption and Novation Agreement dated September 12,
1997 and
35
<PAGE>
Assignment, Assumption and Novation Agreement dated December 19,
1996, relating to Londen Center Lease Agreement (incorporated herein
by reference to the Company's Form 10-K for fiscal year 1997)
10.14(2)(4)Viasoft FY98 Executive Bonus Plan (incorporated herein by reference
to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended
September 30, 1997)
10.15(2)(4)FY 98 Incentive Plan for Executive Vice President (incorporated
herein by reference to Exhibit 10.2 to the Company's Form 10-Q for
the quarter ended September 30, 1997)
10.16(2)(4)FY 98 Incentive Plan for Senior Vice President, International
Operations (incorporated herein by reference to Exhibit 10.3 to the
Company's Form 10-Q for the quarter ended September 30, 1997)
10.17(2) Consulting Agreement between the Company and Michael A. Wolf dated
August 1, 1997 (incorporated herein by reference to Exhibit 10.4 to
the Company's Form 10-Q for the quarter ended September 30, 1997)
10.18(2) Viasoft, Inc. Deferred Compensation Plan (incorporated herein by
reference to Exhibit 10.5 to the Company's Form 10-Q for the quarter
ended September 30, 1997)
10.19(1)(2)Amendment No. 1 to the Viasoft, Inc. Deferred Compensation Plan,
dated as of June 30, 1998
10.20(2) Viasoft, Inc. 1997 Equity Incentive Plan (incorporated herein by
reference to Appendix B of the Company's Definitive Schedule 14A
Proxy Statement for the 1997 Annual Meeting of Stockholders)
10.21(2) Viasoft, Inc. 1997 Equity Incentive Plan, amended and restated as of
January 21, 1998 (incorporated herein by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-8 (Registration No.
333-47571))
11(1) Computation of Earnings per Share
21(1) Subsidiaries of the Company
23(1) Consent of Arthur Andersen LLP
24(1) Powers of Attorney
27(1) Financial Data Schedules
- ----------
(1) Filed herewith
(2) Management contract or compensation plan or arrangement
(3) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by order dated January 6, 1997.
(4) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by the Commission dated November 25, 1997.
(5) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by order dated February 27, 1998.
(b) REPORTS ON FORM 8-K.
The Company filed a Current Report on Form 8-K with the Securities and
Exchange Commission on April 23, 1998 with respect to the Company's declaration
of a dividend of one preferred share purchase right for each outstanding share
of the Company's common stock on May 8, 1998, in accordance with the Company's
Stockholder Rights Plan.
(c) EXHIBITS.
The list of Exhibits required by Item 601 of Regulation S-K is included in
Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES.
See Item 14(a)(2) above.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, this 4th day
of September, 1998.
Viasoft, Inc.
By: /s/ STEVEN D. WHITEMAN
--------------------------
Steven D. Whiteman
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ STEVEN D. WHITEMAN
- ------------------------------
Steven D. Whiteman Chief Executive Officer, September 4, 1998
Director
/s/ MARK R. SCHONAU
- ------------------------------
Mark R. Schonau Chief Financial Officer, September 4, 1998
Chief Accounting Officer
* JOHN J. BARRY III
- ------------------------------
John J. Barry III Director September 4, 1998
* ALEXANDER S. KULI
- ------------------------------
Alexander S. Kuli Director September 4, 1998
* J. DAVID PARRISH
- ------------------------------
J. David Parrish Director September 4, 1998
* ARTHUR C. PATTERSON
- ------------------------------
Arthur C. Patterson Director September 4, 1998
* By: /s/ STEVEN D. WHITEMAN
- ------------------------------
Attorney-in-Fact
37
<PAGE>
VIASOFT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants.............................. F-2
Consolidated Balance Sheets........................................... F-3
Consolidated Statements of Operations................................. F-4
Consolidated Statements of Stockholders' Equity....................... F-5
Consolidated Statements of Cash Flows................................. F-6
Notes to Consolidated Financial Statements............................ F-7
Schedule I - Valuation and Qualifying Accounts and Reserves
Years Ended June 30, 1998, 1997 and 1996............................ F-24
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Viasoft, Inc.
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Viasoft, Inc. (a
Delaware corporation) and Subsidiaries as of June 30, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Viasoft, Inc. and
Subsidiaries as of June 30, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1998, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of the
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
July 31, 1998
F-2
<PAGE>
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
------------------
1998 1997
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1) .............................. $ 37,809 $ 8,501
Investments, at amortized cost (Note 3) ......................... 63,294 12,697
Accounts receivable (less allowance for doubtful accounts of
$815 and $678, at June 30, 1998 and 1997 respectively) ........ 33,227 21,240
Prepaid expenses and other (Notes 4 and 8) ...................... 7,774 2,954
--------- --------
Total current assets ..................................... 142,104 45,392
--------- --------
Furniture and equipment, net (Note 1) ............................. 7,609 4,279
Other assets (Notes 2 and 8):
Investments, at amortized cost (Note 3) ......................... 2,502 7,377
Intangible assets, net (Note 1) ................................. 6,751 4,675
Other ........................................................... 3,411 2,878
--------- --------
Total other assets ....................................... 12,664 14,930
--------- --------
Total assets ............................................. $ 162,377 $ 64,601
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 1,733 $ 2,016
Accrued compensation ............................................ 4,390 3,309
Accrued income taxes payable .................................... 5,113 3,276
Other accrued expenses .......................................... 13,768 8,709
Deferred revenue (Note 1) ....................................... 20,843 18,227
--------- --------
Total current liabilities ................................ 45,847 35,537
--------- --------
Deferred revenue, recognized after one year (Note 1) .............. 542 230
--------- --------
Other long term liabilities ....................................... 130 138
--------- --------
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $.001 par value, 2,000,000 shares
authorized, 0 shares issued and outstanding ................... -- --
Common stock, $.001 par value, 48,000,000 shares authorized;
19,456,133 and 17,722,772 shares issued at June 30, 1998
and 1997, respectively (Notes 5 and 6) ........................ 19 18
Capital in excess of par value .................................. 125,626 43,970
Common stock subscriptions receivable (Note 6) .................. (31) (55)
Accumulated deficit ............................................. (6,995) (14,930)
Cumulative translation adjustment (Note 1) ...................... (580) (307)
Treasury stock, at cost, 135,000 shares (Note 6) ................ (2,181) --
--------- --------
Total stockholders' equity ............................... 115,858 28,696
--------- --------
Total liabilities and stockholders' equity ............... $ 162,377 $ 64,601
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Software license fees .............................. $ 65,122 $ 40,292 $ 17,824
Maintenance fees ................................... 28,865 21,010 14,305
Professional services fees ......................... 19,615 23,832 11,307
Other .............................................. 85 178 121
--------- -------- --------
Total revenues ............................. 113,687 85,312 43,557
--------- -------- --------
Operating expenses:
Cost of software license and maintenance fees ...... 12,737 4,345 2,788
Cost of professional services fees ................. 18,537 18,316 8,025
Sales and marketing ................................ 42,131 31,573 18,137
Research and development ........................... 16,392 7,893 4,237
Write-off of purchased in-process research and
development ..................................... 8,559 26,958 --
General and administrative ......................... 7,849 6,319 3,567
--------- -------- --------
Total operating expenses ................... 106,205 95,404 36,754
--------- -------- --------
Income (loss) from operations ........................ 7,482 (10,092) 6,803
--------- -------- --------
Other income (expense):
Interest income .................................... 4,917 1,309 1,350
Interest expense ................................... (5) (45) (11)
Other income (expense), net ........................ (317) (546) (82)
--------- -------- --------
Total other income ......................... 4,595 718 1,257
--------- -------- --------
Income (loss) before income taxes .................... 12,077 (9,374) 8,060
Provision for income taxes ......................... 4,142 6,062 1,843
--------- -------- --------
Net income (loss) .................................... $ 7,935 $(15,436) $ 6,217
========= ======== ========
Basic earnings (loss) per common share (Notes 1 and 7) $ .42 $ (.90) $ .38
========= ======== ========
Weighted average number of common shares
outstanding (Notes 1 and 7) ........................ 18,999 17,212 16,390
========= ======== ========
Diluted earnings (loss) per common and common share
equivalent (Notes 1 and 7) ........................... $ .40 $ (.90) $ .36
========= ======== ========
Weighted average number of common and common share
equivalents outstanding (Notes 1 and 7) .............. 19,799 17,212 17,391
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK COMMON
------------------- CAPITAL IN STOCK ACCUMULATED
NUMBER EXCESS OF SUBSCRIPTIONS EARNINGS
AMOUNT OF SHARES PAR VALUE RECEIVABLE (DEFICIT)
------ --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995 ...................... $16 15,949,096 $ 26,354 $(258) $ (5,711)
Sale of common stock, net ................... -- 214,722 747 -- --
Exercise of options, net .................... 1 279,734 195 -- --
Exercise of warrants ........................ -- 275,004 103 -- --
Income tax benefit relating to stock
Plans (Note 4) ............................ -- -- 170 -- --
Compensation relating to stock plans ........ -- -- 202 -- --
Payments on common stock subscriptions
receivable (Note 6) ....................... -- -- -- 199 --
Net income .................................. -- -- -- -- 6,217
Translation adjustment ...................... -- -- -- -- --
--- ---------- -------- ----- --------
Balance at June 30, 1996 ...................... 17 16,718,556 27,771 (59) 506
Sale of common stock, net ................... -- 299,636 1,281 -- --
Exercise of options, net .................... -- 279,468 914 -- --
Shares issued in connection with
acquisition of R&O Software-Technik (Note 2) 1 425,112 12,805 -- --
Income tax benefit relating to stock
plans (Note 4) ............................ -- -- 1,199 -- --
Payments on common stock subscriptions
receivable (Note 6) ....................... -- -- -- 4 --
Net loss .................................... -- -- -- -- (15,436)
Translation adjustment ...................... -- -- -- -- --
--- ---------- -------- ----- --------
Balance at June 30, 1997 ...................... 18 17,722,772 43,970 (55) (14,930)
Sale of common stock, net ................... -- 90,239 980 -- --
Secondary offering, net (Note 6) ............ 1 1,465,000 75,360 -- --
Treasury stock purchased (Note 6) ........... -- -- -- -- --
Exercise of options, net .................... -- 178,122 1,818 -- --
Income tax benefit relating to stock plans
(Note 4).................................... -- -- 3,498 -- --
Payments on common stock subscriptions
receivable (Note 6) ....................... -- -- -- 24 --
Net income .................................. -- -- -- -- 7,935
Translation adjustment ...................... -- -- -- -- --
--- ---------- -------- ----- --------
Balance at June 30, 1998 ...................... $19 19,456,133 $125,626 $ (31) $ (6,995)
=== ========== ======== ===== ========
TREASURY STOCK
CUMULATIVE ----------------------
TRANSLATION NUMBER
ADJUSTMENT AMOUNT OF SHARES TOTAL
---------- ------ --------- -----
Balance at June 30, 1995 ...................... $ 22 $ -- -- $ 20,423
Sale of common stock, net ................... -- -- -- 747
Exercise of options, net .................... -- -- -- 196
Exercise of warrants ........................ -- -- -- 103
Income tax benefit relating to stock
Plans (Note 4) ............................ -- -- -- 170
Compensation relating to stock plans ........ -- -- -- 202
Payments on common stock subscriptions
receivable (Note 6) ....................... -- -- -- 199
Net income .................................. -- -- -- 6,217
Translation adjustment ...................... 2 -- -- 2
----- ------- ------- ---------
Balance at June 30, 1996 ...................... 24 -- -- 28,259
Sale of common stock, net ................... -- -- -- 1,281
Exercise of options, net .................... -- -- -- 914
Shares issued in connection with
acquisition of R&O Software-Technik (Note 2) -- -- -- 12,806
Income tax benefit relating to stock
plans (Note 4) ............................ -- -- -- 1,199
Payments on common stock subscriptions
receivable (Note 6) ....................... -- -- -- 4
Net loss .................................... -- -- -- (15,436)
Translation adjustment ...................... (331) -- -- (331)
----- ------- ------- ---------
Balance at June 30, 1997 ...................... (307) -- -- 28,696
Sale of common stock, net ................... -- -- -- 980
Secondary offering, net (Note 6) ............ -- -- -- 75,361
Treasury stock purchased (Note 6) ........... -- (2,181) 135,000 (2,181)
Exercise of options, net .................... -- -- -- 1,818
Income tax benefit relating to stock plans
(Note 4) .................................. -- -- -- 3,498
Payments on common stock subscriptions
receivable (Note 6) ....................... -- -- -- 24
Net income .................................. -- -- -- 7,935
Translation adjustment ...................... (273) -- -- (273)
----- ------- ------- ---------
Balance at June 30, 1998 ...................... $(580) $(2,181) 135,000 $ 115,858
===== ======= ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ................................. $ 7,935 $(15,436) $ 6,217
--------- -------- --------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Write-off of purchased in-process research and
development .................................... 8,559 26,958 --
Depreciation and amortization .................... 3,698 1,826 695
Compensation expense related to stock plans ...... -- -- 202
Loss on disposal of fixed assets ................. -- 26 6
Changes in operating assets and liabilities net
of effect of businesses acquired:
Increase in accounts receivable ................ (11,852) (3,188) (4,358)
Increase in prepaid expenses and other assets (5,983) (3,180) (1,184)
Increase (decrease) in accounts payable and
other accrued expenses ...................... 2,269 (2,343) 2,203
Increases in accrued compensation .............. 1,081 1,818 625
Increases in accrued income taxes payable ...... 5,335 2,651 1,954
Increase in deferred revenue ................... 2,800 6,004 1,616
--------- -------- --------
Total adjustments ......................... 5,907 30,572 1,759
--------- -------- --------
Net cash provided by operating activities .... 13,842 15,136 7,976
--------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures .............................. (5,655) (2,747) (987)
Cash paid for businesses acquired, net of cash
acquired (Note 2) .............................. (8,958) (10,225) --
Cash paid for acquisition of customer list ........ (530) -- --
Sale or maturity of investments ................... 66,482 36,098 32,890
Purchase of investments ........................... (111,602) (32,497) (43,706)
--------- -------- --------
Net cash used in investing activities ..... (60,263) (9,371) (11,803)
--------- -------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock ............ 78,978 2,196 1,046
Payments of short term debt (Note 2) .............. -- (4,099) --
Principal payments on obligations under capital
leases ......................................... -- (43) (87)
Payments for offering costs ....................... (819) -- --
Payments received on common stock subscriptions
receivable ..................................... 24 4 199
Purchase of treasury stock ........................ (2,181) -- --
--------- -------- --------
Net cash provided by (used in) financing
activities .............................. 76,002 (1,942) 1,158
--------- -------- --------
Effect of exchange rate changes on cash ............. (273) (331) (2)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents 29,308 3,492 (2,671)
Cash and cash equivalents, beginning of year ........ 8,501 5,009 7,680
--------- -------- --------
Cash and cash equivalents, end of year .............. $ 37,809 $ 8,501 $ 5,009
========= ======== ========
Supplemental cash flow information:
Interest paid ..................................... $ -- $ 46 $ 11
Income taxes paid ................................. $ 2,444 $ 2,934 $ 450
Income tax benefit related to stock plans ......... $ 3,498 $ 1,199 $ 170
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Viasoft, Inc. and its subsidiaries (the "Company") provide business
solutions that help enable organizations worldwide understand, manage, evolve,
reuse, transition and modernize mission-critical enterprise applications that
support their fundamental business processes. The Company also provides
professional services to large corporations and public entities to help them
effectively manage and automate the evolution of their existing applications.
The Company markets its products and services through its United States sales
force, both domestically and in Canada, and through a network of resellers for
its desktop solutions. The Company operates through its wholly-owned
subsidiaries in Australia, the United Kingdom, Germany, France, Belgium, the
Netherlands, Canada and Mexico and an established network of semi-exclusive
distributors in other international markets.
SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Viasoft, Inc. and its subsidiaries Viasoft International, Inc., Viasoft Pty.
Ltd. (Viasoft Pty); Viasoft U.K. Limited (Viasoft UK); Viasoft International
GmbH (Viasoft Germany); Viasoft Software Development & Co., KG, Viasoft Software
Development Geschaftsfuhrungs GmbH, Viasoft France, S.A.S. (Viasoft France),
Viasoft de Mexico, S.A. de C.V.; Viasoft Benelux and Viasoft Canada Company. The
subsidiary books are prepared in local currency and converted at time of
consolidation to U.S. dollars using the exchange rate at the balance sheet date
for balance sheet items and an average exchange rate during the period presented
for income and expense items. All significant intercompany accounts and
transactions have been eliminated.
REVENUE RECOGNITION
Revenue is recognized in accordance with Statement of Position 97-2,
"Software Revenue Recognition." Accordingly, revenue from software licensing is
recognized when delivery of the software has occurred, a signed non-cancelable
license agreement has been received from the customer or a purchase order from a
reseller after receipt of an executed reseller agreement and any remaining
obligations under the license agreement are insignificant. Revenue from software
license fees related to the Company's obligation to provide certain
post-contract customer support without charge for the first year of the license
is unbundled from the license fee at its fair value and is deferred and
recognized straight-line over the contract support period. Revenue from annual
or other renewals of maintenance contracts (including long-term contracts) is
deferred and recognized straight-line over the term of the contracts. Revenues
from professional services fees are recognized generally as related services are
provided. Professional services do not involve significant customization,
modification or production of the licensed software.
Revenue generated by domestic operations from sales to unaffiliated foreign
customers was 7%, 5% and 11% of total revenues in the years ended June 30, 1998,
1997 and 1996, respectively. See Note 9 to the Consolidated Financial
Statements.
F-7
<PAGE>
CASH AND CASH EQUIVALENTS
The Company's policy is to invest cash in excess of operating requirements
in income-producing investments. The Company's investments include commercial
paper, corporate bonds, and U.S. Treasury bills, all of which are classified as
held-to-maturity and stated at amortized cost, which approximates fair market
value. For purposes of the statements of cash flows, the Company considers all
investments with a maturity of three months or less when purchased to be cash
equivalents.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk, as defined by Statement of Financial Accounting Standards
("SFAS") No. 105, consist primarily of trade accounts receivable. The Company's
customer base is primarily Global 5000 and similarly-sized organizations
worldwide, and the Company's reseller and international distributor network. The
Company does not require collateral upon delivery of its products.
FURNITURE, EQUIPMENT AND SOFTWARE
Furniture, equipment and software is stated at cost. Depreciation is
computed using the straight-line method based upon the estimated useful lives of
two to five years. In March 1998, the American Institute of Certified Public
Accountants released SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which establishes guidance on
accounting for the costs of computer software developed or obtained for internal
use. The Company adopted this statement in fiscal 1998 and there was no
cumulative catch up upon adoption. The Company amortizes its software on a
straight-line basis over its estimated useful life of five years. Depreciation
and amortization expense was $2,414,000, $1,266,000 and $664,000, in the years
ended June 30, 1998, 1997, and 1996, respectively. Furniture, equipment and
software consist of the following (in thousands):
JUNE 30,
------------------
1998 1997
---- ----
Computer equipment.................................. $ 7,169 $ 4,789
Office furniture and equipment...................... 4,068 2,986
Capitalized software for internal use............... 1,926 --
Capitalized leased equipment........................ 380 279
------- -------
Total............................................. 13,543 8,054
Less: Accumulated depreciation and amortization.... (5,934) (3,775)
-------- --------
Net furniture, equipment and software............... $ 7,609 $ 4,279
======= =======
INTANGIBLE ASSETS
The Company has recorded certain intangible assets in connection with the
acquisition of various businesses or licensing of software (see Note 2 to the
Consolidated Financial Statements). Intangible assets consist of the following
(in thousands):
JUNE 30,
-----------------
1998 1997
---- ----
Purchased software................................. $ 3,680 $2,000
Cost in excess of fair value of net assets
acquired ("goodwill")............................ 2,441 1,519
Assembled workforce................................ 1,130 900
Customer lists..................................... 1,330 800
------- ------
Total............................................ 8,581 5,219
Less: Accumulated amortization.................... (1,830) (544)
-------- -------
Net intangible assets.............................. $ 6,751 $4,675
======= ======
F-8
<PAGE>
Amortization expense was $1,286,000, $544,000 and $0 in fiscal 1998, 1997,
and 1996, respectively. Amortization of purchased software of $611,000 and
$233,000 in fiscal 1998 and 1997, respectively, is included in the cost of
software license and maintenance fees. All other amortization is shown in
general and administrative expense.
In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", all noncurrent assets both
tangible and intangible that are to be held and used are reviewed for impairment
whenever events or changes in circumstances indicated that the carrying amount
of the asset in question may not be recoverable.
PRODUCT DEVELOPMENT
Under the criteria set forth in SFAS 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed", capitalization of
software development costs begins upon the establishment of technological
feasibility of the product. The establishment of technological feasibility and
the ongoing assessment of the recoverability of these costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, anticipated future gross product revenues, estimated economic
product lives and changes in software and hardware technology. In addition, the
Company has and plans to continue to purchase software from third parties.
Purchased software is also accounted for in accordance with SFAS No. 86. Amounts
that could have been capitalized under this statement after consideration of the
above factors were immaterial, and therefore no internal software development
costs have been capitalized by the Company to date.
FOREIGN CURRENCY TRANSLATION
Financial information relating to the Company's foreign subsidiaries is
reported in accordance with SFAS 52, "Foreign Currency Translation." The net
foreign currency transaction gain (loss) in the years ended June 30, 1998, 1997
and 1996, was approximately ($302,000), ($704,000), and $16,000, respectively.
The gains or losses resulting from the translation of the financial statements
of the Company's foreign subsidiaries have been included as a separate component
of stockholders' equity.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share," which superseded Accounting Principles Board
Opinion No. 15. SFAS No. 128 was effective for financial statements for fiscal
years ending after December 15, 1997 and required restatement of all
prior-period earnings per share data presented. The new statement modifies the
calculations of primary and fully diluted earnings per share and replaces them
with basic and diluted earnings per share. The Consolidated Statement of
Operations sets forth the restated basic and diluted earnings (loss) per share
for all periods presented. Shares issuable upon the exercise of employee stock
options that are considered anti-dilutive are not included in the weighted
average number of common and common share equivalents outstanding.
On August 19, 1996, the Company's Board of Directors approved a two-for-one
stock split of its outstanding common stock, to be effected in the form of a
stock dividend. Each holder of shares of the Company's common stock on August
30, 1996 received one additional share of common stock for every one share of
stock held. All share and per share information presented in these financial
statements reflects the effect of this event.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-9
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by
the Company using available market information and valuation methodologies.
Considerable judgment is required in estimating fair values. Accordingly, the
estimates may not be indicative of the amounts the Company could realize in a
current market exchange. The carrying amounts of cash, receivables and accounts
payable approximate fair values.
RECENTLY ISSUED ACCOUNTING STATEMENTS
The FASB issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information," in
June 1997. In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" and in June 1998,
the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The Company is required to adopt these Statements during its fiscal
year ending June 30, 1999 or later. The adoption of these new standards are not
expected to have a material impact on the Company's financial statements.
DEPENDENCE ON YEAR 2000
The growth in the Company's revenue during fiscal years 1998 and 1997
resulted primarily from increased demand for the Company's year 2000 century
date conversion products and solutions for mainframe applications and desktop
environments. Should the demand for the Company's year 2000 products and
solutions decline significantly as a result of new technologies, competition or
any other factors, the Company's revenues would be materially and adversely
affected. The Company anticipates that demand in the year 2000 market will
decline, perhaps rapidly, following the year 2000. It is the Company's strategy
to leverage customer relationships and knowledge of customer application systems
derived from its year 2000 solutions to market other products and services
beyond the year 2000 market. However, there can be no assurance that this
strategy will be successful, and should the Company be unable to market other
products and services as demand in the year 2000 market declines, whether as a
result of competition, technological change or other factors, the Company's
business, results of operations and financial condition will be materially and
adversely affected.
PRODUCT LIABILITY
The Company provides business solutions that help large organizations
worldwide understand, manage, evolve, reuse, transition and modernize
mission-critical enterprise applications that support their fundamental business
processes. In addition, a large portion of the Company's business is devoted to
addressing the year 2000 problem, which affects the performance and reliability
of many mission-critical systems. The Company's agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product and service liability claims. It is possible, however, that
the limitation of liability provisions contained in the Company's customer
agreements may not be effective as a result of existing or future federal,
state, local or foreign laws or ordinances or unfavorable judicial decisions.
The Company maintains errors and omissions insurance, but there is no guarantee
that the insurance policy would cover any or all claims made against the Company
or that the coverage provided would be adequate. Although the Company has not
experienced any material product or service liability claims to date, the sale
and support of its products and services may entail the risk of such claims,
particularly in the year 2000 market, which could be substantial in light of the
use of its products and services in mission-critical applications. A successful
product or service liability claim brought against the Company could have a
material adverse effect upon the Company's business, operating results and
financial condition.
2. ACQUISITIONS AND LICENSING AGREEMENTS
ERASOFT TECHNOLOGIES, INC.
On January 12, 1998, the Company acquired all of the outstanding shares of
capital stock of EraSoft for cash and certain contingent payments pursuant to a
stock purchase agreement with the stockholders of EraSoft. EraSoft developed,
marketed and supported year 2000 assessment and analysis software tools for
desktop computing.
F-10
<PAGE>
EraSoft was founded in 1996 and was headquartered in Calgary, Alberta, Canada.
The aggregate cost of the EraSoft acquisition consisted of the following (in
thousands):
Cash................................................. $7,795
Assumption of liabilities and acquisition costs...... 1,926
Additional consideration............................. 246
------
Total............................... $9,967
======
The terms of the agreement with EraSoft provide for additional consideration
to be paid if the revenue from licenses of EraSoft's products exceeds certain
targeted levels between the date of the acquisition and June 30, 2000. In
addition, the former stockholders of EraSoft will also receive additional
consideration based on revenue from EraSoft products licensed during the period
from the acquisition date to June 30, 2000. Additional consideration will be
paid in cash and recorded as an adjustment to cost in excess of net assets
acquired when earned and will be amortized either using the revenue ratio or
straight-line method through June 30, 2000, whichever results in the greater
amount of amortization during the period. In June 1998, the first of such
additional consideration was earned in the amount of $625,000. This amount was
accrued at June 30, 1998 and will be paid during the first quarter of fiscal
1999 per the terms of the contract.
The acquisition was accounted for as a purchase in accordance with
Accounting Principles Board Opinion Nos. 16 and 17 and, accordingly, the
purchased assets and assumed liabilities were recorded at their estimated fair
values at the acquisition date. The Company received an appraisal of the
intangible assets which indicated that approximately $7.2 million of the
acquired intangible assets was in-process research and development that had not
yet reached technological feasibility. Because there was no assurance that the
Company would be able to successfully complete the development and integration
of the in-process research and development into its suite of software products
or that the acquired technology had any alternative future use, the acquired
in-process research and development was charged to expense by the Company in its
quarter ended March 31, 1998. The Company intends to use the purchased
technology for enhancements to OnMark 2000 and in other product lines as well,
and has now added new initiatives to fully exploit the value of the purchased
technology. As a result, the Company estimates the remaining investment and
development work required to bring the in-process technology to commercial
availability in each of these initiatives will aggregate approximately $2.6
million over the next year. The Company allocated the aggregate cost of the
acquisition as follows (in thousands):
Accounts receivable....................... $ 381
Other assets.............................. 540
In-process research and development....... 7,240
Purchased software........................ 1,280
Other intangible assets................... 526
-------
$ 9,967
=======
Other intangible assets consist of assembled workforce ($230,000) and cost
in excess of net assets acquired ($296,000). The assembled workforce and cost in
excess of net assets acquired are being amortized on a straight-line basis over
seven and five year periods, respectively.
LICENSING AGREEMENTS
In May, 1998, the Company entered into an agreement to license fault
diagnostic testing software. The license has a bargain purchase option after
five years to purchase the software for one dollar. The Company made payments to
the owners of the technology per the terms of the agreement for the exclusive
rights to the software, a portion of which was considered to be in-process when
delivered. Because there can be no assurance that the Company will be able to
successfully complete the development and integration of the in-process research
and development into its suite of software products or that the acquired
technology has any alternative future use, the acquired in-process research and
development was charged to expense by the Company in its quarter ended June 30,
1998. The Company paid approximately $1.7 million for the license of the
software and related costs, of which
F-11
<PAGE>
$1.3 million was written off as purchased in-process research and development.
The remaining amount of $400,000 was capitalized as purchased software and is
being amortized over five years. The Company estimates the remaining investment
and development work required to bring the in-process technology to commercial
availability in each of these initiatives will aggregate approximately $1.0
million over the next year. In addition, the Company will pay royalties to each
of the former owners of the software based upon revenue from the future
licensing of the software as set out in the agreement. See Note 8 to the
Consolidated Financial Statements.
As part of the Company's strategy to enter into the desktop and
client/server arena, the Company entered into license agreements with several
software companies in the second quarter of fiscal 1998 and January, 1998 for
the rights to distribute additional desktop software tools. The Company made
payments to these companies for development of the software tools in accordance
with the Company's requirements as set out in the agreements. Payments were made
based on the effective date of each agreement and delivery and acceptance of the
different versions of the products, all of which occurred during the Company's
fiscal third quarter ended March 31, 1998. The Company expensed these payments,
approximately $3.2 million, as research and development during the quarter ended
March 31, 1998. In addition, the Company will pay royalties to each software
vendor based upon sales activity as set out in the agreements. See Note 8 to the
Consolidated Financial Statements.
ROTTGER & OSTERBERG SOFTWARE-TECHNIK GMBH
On December 5, 1996, the Company acquired all of the outstanding shares of
capital stock of R&O for cash, common stock and the assumption of certain
liabilities pursuant to a stock purchase agreement with the stockholders of R&O.
R&O develops, markets and supports repository software tools through its Rochade
product line, together with related repository-based services and solutions. R&O
was founded in 1976, is headquartered in Munich, Germany and has operations in
Europe and the United States. The aggregate cost of the R&O acquisition
consisted of the following (in thousands):
Cash............................................. $12,800
Common stock..................................... 12,805
Assumption of liabilities and acquisition costs.. 13,200
-------
Total................................... $38,805
=======
The Company issued 425,112 unregistered shares of its Common Stock pursuant
to Regulation S in connection with this transaction, subject to certain
restrictions imposed under the stock purchase agreement and applicable
securities laws. Included in the cost of the acquisition was a payment of $2.0
million made to the former stockholders of R&O in February 1997 for meeting
certain performance criteria. The Company also committed to pay additional cash
consideration of $2.0 million (or, at each former R&O stockholder's election,
additional shares of Common Stock with an equivalent market value) if certain
financial performance criteria were met for the period from January 1, 1997
through June 30, 1997. This contingent earnout was not achieved and no further
payments are due under the purchase agreement.
The R&O acquisition has been accounted for as a purchase in accordance with
Accounting Principles Board Opinion Nos. 16 and 17 and, accordingly, the
purchased assets and assumed liabilities were recorded at their estimated fair
values at the acquisition date. The Company received an appraisal of the
intangible assets which indicated that approximately $27.0 million of the
acquired intangible assets was in-process research and development that had not
yet reached technological feasibility. Because there was no assurance that the
Company would be able to successfully complete the development and integration
of the in-process research and development into its suite of software products
or that the acquired technology had any alternative future use, the acquired
in-process research and development was charged to expense by the Company in its
quarter ended December 31, 1996. The Company allocated the aggregate cost of the
acquisition as follows (in thousands):
F-12
<PAGE>
Accounts receivable...................... $ 4,672
Other assets............................. 1,956
In-process research and development...... 26,958
Purchased software....................... 2,000
Other intangible assets.................. 3,219
--------
$ 38,805
========
Other intangible assets consist of customer list ($900,000), assembled
workforce ($800,000) and cost in excess of net assets acquired ($1,519,000). The
customer list, assembled workforce and cost in excess of net assets acquired are
being amortized on a straight-line basis over eight, seven and five year
periods, respectively.
The following unaudited pro forma combined condensed statements of
operations for the fiscal years ended June 30, 1997 and 1996 give effect to the
R&O acquisition as if it had been consummated as of the beginning of each
respective period (in thousands except per share data):
YEAR ENDED JUNE 30,
1997 1996
---- ----
(UNAUDITED)
Total revenues......................... $91,265 $62,754
Income before income taxes............. 17,847 9,772
Net income............................. 11,692 7,535
Earnings per share..................... $ .64 $ .42
The pro forma combined condensed statements of operations exclude the effect
of the approximate $27.0 million charge related to the write-off of purchased
in-process research and development. The unaudited pro forma combined financial
data is provided for illustrative purposes only and is not necessarily
indicative of the combined results of operations that would have been reported
had the R&O acquisition occurred on the dates indicated, nor does it purport to
project the results of operations of the Company for the year or for any future
period.
3. INVESTMENTS
The Company's investments are all classified as held-to-maturity and consist
of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities.......... $ 10,478 $ 20 $ -- $ 10,498
Government-backed securities...... 54,318 29 (11) 54,336
Corporate bonds................... 1,000 -- -- 1,000
-------- ---- ----- ---------
Total................... $ 65,796 $ 49 $ (11) $ 65,834
======== ==== ------ =========
JUNE 30, 1997
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
U.S. Treasury securities.......... $ 5,648 $ -- $ (109) $ 5,539
Government-backed securities...... 8,500 -- (34) 8,466
Corporate bonds................... 5,926 44 -- 5,970
------- ---- ------ -------
Total................... $20,074 $ 44 $ (143) $19,975
======= ==== ====== =======
</TABLE>
F-13
<PAGE>
The following table reflects the investment maturities (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------
1998 1997
----------------------- -----------------------
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
---- ---------- ---- ----------
<S> <C> <C> <C> <C>
Under one year....................... $63,294 $63,332 $12,697 $12,714
Greater than one year and less
than five years.................... 2,502 2,502 7,377 7,261
------- ------- ------- -------
$65,796 $65,834 $20,074 $19,975
======= ======= ======= =======
</TABLE>
4. INCOME TAXES
Effective July 1, 1993, the Company adopted SFAS 109, "Accounting for Income
Taxes." SFAS No. 109 requires the use of an asset and liability approach in
accounting for income taxes. Deferred tax assets and liabilities are recorded
based on the differences between the financial statement and tax bases of assets
and liabilities and the tax rates in effect when these differences are expected
to reverse. Upon adoption of SFAS No. 109, there was no cumulative effect of the
change in accounting principle.
The provision for income taxes consists of the following (in thousands):
YEAR ENDED JUNE 30,
-----------------------------
1998 1997 1996
---- ---- ----
Current:
Federal............................... $ 3,634 $ 4,834 $ 1,184
State................................. 829 909 454
Foreign............................... 3,408 2,057 275
Deferred................................ (3,729) (1,738) 322
Utilization of net operating loss and
tax credit carryforwards............... -- -- 1,464
Change in valuation allowance........... -- -- (1,856)
------- ------- -------
Provision for income taxes.............. $ 4,142 $ 6,062 $ 1,843
======= ======= =======
For the year ended June 30, 1998, 1997 and 1996, income tax benefits of
$3,498,000, $1,199,000 and $170,000, respectively, were allocated to additional
paid-in capital for tax benefits associated with the exercise of nonqualified
stock options and the disqualifying disposition of incentive stock options and
shares purchased under the employee stock purchase plan.
The components of deferred taxes are as follows (in thousands):
JUNE 30,
-----------------
1998 1997
---- ----
Deferred tax liabilities:
Accelerated tax depreciation................... $ (11) $ 89
Other.......................................... 16 58
----- ------
Total.................................. 5 147
----- ------
Deferred tax assets:
Foreign tax credits -- 1,485
Software development costs capitalized
for tax...................................... 106 249
Bad debt reserve............................... 200 304
Vacation accrual............................... 289 193
Intangibles amortization....................... 619 136
Purchased software............................. 3,326 --
Other.......................................... 211 252
----- ------
Total.................................. 4,751 2,619
----- ------
Net deferred tax asset........................... $4,746 $2,472
====== ======
F-14
<PAGE>
A reconciliation of the U.S. federal statutory rate to the Company's
effective tax rate is as follows:
YEAR ENDED JUNE 30,
-------------------
1998 1997 1996
---- ---- ----
Statutory federal rate............................. 35% (35)% 34%
Write-off of in-process R&D........................ -- 89 --
Write-off of foreign intangibles capitalized
for tax......................................... (12) -- --
Effect of permanent differences.................... 1 2 2
Foreign taxes...................................... 3 2 4
State taxes, net of federal benefit................ 4 6 4
Tax credits........................................ (2) (3) (14)
Foreign losses not benefited....................... 5 -- --
Benefit of net operating loss carryforward......... -- -- (7)
Other.............................................. -- 4 --
--- --- ---
34% 65% 23%
=== === ===
The Company utilized its entire net operating loss carryforward during the
year ended June 30, 1996.
5. STOCK PLANS
1997 EQUITY INCENTIVE PLAN
The 1997 Equity Incentive Plan ("1997 Plan"), which replaced the 1994 Equity
Incentive Plan ("1994 Plan"), was adopted by the Company's Board of Directors
(the "Board") in September 1997, and was approved by the Company's stockholders
and became effective in November 1997. The 1997 Plan was amended and restated by
the Board in January 1998 and will terminate 10 years after the effective date.
The 1997 Plan authorizes awards of incentive stock options to employees and
non-qualified stock options, restricted stock and other common stock-based
awards to officers, directors, employees, consultants and independent
contractors or advisers of the Company and its subsidiaries. Under the terms of
the 1997 Plan, the option price may not be less than 100% (subject to certain
restrictions) of the fair market value of the Company's stock on the date of
grant for incentive stock options and non-qualified stock options, respectively.
A total of 850,000 shares, plus certain shares of the Company's common stock
that (i) were available for future awards under the 1994 Plan on the effective
date of the 1997 Plan, and (ii) are subject to awards under the 1994 Plan but
are forfeited, terminate, expire or lapse for any reason, are reserved for
issuance under the 1997 Plan. The options currently issued under the 1997 Plan
vest over the following schedule: (a) 25% of the total number of shares subject
to an option become exercisable on the first anniversary of the date of grant;
and thereafter (b) 6.25% of the total number of shares subject to an option
become exercisable at the end of each three-month period until all shares
subject to an option are exercisable on the fourth anniversary of the date of
grant.
The 1997 Plan is administered by a committee appointed by the Board
consisting of at least two non-employee directors, who have the exclusive
authority to administer and interpret the 1997 Plan. The committee has the power
to, among other things, designate participants, determine types of awards to be
granted and the price, timing, terms and duration of awards.
1994 EQUITY INCENTIVE PLAN
The 1994 Plan was adopted by the Board of Directors (the "Board") in August
1994, approved by the stockholders in November 1994, and became effective March
1, 1995. The 1994 Plan will terminate 10 years after the effective date. The
1994 Plan authorizes awards of incentive stock options to employees and
non-qualified stock options, stock appreciation rights, performance units,
restricted stock and other common stock-based awards to officers, directors,
employees, and consultants of the Company and its subsidiaries. A total of
1,400,000 shares of common stock was reserved for issuance under the 1994 Plan.
The options currently issued under the 1994 Plan
F-15
<PAGE>
vest as to 25% of the shares subject thereto on the first anniversary of the
date of grant and vest at the rate of 6.25% of such shares per quarter of
continuous service thereafter.
The 1994 Plan is administered by a committee appointed by the Board
consisting of at least two non-employee directors, who have the exclusive
authority to administer and interpret the 1994 Plan. The committee has the power
to, among other things, designate participants, determine types of awards to be
granted and the price, timing, terms and duration of awards. Effective November
14, 1997, no further share grants may be made pursuant to this Plan.
EMPLOYEE STOCK OPTION PLAN
The Company has an approved stock option plan ("1986 Plan") for employees
and consultants covering 2,000,000 shares of Company common stock. Options
granted under the 1986 Plan may be either incentive stock options or
non-qualified stock options, at the discretion of the Board of Directors and as
reflected in the terms of the written option agreement. Options vest 20% per
year over five years and must be exercised within five to six years of the date
of grant. Effective March 8, 1995, no further share grants may be made pursuant
to this Plan.
OUTSIDE DIRECTOR STOCK OPTION PLAN
The Company's Outside Director Stock Option Plan ("Director Plan") was
approved by the stockholders and became effective on November 15, 1995. The
Director Plan authorizes non-discretionary grants of non-qualified stock options
to non-employee directors of the Company. A total of 400,000 shares of common
stock is reserved for issuance under the Director Plan. Each person who is
elected for the first time as an Outside Director shall be, upon the date of his
first election, automatically granted an option to purchase 20,000 shares at the
fair market value of the shares on the grant date. Each Outside Director shall
receive an option to purchase 10,000 shares at the fair market value established
on the grant date upon re-election to the Board of Directors. The shares begin
vesting one year after the date of grant in three equal annual installments and
expire five years after the date of grant. The Plan will terminate on the tenth
anniversary of the date it became effective. The Directors Plan is administered
by a committee appointed by the Board.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan ("Purchase Plan") became
effective at the time of the Company's initial public offering. The Company has
reserved 800,000 shares of common stock for issuance under the Purchase Plan,
and will allow eligible employees to purchase shares of common stock, at
semi-annual intervals, through periodic payroll deductions. On May 1, 1997, the
Purchase Plan was expanded to include the international employees of the Company
and its subsidiaries. The purchase price per share is eighty-five percent (85%)
of the lower of (i) the fair market value of the common stock on the
participant's entry date into the offering period or (ii) the fair market value
on the semi-annual purchase date. The purchase price, amount of shares
purchased, and value of stock purchased are all subject to certain limitations
on an individual and aggregate basis, as defined in the Purchase Plan. The
Purchase Plan will terminate on the earlier of (i) the date on which all shares
available for issuance under the Plan have been issued or (ii) December 31,
2003, unless earlier terminated by the Committee designated by the Board in
accordance with the provisions of the Plan.
As of June 30, 1998, 195,403 shares remained available for purchase through
the Purchase Plan and there were 541 employees eligible to participate, of which
406 participated. Employees purchased 90,239 shares during the year at prices
ranging from $14.82 to $34.85. Total cash received by the Company was
approximately $1,901,000. The Purchase Plan is non-compensatory, therefore, no
charges to income were recorded.
401(k) PLAN
The Company has a contributory retirement plan (the "401(k) Plan") covering
eligible United States employees with at least 30 days of service and who are a
minimum of 21 years old. The 401(k) Plan is a calendar year plan.
F-16
<PAGE>
The 401(k) Plan is designed to provide tax-deferred income to the Company's
employees in accordance with the provisions of Section 401(k) of the Internal
Revenue Code.
The 401(k) Plan provides that each participant may contribute up to 15% of
his or her respective salary, not to exceed the statutory limit. Under the terms
of the 401(k) Plan, the Company may also make discretionary profit sharing
contributions. Profit sharing contributions, if any, are allocated among all
active participants based upon the employee's contributions for the plan year as
a percentage of total employee contributions for the plan year. The Company
elected to make discretionary profit sharing contributions of $180,000 in the
1997 plan year and $120,000 for each of the 1996 and 1995 plan years to all
participants who were employed by the Company on the effective date. For the
1998 plan year, the Company elected to make a 50% matching contribution of
employee contributions of up to a maximum of $3,000 per participant. The Company
had made contributions of approximately $271,000 for the 1997 plan year.
OTHER
The following summarizes the activity under the Company's stock option
plans:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTION OPTION OPTION
NUMBER PRICE NUMBER PRICE NUMBER PRICE
OF SHARES PER SHARE OF SHARES PER SHARE OF SHARES PER.SHARE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options
outstanding,
beginning of
year............... 1,410,272 $14.40 1,144,316 $ 4.59 1,381,214 $2.31
Granted.............. 1,139,218 31.36 611,150 29.18 446,800 9.57
Canceled/expired..... (345,029) 42.05 (65,728) 28.51 (378,884) 5.05
Exercised............ (178,122) 5.08 (279,466) 3.28 (305,348) 1.00
-------- --------- --------
Options
outstanding, end
of year............ 2,026,339 20.03 1,410,272 14.40 1,143,782 4.59
========= ========= =========
Options
exercisable, end
of year............ 563,714 10.55 310,126 3.54 259,058 2.35
========= ========= =========
Options available
for grant.......... 568,100 514,284 1,067,034
========= ========= =========
Weighted average
fair value of
options
granted............ $31.36 $ 29.18 $9.57
====== ======= =====
</TABLE>
In May 1998, the Board of Directors authorized the Company to offer all
employees with outstanding options at an exercise price of $49.00 per share the
opportunity to exchange these options for new options on a three for two basis.
Each new option was issued under the 1997 Plan at the market price on the
effective date of exchange. As a result, options covering 190,450 shares were
canceled and 126,968 options were granted on May 5, 1998.
F-17
<PAGE>
OPTIONS OUTSTANDING AND EXERCISABLE BY PRICE RANGE
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- -----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.38 - 14.75 780,920 3.85 $ 6.47 397,995 $ 4.19
$15.88 - 30.69 659,243 7.71 21.84 92,025 16.46
$33.50 - 45.25 586,176 7.55 36.07 73,694 37.54
--------- ------- ------- ---------
$ 0.38 - 45.25 2,026,339 6.18 $ 20.03 563,714 $ 10.55
========= ======= ======= =========
</TABLE>
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which defines a fair value based method of accounting for an
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost related to stock options issued to employees under these plans using the
method of accounting prescribed by Accounting Principles Board Opinion No. 25
(APB No. 25), "Accounting for Stock Issued to Employees." Entities electing to
continue accounting for stock-based compensation under in APB No. 25 must make
pro forma disclosures of net income (loss) and earnings (loss) per share, as if
the fair value based method of accounting defined in SFAS No.
123 has been applied.
The Company has elected to account for its stock-based compensation plans
under APB No. 25; therefore, no compensation cost is recognized in the
accompanying financial statement for stock-based employee awards. However, the
Company has computed for pro forma disclosure purposes the value of all options
and Purchase Plan shares granted during 1998 and 1997, using the Black-Scholes
option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- -------------------------- --------------------------
PURCHASE PURCHASE PURCHASE
OPTIONS PLAN OPTIONS PLAN OPTIONS PLAN
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Risk free interest rate 5.49% 5.37% 6.02% 5.47% 6.00% 5.30%
Expected dividend yield -- -- -- -- -- --
Expected lives 4.11 years .5 years 4.06 years .5 years 4.06 years .5 years
Expected volatility 78.53% 79.53% 80.00% 76.80% 69.00% 74.40%
</TABLE>
The total value and compensation expense which would have been recorded of
options and Purchase Plan shares granted was computed to be the following
approximate amounts, which would be amortized on the straight-line basis over
the vesting period:
<TABLE>
<CAPTION>
FAIR VALUE COMPENSATION EXPENSE
------------------------------ -----------------------------
OPTION PLANS PURCHASE PLAN OPTION PLANS PURCHASE PLAN
------------ ------------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended June 30, 1998............ $17,570 $789 $4,750 $750
Year ended June 30, 1997............ $8,823 $870 $2,745 $664
Year ended June 30, 1996............ $1,955 $376 $185 $213
</TABLE>
If the Company had accounted for its stock-based compensation plans using a
fair value based method of accounting, the Company's net income (loss) and basic
and diluted earnings (loss) per common and common share equivalent would have
been as follows:
F-18
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1998 1997 1996
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss):
As reported.............................................. $7,935 $(15,436) $6,217
Pro forma................................................ 4,321 (17,669) 5,910
Earnings (loss) per common and common share equivalent:
As reported - basic...................................... .42 (.90) .38
As reported - diluted.................................... .40 (.90) .36
Pro forma - basic........................................ .23 (.90) .36
Pro forma - diluted...................................... .21 (1.02) .35
</TABLE>
The effects of applying SFAS No. 123 for providing pro forma disclosures for
1998, 1997 and 1996 are not likely to be representative of the effects on
reported net income (loss) and earnings (loss) per common and common share
equivalent for future years, because options vest over several years and
additional awards generally are made each year.
6. CAPITAL STOCK
In April 1998, the Board of Directors authorized the repurchase of the
Company's common stock up to 1,000,000 shares. As of June 30, 1998, the Company
had repurchased 135,000 shares for approximately $2,181,000.
In April 1998, the Board of Directors adopted a Shareholder Rights Plan (the
"Rights Plan") and declared a non-taxable dividend of one Right on each
outstanding share of the Company's common stock to stockholders of record on May
8, 1998. The Rights Plan is designed to enable all stockholders to receive fair
and equal treatment in any proposed takeover of the Company. Each Right
initially will entitle the holder to purchase one one-thousandth of a share of a
new series of junior participating preferred stock of the Company at an exercise
price of $180.00. The Rights will become exercisable if a person or group
acquires 15% or more of the Company's outstanding common stock or commences or
announces a tender offer or exchange offer for 15% or more of the common stock,
unless in the case of a tender or exchange offer the Board of Directors delays
exercisability. If a person or group acquires 15% or more of the outstanding
common stock, all holders of Rights other than the acquirer will be entitled to
purchase, at the then-current exercise price of the Rights, a number of Viasoft
common shares having a market value of twice the exercise price. In addition,
after such a 15% stock acquisition, if the Company is acquired in a merger or
other business combination transaction, or sells 50% or more of its assets or
earning power, each Right will entitle its holder (other than the acquirer) to
purchase, at the then-current exercise price of the Rights, a number of the
acquiring company's common shares having a market value of twice the exercise
price. Until the Rights become exercisable, the Rights will trade as a unit with
the common stock. At any time before a person or group has acquired beneficial
ownership of 15% or more of the Company's outstanding common stock, the Rights
are redeemable for one cent per Right at the option of the Board of Directors.
The terms of the Rights may be amended at any time by the Board of Directors
without the consent of the holders, with certain exceptions. The Rights will
expire on April 20, 2008, unless otherwise extended by the Board of Directors.
On September 22, 1997, the Company received net proceeds in an amount of
$75,361,000 from an offering of 1,465,000 shares of its common stock.
At the shareholder meeting in November 1997, the shareholders authorized an
additional 24,000,000 shares of common stock. Total shares authorized at June
30, 1998 are 48,000,000.
During the year ended June 30, 1994, the Company entered into stock
purchase agreements with three officers and a director to sell an aggregate of
283,334 shares of common stock at the fair market value on the date of the
agreements ($.38 to $.75 per share) in exchange for full recourse promissory
notes aggregating $153,750. In addition, options for the purchase of 181,920
shares were exercised by an officer/director in exchange for a full
F-19
<PAGE>
recourse promissory note in the amount of $27,015. The unpaid balance on the
notes is reflected in stockholders' equity as common stock subscriptions
receivable at June 30, 1998.
7. EARNINGS PER COMMON SHARE
Earnings per common share ("EPS") data were computed as follows (in
thousands, except per share data):
YEAR ENDED JUNE 30,
-------------------------------
1998 1997 1996
---- ---- ----
BASIC EPS:
Numerator: Net Income (loss) $ 7,935 $ (15,436) $ 6,217
Denominator:
Weighted average common shares outstanding 18,999 17,212 16,390
------- --------- -------
Basic EPS $ .42 $ (.90) $ .38
======= ========= =======
YEAR ENDED JUNE 30,
-------------------------------
1998 1997 1996
---- ---- ----
DILUTED EPS:
Numerator: Net Income (loss) $ 7,935 $(15,436) $ 6,217
Denominator:
Weighted average common shares outstanding 18,999 17,212 16,390
Dilutive effect of stock options 800 -- 1,001
------- -------- -------
Total shares 19,799 17,212 17,391
Diluted EPS $ .40 $ (.90) $ .36
======= ======== =======
8. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company has entered into various license agreements with several
software companies for the rights to distribute additional software tools. The
Company will pay royalties to the software vendors based upon sales activity as
set out in each of the agreements. (See Note 2 to the Consolidated Financial
Statements). In some cases, the Company prepaid certain of the royalties and is
amortizing the balance of the prepaid based on sales activity as set out in the
agreements. Total royalties accrued and due to third parties at June 30, 1998
was $3,117,000.
The Company leases its corporate office facilities in two locations in
Phoenix, Arizona. On August 15, 1994, the Company extended the office lease at
one of its facilities, which will expire on December 31, 1999. On December 19,
1996, the Company entered into a lease at another location in Phoenix, Arizona
which will expire on May 31, 2001. Rental expense relating to these leases
amounted to approximately $1,288,000, $786,000, and $583,000 in the years ended
June 30, 1998, 1997, and 1996, respectively.
The Company has entered into several office leases for sales offices in
various cities and countries. These leases expire at various dates through 2010.
Rental expense relating to these leases amounted to approximately $1,389,000,
$684,000, and $575,000 in the years ended June 30, 1998, 1997, and 1996,
respectively.
The Company is party to a data processing agreement under which it utilizes
certain computer equipment and software of an independent third party. The
eighteen month agreement expires in January 1999. Expenses under this agreement
were approximately $876,000, $860,000, and $673,000 in the years ended June 30,
1998, 1997, and 1996, respectively. The base monthly charge for usage is
approximately $59,000, subject to adjustment for excess usage as defined in the
agreement.
The Company is party to a facilities management agreement under which it
leases certain office equipment and utilizes personnel of an independent third
party to manage its corporate office and produce the Company's product
F-20
<PAGE>
documentation. The agreement expires in October 1999. Payments under this
agreement were approximately $628,000 and $362,000 in the years ended June 30,
1998 and 1997. The base monthly charge is approximately $38,000 subject to an
adjustment for usage as defined in the agreement.
The future minimum rental payments under all noncancellable operating leases
for each of the years ending June 30 are as follows (in thousands):
Year ending June 30:
1999..................... $3,130
2000..................... 2,036
2001..................... 1,371
2002..................... 598
2003..................... 332
Thereafter............... 565
------
$8,032
======
Viasoft is subject to certain legal proceedings and claims that arise in the
conduct of its business. In the opinion of management, the amount of liability,
if any, as a result of these claims and proceedings is not likely to have a
material effect on the financial condition or results of operations of the
Company.
9. FOREIGN OPERATIONS AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment which includes the development,
marketing and support of business solutions that enable large organizations
worldwide understand, manage, evolve, reuse, transition and modernize
mission-critical applications that support their fundamental business processes.
These business solutions are provided through integrated software products and
specialized professional consulting services.
Sales and marketing activities related to software license fees, maintenance
fees and professional services fees are conducted in North America and certain
foreign locations, principally the United Kingdom, Europe and Australia. Revenue
and income (loss) before provision for income taxes for each of the years in the
three year period ended June 30, 1998, and identifiable assets at June 30, 1998,
1997, and 1996, are as follows (in thousands):
YEAR ENDED JUNE 30,
----------------------------
1998 1997 1996
---- ---- ----
Revenue(1):
North America-domestic.............. $ 77,178 $57,728 $32,878
International-principally distributors:
Europe............................. 3,551 2,581 3,097
All others......................... 4,269 1,520 1,721
Foreign subsidiaries and branches. 28,689 23,483 5,861
-------- -------- -------
Total revenue................... $113,687 $ 85,312 $43,557
======== ======== =======
Income (Loss) Before Income Taxes(1):
North America....................... $ 5,923 $(17,860) $ 8,517
Foreign subsidiaries and branches... 6,154 8,486 (457)
-------- -------- -------
Income (loss) before income taxes $ 12,077 $ (9,374) $ 8,060
======== ======== =======
Identifiable Assets(1):
North America....................... $137,727 $ 50,527 $43,370
Foreign subsidiaries and branches... 24,650 14,074 3,221
-------- -------- -------
Total assets................ $162,377 $ 64,601 $46,591
======== ======== =======
- ----------
(1) Includes Viasoft, Viasoft Pty., Viasoft UK, Viasoft Germany, Viasoft
Netherlands and Viasoft de Mexico, S.A. de C.V. for all periods, Viasoft
Benelux since its formation on July 1, 1996, the operations of R&O since its
F-21
<PAGE>
acquisition on December 5, 1996, and Viasoft France, since its formation on
September 1, 1997, and Viasoft Canada Company since January 1998.
10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
------------ ----------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Fiscal 1998:
Revenue..................................... $ 26,062 $ 28,174 $26,805 $32,646
Income (loss) from operations............... 5,343 6,086 (7,628) 3,681
Net income (loss)........................... 3,765 5,035 (4,136) 3,271
Basic earnings (loss) per common share...... $ .21 $ .26 $ (.21) $ .17
Diluted earnings (loss) per common and
common share equivalent.................. $ .20 $ . 25 $ (.21) $ .16
Fiscal 1997:
Revenue..................................... $ 13,976 $ 19,783 $23,901 $27,652
Income (loss) from operations............... 2,021 (23,059) 4,973 5,973
Net income (loss)........................... 1,556 (24,184) 3,148 4,044
Basic earnings (loss) per common share...... $ .09 $ (1.42) $ .18 $ .23
Diluted earnings (loss) per common and
common share equivalent.................. $ .09 $ (1.42) $ .17 $ .22
Fiscal 1996:
Revenue..................................... $ 8,440 $ 10,257 $10,361 $14,499
Income from operations...................... 954 1,872 1,370 2,607
Net income.................................. 941 1,640 1,270 2,366
Basic earnings per common share............. $ .06 $ .10 $ .08 $ .14
Diluted earnings per common and
common share equivalent.................. $ .06 $ .10 $ .07 $ .14
</TABLE>
11. SUBSEQUENT EVENT
In July 1998, the Company acquired worldwide marketing and development
rights to SHL TRANSFORM, a knowledge-driven process management and productivity
software toolset and its integrated process management methodologies, from the
Online Knowledge Group (OKG) of Canadian-based SHL Systemhouse Co.
("Systemhouse"). As part of the agreement, the Company will hire certain current
development employees of Systemhouse, has the option to purchase certain
furniture and equipment used by the Systemhouse development employees and has
the exclusive right to remarket the licensed software to Systemhouse's existing
customers. As a result, the agreement was accounted for as a purchase in
accordance with Accounting Principles Board Opinion Nos. 16 and 17 and,
accordingly, the purchased assets and assumed liabilities were recorded at their
estimated fair values at the acquisition date. The Company received an appraisal
of the intangible assets which indicated that approximately $5.0 million of the
acquired intangible assets was in-process research and development that had not
yet reached technological feasibility. Because there can be no assurance that
the Company will be able to successfully complete the development and
integration of the in-process research and development into its suite of
software products or that the acquired technology has any alternative future
use, the acquired in-process research and development will be charged to expense
by the Company in its quarter ended September 30, 1998. The Company plans to
integrate the technology and methodology into its entire product and service
lines. As a result, the Company estimates of the remaining investment and
development work required to bring the in-process technology to commercial
availability aggregate of $3.1 million over the next year and a half. The
aggregate cost of the acquisition consisted of the following (in thousands):
F-22
<PAGE>
Cash............................................. $6,000
Assumption of liabilities and acquisition costs.. 885
------
Total........................... $6,885
======
The Company allocated the estimated aggregate cost of the acquisition as
follows (in thousands):
In-process research and development.............. $5,012
Purchased software............................... 1,174
Other intangible assets.......................... 699
------
Total........................... $6,885
======
Other intangible assets consist of assembled workforce and cost in excess of
net assets acquired. The purchased software, assembled workforce, and cost in
excess of net assets acquired are being amortized on a straight-line basis over
five, six, and five years, respectively.
The transaction is structured as a worldwide perpetual source code license
and is exclusive, subject to SHL TRANSFORM'S retained right to use the
technology for its own internal use and in its consulting business. Viasoft will
also pay certain royalties to Systemhouse based on sales of methodology and
training components.
F-23
<PAGE>
SCHEDULE I
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------
CHARGED
TO COSTS ACQUIRED CHARGED BALANCE
BEGINNING AND FROM TO OTHER DEDUCTIONS AT END
DESCRIPTION OF PERIOD EXPENSES R&O ACCOUNTS (1) OF PERIOD
----------- --------- -------- --- -------- --- ---------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year Ended June 30, 1998 $678 $280 $ -- $ -- $143 $815
Year Ended June 30, 1997 279 525 128 174 428 678
Year Ended June 30, 1996 391 -- -- -- 112 279
</TABLE>
- -----------
(1) Write-off of uncollectable amounts.
F-24
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------------------- ------------------------------
<S> <C> <C>
2.1 Stock Purchase Agreement among Incorporated herein by reference to
Viasoft, Inc., LfA-Gesellschaft fur Exhibit 2.1 to the Company's Form
Vermogensverwaltung mbH (LfA-GV), 8-K dated December 20, 1996
Werner Dreesbach, Elga Dreesbach,
Christoph Rottger, and Valerie Rottger,
dated November 11, 1996
2.2(5) Stock Purchase Agreement dated as of the Incorporated herein by reference to
12th day of January, 1998, between Exhibit 2.1 to the Company's Form
Viasoft, Inc., Michael Howatt Mabey, 10-Q for the quarter ended December
Nashirali Samanani, and certain other 31, 1997
sellers
3.1 Restated Certificate of Incorporation Incorporated herein by reference to
Exhibit 10.20 to the Company's Form
10-K for fiscal year 1995
3.2 Amended and Restated Bylaws of the Incorporated herein by reference to
Company Exhibit 3(e) to the Company's
Registration Statement on Form S-1
(Registration No. 33-88366)
3.3 Certificate of Amendment to the Restated Incorporated herein by reference to
Certificate of Incorporation, filed Exhibit 3.1(a) to the Company's
November 17, 1997 Form 10-Q for the quarter ended
December 31, 1997
3.4 Restated Certificate of Incorporation, as Incorporated herein by reference to
amended through November 17, 1997 Exhibit 3.1(b) to the Company's
Form 10-Q for the quarter ended
December 31, 1997
4.1 Form of Certificate for Common Stock Incorporated herein by reference to
Exhibit 4(a) to the Company's
Registration Statement on Form S-1
(Registration No. 33-88366)
4.2 Form of Warrant to Purchase Common Incorporated herein by reference to
Stock Exhibit 4(b) to the Company's
Registration Statement on Form S-1
(Registration No. 33-88366)
4.3 Rights Agreement, dated as of April 20, Incorporated herein by reference to
1998, between the Company and Harris Exhibit 1 to the Company's Form 8-A
Trust and Savings Bank dated April 22, 1998
4.4(1) Certificate of Designation of Series A Exhibit Page E-4
Junior Participating Preferred Stock
10.1 Office Lease dated June 5, 1992 Incorporated herein by reference to
between the Company and the Mutual Exhibit 10(e) to the Company's
Life Insurance Company of New York, Registration Statement on Form S-1
as amended (Registration No. 33-88366)
10.2 (2) Form of Indemnification Agreement Incorporated herein by reference to
between the Company and each of its Exhibit 10(f) to the Company's
directors Registration Statement on Form S-1
(Registration No. 33-88366)
10.3 (2) Viasoft, Inc. 1986 Stock Option Plan Incorporated herein by reference to
Exhibit 10(g) to the Company's
Registration Statement on Form S-1
(Registration No. 33-88366)
10.4 (2) 1994 Equity Incentive Plan Incorporated herein by reference to
</TABLE>
E-1
<PAGE>
<TABLE>
<S> <C> <C>
Exhibit 10(l) to the Company's
Registration Statement on Form S-1
(Registration No. 33-88366)
10.5(2) Employee Stock Purchase Plan, as Incorporated herein by reference to
amended Exhibit 10(m) to Amendment No. 2 to
the Company's Registration
Statement on Form S-1 (Registration
No. 33-88366)
10.6(2) Employment Agreement dated July 28, Incorporated herein by reference to
1994 between the Company and Colin J. Exhibit 10(o) to the Company's
Reardon Registration Statement on Form S-1
(Registration No. 33-88366)
10.7(2)(3) Viasoft FY97 Executive Bonus Plan Incorporated herein by reference to
Exhibit 10.1 to the Company's Form
10-Q for the quarter ended
September 30, 1996
10.8(2)(3) FY 97 Incentive Plan for Senior Vice Incorporated herein by reference to
President, Americas Exhibit 10.2 to the Company's Form
10-Q for the quarter ended
September 30, 1996
10.9(2)(3) FY 97 Incentive Plan for Vice Incorporated herein by reference to
President, International Operations Exhibit 10.3 to the Company's Form
10-Q for the quarter ended
September 30, 1996
10.10(2)(3) Consulting and Employment Agreement Incorporated herein by reference to
between the Company and Mark R. Exhibit 10.4 to the Company's Form
Schonau 10-Q for the quarter ended
September 30, 1996
10.11 Outside Director Stock Option Plan Incorporated herein by reference to
Exhibit A of the Company's
Definitive Schedule 14A Proxy
Statement for the 1995 Annual
Meeting of Stockholders)
10.12(2) Employee Stock Purchase Plan (as Incorporated herein by reference to
amended and restated as of April 24, the Company's Form 10-K for fiscal
1997) year 1997
10.13 Assignment, Assumption and Novation Incorporated herein by reference to
Agreement dated September 12, 1997 and the Company's Form 10-K for fiscal
Assignment, Assumption and Novation year 1997
Agreement dated December 19, 1996,
relating to Londen Center Lease
Agreement
10.14(2)(4) Viasoft FY98 Executive Bonus Plan Incorporated herein by reference to
Exhibit 10.1 to the Company's Form
10-Q for the quarter ended
September 30, 1997
10.15(2)(4) FY98 Incentive Plan for Executive Vice Incorporated herein by reference to
President Exhibit 10.2 to the Company's Form
10-Q for the quarter ended
September 30, 1997
10.16(2)(4) FY98 Incentive Plan for Senior Vice Incorporated herein by reference to
President, International Operations Exhibit 10.3 to the Company's Form
10-Q for the quarter ended
September 30, 1997
10.17(2) Consulting Agreement between the Incorporated herein by reference to
Company and Michael A. Wolf dated Exhibit 10.4 to the Company's Form
August 1, 1997 10-Q for the quarter ended
</TABLE>
E-2
<PAGE>
<TABLE>
<S> <C> <C>
September 30, 1997
10.18(2) Viasoft, Inc. Deferred Compensation Plan Incorporated herein by reference to
Exhibit 10.5 to the Company's Form
10-Q for the quarter ended
September 30, 1997
10.19(1)(2) Amendment No. 1 to the Viasoft, Inc. Exhibit Page E-9
Deferred Compensation Plan, dated as of
June 30, 1998
10.20(2) Viasoft, Inc. 1997 Equity Incentive Plan Incorporated herein by reference to
Appendix B of the Company's
Definitive Schedule 14A Proxy
Statement for the 1997 Annual
Meeting of Stockholders
10.21(2) Viasoft, Inc. 1997 Equity Incentive Plan, Incorporated herein by reference to
amended and restated as of January 21, Exhibit 4.1 to the Company's
1998 Registration Statement on Form S-8
(Registration No. 333-47571)
11(1) Computation of Earnings per Share Exhibit Page E-10
21(1) Subsidiaries of the Company Exhibit Page E-11
23(1) Consent of Arthur Andersen LLP Exhibit Page E-12
24(1) Powers of Attorney Exhibit Page E-13
27(1) Financial Data Schedules Exhibit Page E-17
</TABLE>
- ----------
(1) Filed herewith
(2) Management contract or compensation plan or arrangement
(3) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by order dated January 6, 1997.
(4) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by the Commission dated November 25, 1997.
(5) Portions omitted and filed separately with the Commission pursuant to a
grant of Confidential Treatment by order dated February 27, 1998.
E-3
EXHIBIT 4.4
CERTIFICATE OF DESIGNATION
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
VIASOFT, INC.
-----------------------------------------------
(Pursuant to Section 151 of the
Delaware General Corporation Law)
------------------------------------------------
Viasoft, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on April 20, 1998:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Restated
Certificate of Incorporation of the Corporation (the "Restated Certificate of
Incorporation"), the Board of Directors hereby creates a series of Preferred
Stock, par value $0.001 per share (the "Preferred Stock"), of the Corporation
and hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of this series
shall be designated as "Series A Junior Participating Preferred Stock" (the
"Series A Preferred Stock") and the number of shares constituting the Series A
Preferred Stock shall be 48,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; PROVIDED, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
E-4
<PAGE>
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any
shares of any series of Preferred Stock (or any other stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the holders
of shares of Series A Preferred Stock shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the last day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount (if any) per share (rounded to the
nearest cent), subject to the provision for adjustment hereinafter set forth,
equal to 1000 times the aggregate per share amount of all cash dividends, and
1000 times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions, other than a dividend payable in shares of
Common Stock, par value $0.001 per share (the "Common Stock"), of the
Corporation or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided in paragraph (A) of
this Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock).
(C) Dividends due pursuant to paragraph (A) of this
Section shall begin to accrue and be cumulative on outstanding shares of Series
A Preferred Stock from the Quarterly Dividend Payment Date next preceding the
date of issue of such shares, unless the date of issue of such shares is prior
to the record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of shares of Series
A Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at
E-5
<PAGE>
the time outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date fixed for the payment
thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment
hereinafter set forth, each share of Series A Preferred Stock shall entitle the
holder thereof to 1000 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the number of votes per share
to which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided the Restated
Certificate of Incorporation, including any other Certificate of Designations
creating a series of Preferred Stock or any similar stock, or by law, the
holders of shares of Series A Preferred Stock and the holders of shares of
Common Stock and any other capital stock of the Corporation having general
voting rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise
required by law, holders of Series A Preferred Stock shall have no special
voting rights and their consent shall not be required (except to the extent they
are entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends
or distributions payable on the Series A Preferred Stock as provided in Section
2 are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any
other distributions, on any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock;
E-6
<PAGE>
(ii) declare or pay dividends, or make any
other distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A Preferred Stock
and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are then
entitled; or
(iii) redeem or purchase or otherwise acquire
for consideration shares of any stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for shares of any stock of
the Corporation ranking junior (as to dividends and upon dissolution,
liquidation or winding up) to the Series A Preferred Stock.
(B) The Corporation shall not permit any subsidiary
of the Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. REACQUIRED SHARES. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock subject to the conditions and restrictions on issuance set forth
herein or in the Restated Certificate of Incorporation, including any
Certificate of Designations creating a series of Preferred Stock or any similar
stock, or as otherwise required by law.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation the holders of shares
of Series A Preferred Stock shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
1000 times the aggregate amount to be distributed per share to holders of shares
of Common Stock plus an amount equal to any accrued and unpaid dividends. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Preferred Stock shall at the same time be
E-7
<PAGE>
similarly exchanged or changed into an amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 1000 times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common Stock
is changed or exchanged. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Series A Preferred Stock
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 8. AMENDMENT. The Restated Certificate of
Incorporation shall not be amended in any manner, including in a merger or
consolidation, which would alter, change, or repeal the powers, preferences or
special rights of the Series A Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of at least two-thirds of the
outstanding shares of Series A Preferred Stock, voting together as a single
class.
Section 9. RANK. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and upon liquidation, dissolution and
winding up, junior to all series of Preferred Stock.
IN WITNESS WHEREOF, this Certificate of Designation is
executed on behalf of the Corporation by its Secretary this 20th day of April,
1998.
VIASOFT, INC.
By: /s/ Catherine R. Hardwick
---------------------------------
Catherine R. Hardwick, Secretary
E-8
EXHIBIT 10.19
AMENDMENT NO. 1 TO THE
VIASOFT, INC. DEFERRED COMPENSATION PLAN
This Amendment No. 1 to the Viasoft, Inc. Deferred Compensation Plan is
made and entered into as of the 30th day of June, 1998 by Viasoft, Inc.
("Viasoft").
WHEREAS, Viasoft has previously adopted the Viasoft, Inc. Deferred
Compensation Plan (the "Plan") effective as of July 1, 1997;
WHEREAS, Viasoft has reserved the right to amend the Plan in whole or
in part pursuant to Section 8.4 of the Plan;
WHEREAS, Viasoft now desires to amend the Plan.
NOW, THEREFORE, Viasoft hereby amends the Plan as follows:
1. Section 1.2(s) of the Plan is hereby amended to read as follows:
(s) "Initial Election Period" for an Eligible Employee shall mean
the 30-day period following July 1, 1997 or the 30-day period
following the date on which he or she becomes an Eligible
Employee.
2. The effective date of this Amendment shall be June 30, 1998.
3. Except as hereinabove amended, all of the terms and conditions of
the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, Viasoft, Inc. has signed or caused these presents
to be signed by its Chief Executive Officer as required by the Plan on the date
first above written.
Viasoft, Inc.
By: /s/ Steven D. Whiteman
--------------------------
Steven D. Whiteman
Chief Executive Officer
E-9
VIASOFT, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JUNE 30,
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Common shares outstanding, beginning of period ..... 17,723 16,719 15,950
Effect of Weighting of Shares:
Shares issued in public offering ................. 1,132 -- --
Shares issued related to R&O acquisition ......... -- 121 --
Shares purchased ................................. 29 241 137
Treasury shares .................................. (15) -- (2)
Employee stock options exercised ................. 130 131 305
-------- -------- --------
Weighted average number of common shares outstanding 18,999 17,212 16,390
======== ======== ========
Net income (loss) .................................. $ 7,935 $(15,436) $ 6,217
======== ======== ========
Earnings (loss) per common share ................... $ 0.42 $ (0.90) $ 0.38
======== ======== ========
DILUTED EARNINGS PER SHARE
Common shares outstanding, beginning of period ..... 17,723 16,719 15,950
Effect of Weighting of Shares:
Warrants and employee stock options outstanding .. 800 -- 1,001
Shares issued in public offering ................. 1,132 -- --
Shares issued related to R&O acquisition ......... -- 121 --
Shares purchased ................................. 29 241 137
Treasury shares .................................. (15) -- (1)
Employee stock options exercised ................. 130 131 305
-------- -------- --------
Weighted average number of common and common
share equivalents outstanding ..................... 19,799 17,212 17,392
======== ======== ========
Net income (loss) .................................. $ 7,935 $(15,436) $ 6,217
======== ======== ========
Earnings (loss) per common and common share
equivalent ........................................ $ 0.40 $ (0.90) $ 0.36
======== ======== ========
</TABLE>
E-10
EXHIBIT 21
SUBSIDIARIES OF VIASOFT, INC.
JURISDICTION
OF
INCORPORATION
-------------
Viasoft International, Inc. Delaware
Viasoft U.K. Limited* England
Viasoft International GmbH* Germany
Viasoft Software Development
Geshcaftsfuhrungs GmbH Germany
Viasoft Software Development
GmbH & Co. KG ** Germany
R&O (UK) Limited* England
R&O Inc.* Delaware
Viasoft Pty. Ltd.* Australia
Viasoft Benelux, S.A.* Belgium
Viasoft France S.A.S.* France
Viasoft Canada Company* Province of Nova Scotia,
Canada
Viasoft de Mexico, S.A. de C.V. Mexico
Viasoft (FSC), Ltd. Barbados
*Subsidiaries denoted with an asterisk are indirect subsidiaries of
Viasoft, Inc. and are owned directly by the subsidiary under which its name is
listed.
** This subsidiary is owned 80% by Viasoft International GmbH and 20%
by Viasoft Software Geshcaftsfuhrungs GmbH.
E-11
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
registration statement file nos. 33-89868, as amended, 33-89870, 333-16519,
333-14671, 333-33815, 333-35779, as amended, and 333-47571.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona,
September 17, 1998.
E-12
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby
constitute and appoint Steven D. Whiteman, Kevin M. Hickey, Mark R. Schonau or
Catherine R. Hardwick (with full power of substitution), his true and lawful
attorney-in-fact and agent, in any and all capacities, to do any and all acts
and things and to execute any and all documents, forms and reports which said
attorney-in-fact and agent may deem necessary or advisable to enable Viasoft,
Inc., a Delaware corporation (the "Corporation"), to sign an annual report on
Form 10-K for the fiscal year ended June 30, 1998 and to file the same with all
exhibits thereto, and all documents in connection therewith, and to comply with
the Securities Exchange Act of 1934 and any rules, regulations and requirements
of the Securities and Exchange Commission in respect thereof, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents on
this 21st day of August 1998.
/s/ John J. Barry III
----------------------------------
Signature
John J. Barry III
----------------------------------
Printed Name
/s/ Peggy Kunkel
----------------------------------
Witness
STATE OF TEXAS )
) ss.
County of Harris )
On this 21st day of August 1998, before me, the undersigned Notary
Public, personally appeared John J. Barry III, known to me to be the person
whose name is subscribed to the within instrument and acknowledged that he
executed the same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Joanne S. Ufer
----------------------------------
Notary Public
My commission expires:
11-15-99
- -------------------------
E-13
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby
constitute and appoint Steven D. Whiteman, Kevin M. Hickey, Mark R. Schonau or
Catherine R. Hardwick (with full power of substitution), his true and lawful
attorney-in-fact and agent, in any and all capacities, to do any and all acts
and things and to execute any and all documents, forms and reports which said
attorney-in-fact and agent may deem necessary or advisable to enable Viasoft,
Inc., a Delaware corporation (the "Corporation"), to sign an annual report on
Form 10-K for the fiscal year ended June 30, 1998 and to file the same with all
exhibits thereto, and all documents in connection therewith, and to comply with
the Securities Exchange Act of 1934 and any rules, regulations and requirements
of the Securities and Exchange Commission in respect thereof, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents on
this 13th day of August 1998.
/s/ J. David Parrish
----------------------------------
Signature
J. David Parrish
----------------------------------
Printed Name
----------------------------------
Witness
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this 13th day of August 1998, before me, the undersigned Notary
Public, personally appeared J. David Parrish, known to me to be the person whose
name is subscribed to the within instrument and acknowledged that he executed
the same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Denene A. Till
----------------------------------
Notary Public
My commission expires:
12/31/2001
- ----------------------------
E-14
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby
constitute and appoint Steven D. Whiteman, Kevin M. Hickey, Mark R. Schonau or
Catherine R. Hardwick (with full power of substitution), his true and lawful
attorney-in-fact and agent, in any and all capacities, to do any and all acts
and things and to execute any and all documents, forms and reports which said
attorney-in-fact and agent may deem necessary or advisable to enable Viasoft,
Inc., a Delaware corporation (the "Corporation"), to sign an annual report on
Form 10-K for the fiscal year ended June 30, 1998 and to file the same with all
exhibits thereto, and all documents in connection therewith, and to comply with
the Securities Exchange Act of 1934 and any rules, regulations and requirements
of the Securities and Exchange Commission in respect thereof, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents on
this 13th day of August 1998.
/s/ Alexander S. Kuli
----------------------------------
Signature
Alexander S. Kuli
----------------------------------
Printed Name
/s/ Jennifer E. Kuli
----------------------------------
Witness
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this 13th day of August 1998, before me, the undersigned Notary
Public, personally appeared Alexander S. Kuli, known to me to be the person
whose name is subscribed to the within instrument and acknowledged that he
executed the same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Denene A. Till
----------------------------------
Notary Public
My commission expires:
12/31/2001
- ----------------------------
E-15
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby
constitute and appoint Steven D. Whiteman, Kevin M. Hickey, Mark R. Schonau or
Catherine R. Hardwick (with full power of substitution), his true and lawful
attorney-in-fact and agent, in any and all capacities, to do any and all acts
and things and to execute any and all documents, forms and reports which said
attorney-in-fact and agent may deem necessary or advisable to enable Viasoft,
Inc., a Delaware corporation (the "Corporation"), to sign an annual report on
Form 10-K for the fiscal year ended June 30, 1998 and to file the same with all
exhibits thereto, and all documents in connection therewith, and to comply with
the Securities Exchange Act of 1934 and any rules, regulations and requirements
of the Securities and Exchange Commission in respect thereof, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents on
this 13th day of August 1998.
/s/ Arthur Patterson
----------------------------------
Signature
Arthur Patterson
----------------------------------
Printed Name
----------------------------------
Witness
STATE OF ARIZONA )
) ss.
County of Maricopa )
On this 13th day of August 1998, before me, the undersigned Notary
Public, personally appeared Arthur Patterson, known to me to be the person whose
name is subscribed to the within instrument and acknowledged that he executed
the same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Denene A. Till
----------------------------------
Notary Public
My commission expires:
12/31/2001
- ----------------------------
E-16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF THE COMPANY AND ITS SUBSIDIARIES AS OF JUNE 30,
1998 AND 1997, AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS FOR EACH OF
THE TWO YEARS IN THE PERIOD ENDED JUNE 30, 1998 AND 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1998
<PERIOD-START> JUL-01-1996 JUL-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 8,501 37,809
<SECURITIES> 12,697 63,294
<RECEIVABLES> 21,240 33,227
<ALLOWANCES> 678 815
<INVENTORY> 0 0
<CURRENT-ASSETS> 45,392 142,104
<PP&E> 8,054 13,543
<DEPRECIATION> 3,775 5,934
<TOTAL-ASSETS> 64,601 162,377
<CURRENT-LIABILITIES> 35,537 45,847
<BONDS> 0 0
0 0
0 0
<COMMON> 18 20
<OTHER-SE> 28,696 115,858
<TOTAL-LIABILITY-AND-EQUITY> 64,601 162,377
<SALES> 85,134 113,602
<TOTAL-REVENUES> 85,312 113,687
<CGS> 22,661 31,274
<TOTAL-COSTS> 95,404 106,205
<OTHER-EXPENSES> 546 317
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (1,264) (4,912)
<INCOME-PRETAX> (9,374) 12,077
<INCOME-TAX> 6,062 4,142
<INCOME-CONTINUING> (15,436) 7,935
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (15,436) 7,935
<EPS-PRIMARY> (0.90) 0.42
<EPS-DILUTED> (0.90) 0.40
</TABLE>
