<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
---------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
COMMISSION FILE NUMBER 0-25472
VIASOFT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
94-2892506
(I.R.S. Employer Identification No.)
4343 EAST CAMELBACK ROAD, PHOENIX, ARIZONA 85018
(Address of principal executive offices) (Zip Code)
(602) 952-0050
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
As of April 28, 2000, there were 18,177,981 outstanding shares of common stock,
par value $.001 per share, of Viasoft, Inc.
<PAGE> 2
VIASOFT, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000
and June 30, 1999 3
Consolidated Statements of Operations for the
three and nine months ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the
nine months ended March 31, 2000 and 1999 5
Consolidated Statements of Comprehensive Income for
the three and nine months ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 23
Item 6. Exhibits and Reports on Form 8-K 23
</TABLE>
2
<PAGE> 3
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
--------- ---------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 38,172 $ 25,609
Investments, at amortized cost 33,745 55,650
Accounts receivable (less allowance for doubtful accounts
of $751 and $829, respectively) 11,694 23,632
Prepaid expenses and other 4,262 5,966
--------- ---------
Total current assets 87,873 110,857
--------- ---------
Furniture and equipment, net 3,953 6,349
--------- ---------
Other assets:
Investments, at amortized cost 16,406 4,791
Intangible assets, net 2,616 4,232
Long-term deferred tax asset 7,078 7,527
Other 384 413
--------- ---------
Total other assets 26,484 16,963
--------- ---------
Total assets $ 118,310 $ 134,169
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 546 $ 1,012
Accrued compensation 1,052 2,488
Accrued income taxes payable -- 2,966
Restructuring reserves 2,018 3,278
Other accrued expenses 7,255 9,949
Deferred revenue 14,458 19,541
--------- ---------
Total current liabilities 25,329 39,234
--------- ---------
Deferred revenue, recognized after one year 161 206
--------- ---------
Other long term liabilities -- 99
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 2,000,000 shares authorized,
no shares issued or outstanding -- --
Common stock, $.001 par value, 48,000,000 shares
authorized, 19,456,133 shares issued at both
March 31, 2000 and June 30, 1999, respectively 19 19
Capital in excess of par value 121,523 122,989
Accumulated deficit (17,377) (15,485)
Cumulative translation adjustment (1,243) (814)
Treasury stock, at cost, 1,353,954 and 1,550,296 shares at
March 31, 2000 and June 30, 1999, respectively (10,102) (12,079)
--------- ---------
Total stockholders' equity 92,820 94,630
--------- ---------
Total liabilities and stockholders' equity $ 118,310 $ 134,169
========= =========
</TABLE>
The accompanying notes are an integral
part of these consolidated statements.
3
<PAGE> 4
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------- --------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Software license fees $ 2,307 $ 10,693 $ 14,323 $ 34,166
Maintenance fees 6,818 8,407 22,944 25,549
Professional services fees 2,049 6,693 8,051 21,072
Other 11 15 20 31
-------- -------- -------- --------
Total revenues 11,185 25,808 45,338 80,818
-------- -------- -------- --------
Operating expenses:
Cost of software license and
maintenance fees 2,542 3,785 7,037 12,140
Cost of professional services fees 2,777 5,965 9,798 18,064
Sales and marketing 4,537 9,987 16,539 32,331
Write-off of purchased in-process research
and development -- -- -- 5,013
Research and development 2,244 2,933 6,676 11,155
General and administrative 2,436 2,823 8,361 7,962
Restructuring charge 928 -- 928 4,790
Merger expenses 1,658 -- 1,658 --
-------- -------- -------- --------
Total operating expenses 17,122 25,493 50,997 91,455
-------- -------- -------- --------
Income (loss) from operations (5,937) 315 (5,659) (10,637)
-------- -------- -------- --------
Other income (expense):
Interest income 1,119 987 3,247 3,405
Interest expense -- -- -- (2)
Other expense, net (299) (555) (496) (658)
-------- -------- -------- --------
Total other income (expense), net 820 432 2,751 2,745
-------- -------- -------- --------
Income (loss) before income taxes (5,117) 747 (2,908) (7,892)
Income tax (benefit)/provision (1,792) 260 (1,016) (2,759)
-------- -------- -------- --------
Net income (loss) $ (3,325) $ 487 $ (1,892) $ (5,133)
======== ======== ======== ========
Basic earnings (loss) per common share $ (0.18) $ 0.03 $ (0.11) $ (0.28)
======== ======== ======== ========
Weighted average number of common shares outstanding 18,092 18,054 18,010 18,443
======== ======== ======== ========
Diluted earnings (loss) per common and common share
equivalent $ (0.18) $ 0.03 $ (0.11) $ (0.28)
======== ======== ======== ========
Weighted average number of common and common share
equivalents outstanding 18,092 18,195 18,010 18,443
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
4
<PAGE> 5
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
-------- --------
<S> <C> <C>
Operating activities:
Net income (loss) $ (1,892) $ (5,133)
-------- --------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities -
Depreciation and amortization 3,940 4,123
Write-off of purchased in-process research and development -- 5,013
Restructuring charge 928 4,780
Merger expenses 1,658 --
Write-off of intangible assets 1,000 --
Changes in operating assets and liabilities, net of effect of business acquired:
Decrease in accounts receivable 11,938 7,627
(Increase) decrease in prepaid expenses and other (954) 3,572
(Increase) decrease in other assets 446 (3,190)
Decrease in accrued income taxes (2,966) (3,535)
Decrease in accounts payable and other accrued expenses (4,233) (4,136)
Decrease in accrued compensation (2,364) (1,737)
Decrease in deferred revenue (5,227) (345)
-------- --------
Total adjustments 4,166 12,172
-------- --------
Net cash provided by operating activities 2,274 7,039
-------- --------
INVESTING ACTIVITIES:
Capital expenditures 102 (4,300)
Cash paid for business, net of cash acquired -- (6,625)
Purchase of investments (45,055) (65,206)
Investment maturities 55,345 73,375
-------- --------
Net cash provided by (used in) investing activities 10,392 (2,756)
-------- --------
FINANCING ACTIVITIES:
Purchase of treasury stock -- (13,359)
Sale of treasury stock 511 836
Payments received on common stock subscriptions receivable -- --
Proceeds from issuance of common stock -- --
Payments for offering costs -- --
-------- --------
Net cash (used in) provided by financing activities 511 (12,523)
-------- --------
Effect of exchange rate changes on cash (614) (24)
-------- --------
Net increase (decrease) in cash and cash equivalents 12,563 (8,264)
Cash and cash equivalents, beginning period 25,609 37,809
-------- --------
Cash and cash equivalents, end of period $ 38,172 $ 29,545
======== ========
Supplemental cash flow information:
Income taxes paid $ 691 $ 3,755
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
5
<PAGE> 6
VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) $(3,325) $ 487 $(1,892) $(5,133)
Other comprehensive income, net of income taxes:
Foreign currency translation adjustments (118) (276) (279) (16)
------- ------- ------- -------
Comprehensive income (loss) $(3,443) $ 211 $(2,171) $(5,149)
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
6
<PAGE> 7
VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Viasoft, Inc.
and its wholly-owned subsidiaries ("Viasoft" or the "Company") after elimination
of all significant intercompany balances and transactions. The accompanying
unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") for interim financial
information and the instructions to Form 10-Q. Accordingly, they do not include
all the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary for a fair presentation of the results
for the interim periods presented have been made. The results for the three and
nine month periods ended March 31, 2000 may not necessarily be indicative of the
results for the entire year. These financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
June 30, 1999.
2. PROPOSED ACQUISITION OF THE COMPANY
On April 27, 2000 Viasoft and Allen Systems Group, Inc. ("Allen Systems")
announced the execution of a merger agreement (the "Merger Agreement") providing
for Allen Systems and its wholly-owned subsidiary ASG Sub, Inc. ("ASG Sub") to
acquire Viasoft through a cash tender offer followed by a merger. As part of the
Merger Agreement, Viasoft has agreed, upon the purchase of a majority of the
shares outstanding on a fully diluted basis by ASG Sub, to purchase the
remaining shares tendered with its available cash. On May 4, 2000, ASG Sub and
Viasoft offered to purchase all outstanding shares of Viasoft's common stock for
$8.40 per share on the terms and conditions of an Offer to Purchase submitted to
the Viasoft shareholders. Following completion of the tender offer and subject
to satisfaction of certain conditions, ASG Sub will be merged into Viasoft, with
Viasoft surviving as a wholly-owned subsidiary of Allen Systems. This offer is
scheduled to expire on Friday, June 2, 2000, unless extended.
Viasoft believes that its business, results of operations, financial
condition and liquidity may be materially adversely affected by the announcement
of the proposed acquisition by Allen Systems. Consummation of the proposed
acquisition of Viasoft by Allen Systems is subject to certain conditions,
including the condition that at least 51% of the shares of Viasoft common stock
outstanding on a fully-diluted basis are tendered and not withdrawn. In
addition, the Merger Agreement with Allen Systems imposes restrictions on
Viasoft's conduct of its business and its ability to take certain actions
without Allen System's consent. These restrictions could have a material adverse
affect on Viasoft's business.
3. TERMINATION OF THE PROPOSED TRANSACTION WITH COMPUWARE
On July 15, 1999, Viasoft and Compuware Corporation ("Compuware") announced
the execution of a merger agreement (the "Compuware Merger Agreement") providing
for Compuware to acquire Viasoft through a cash tender offer followed by a
merger. As contemplated by the Compuware Merger Agreement, on July 22, 1999, a
wholly-owned subsidiary of Compuware, CV Acquisition, Inc., offered
7
<PAGE> 8
to purchase all outstanding shares of Viasoft's common stock for $9.00 per share
on the terms and conditions of an Offer to Purchase submitted to the Viasoft
shareholders. This offer had an original expiration date of August 19, 1999,
which was subsequently extended several times. The final extension date was
January 18, 2000. On January 18, 2000, Viasoft and Compuware agreed to terminate
the Compuware Merger Agreement.
Consummation of the tender offer was subject to certain conditions,
including the expiration or termination of applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act. On August 3, 1999, both Viasoft
and Compuware received requests for additional information and documents from
the Antitrust Division of the Department of Justice ("DOJ") in connection with
its review of the companies' Hart-Scott-Rodino filings. As a result of these
information requests, Compuware extended the tender offer to allow sufficient
time to comply with the information requests and to allow the DOJ time to
complete its investigation.
On October 29, 1999, the DOJ filed a civil antitrust lawsuit against
Compuware and Viasoft in the United States District Court for the District of
Columbia to block the proposed acquisition of Viasoft by Compuware. The DOJ
alleged that competition in the mainframe testing/debugging and fault diagnostic
tool markets would be substantially lessened as a result of the proposed
transaction. Compuware and Viasoft extended the tender offer a number of times
in order to provide additional time to evaluate and pursue available options in
defense of the civil action. Viasoft agreed with Compuware to terminate the
Compuware Merger Agreement because the Board of Directors did not believe that
continuing the litigation for many months, with its inherent risks, substantial
costs and potential for irreparable damage to the Viasoft business and
relationships with customers, distributors and employees was in the best
interest of Viasoft shareholders.
Viasoft believes that its business, results of operations, financial
condition and liquidity have been materially adversely affected by the
announcement of the proposed acquisition by Compuware, the DOJ litigation and
resulting termination of the Compuware Merger. Relationships with customers have
been adversely affected and revenues from product licenses and professional
services have declined as customers have delayed or reconsidered purchase
decisions. In addition, the Company has experienced significant employee
attrition as a result of the announcement of the Compuware transaction and the
subsequent delays and uncertainty. Loss of employees has been most significant
in the marketing and administration functions and in the sales force,
particularly in the United States. The Company believes that its business,
results of operations, financial condition and liquidity may be further
materially adversely affected, as the Company continues to address the effects
of the terminated Compuware transaction. Among other things, Viasoft must seek
to continue to restructure and rebuild its workforce and reinforce both its
customer relationships and position in the marketplace following termination of
the proposed merger. In the third quarter of fiscal 2000, the Company announced
the reorganization of its business into product line divisions. Implementing
this reorganization required a workforce reduction of approximately 54 people.
During the third quarter of fiscal 2000, Viasoft took a pre-tax
non-recurring charge of approximately $1.7 million for costs related to the
terminated Compuware transaction. These costs were primarily for outside legal
fees and financial services associated with the proposed transaction, as well as
significant litigation expenses.
On January 24, 2000, Viasoft received a letter from Compuware claiming that
Viasoft violated the previously terminated merger agreement with Compuware and
demanding $10 million in damages. Compuware alleged that Viasoft violated its
obligations under the Compuware Merger Agreement to
8
<PAGE> 9
refrain from seeking alternative take-over proposals and, as a result, failed to
use reasonable efforts to obtain regulatory approval and consummate the proposed
transaction. Viasoft publicly disclosed these claims and believes that there is
no basis for the claims. To Viasoft's knowledge, Compuware has not commenced any
legal proceedings with respect to the claims. In light of these circumstances,
and because Viasoft believes the Compuware allegations to be entirely without
merit, Viasoft does not believe a reserve for this matter is appropriate.
4. ACQUISITION -- SHL SYSTEMHOUSE CO.
In July 1998, the Company acquired exclusive 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. ("SHL"). Viasoft renamed the product Visual Process.
In connection with the Company's reorganization and change in business model
in the fourth quarter of fiscal 1999, the announcement and subsequent
termination of the Compuware Merger Agreement, and the recently announced
reorganization into product line divisions, the original development and
marketing plans for this product were significantly changed. Viasoft shut down
the Visual Process development lab in Toronto, Canada and the remaining product
support was moved to its Phoenix office in the second quarter of fiscal 2000.
The Company's efforts to sell its license to the technology have been
unsuccessful. As a result, the Company has written off the intangible assets
related to the SHL purchase, resulting in an additional charge during the third
quarter of fiscal 2000 of approximately $1.0 million. This charge is classified
as part of "Cost of software license and maintenance fees."
5. FISCAL 2000 RESTRUCTURING
During the third quarter of fiscal 2000, Viasoft announced a reorganization
of the Company into product line divisions. This reorganization resulted in a
workforce reduction of approximately 54 employees. Viasoft had originally
announced that the reduction was expected to be approximately 70 employees.
Although a few additional planned reductions have occurred in April and early
May, the balance is being re-evaluated in light of the proposed Allen Systems
transaction, as well as unplanned employee attrition. In connection with the
reorganization, the Company recorded a restructuring charge of approximately
$1.9 million, attributed primarily to severance and related costs for workforce
reductions. This charge, in combination with the reversal of certain other
special charges recorded during fiscal 1999 (see Note 6), resulted in a net
charge of approximately $900,000 for the third quarter of fiscal 2000. As of
March 31, 2000, approximately $540,000 in severance and related costs had been
paid out or incurred.
6. FISCAL 1999 RESTRUCTURING
In the first quarter of fiscal 1999, the Company established and began the
implementation of a cost reduction and restructuring plan for the purpose of
aligning expenses with a decrease in forecasted revenues as the year 2000 market
declined, and to allow the business to invest in other products and service
solutions. In April 1999, the Company announced a reorganization of its
operations to transition the business to a solutions-driven model focused on
e-business enablement, and accordingly developed plans to grow its services
business.
In the first quarter of fiscal 1999, the Company took a $4.8 million pre-tax
restructuring charge. This restructuring charge covered $3.1 million for
severance and related costs for a reduction in workforce of
9
<PAGE> 10
approximately 10% of the Company's 550 employees worldwide; $800,000 for office
consolidation costs including leasehold termination payments and other facility
exit costs for certain offices worldwide which were unrelated to the Company's
core business; and $900,000 for the write down of intangible assets which had
become impaired as determined by a net realizable value test based on future
forecasted revenues.
The Company took a pre-tax charge of approximately $7.5 million in the
fourth quarter of fiscal 1999 in connection with its April reorganization and
transition to the new business model. This charge related to severance for a
reduction in workforce of approximately 20% of its 500 employees worldwide of
$2.8 million; a write down in accordance with SFAS No. 121 of certain long-lived
assets based on the net present value of future cash flows of $4.3 million; a
write down of certain capitalized software which was determined to be impaired
through a net realizable value test based on future forecasted revenues of
$300,000; and additional facility exit costs of $100,000.
As of March 31, 2000, approximately 194 employees have been separated from
the Company in connection with the fiscal 1999 reorganization and restructuring
plans. All costs related to these charges have been paid or incurred with the
exception of approximately $589,000 of office consolidation costs. In total, the
Company has incurred approximately $4.8 million in severance and related costs,
and $330,000 in office consolidation costs through the end of the third quarter
of fiscal 2000. Since costs related to these charges were less than originally
anticipated, the excess reserve of $1.0 million was reversed during the quarter
ended March 31, 2000, resulting in a net restructuring charge for that quarter
of approximately $900,000 (see Note 5).
7. BUSINESS SEGMENTS
Viasoft operates primarily in three business segments in the software
industry: domestic products, domestic professional services and international
products and professional services. For purposes of these segments, all of the
Americas operations are reported as part of the domestic segment. The Company
evaluates each business segment based upon operating profit. Each business
segment's operating profits do not include an allocation of the cost of license
and maintenance, research and development costs, corporate overhead costs,
write-offs of purchase in-process research and development charges,
restructuring charges and other income. The Company does not evaluate assets and
capital expenditures on a segment basis. Segment information for the three and
nine months ended March 31, 2000 and 1999, is as follows (in thousands):
10
<PAGE> 11
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Domestic products $ 5,988 $ 11,375 $ 23,266 $ 37,251
Domestic professional services 1,405 5,106 5,330 17,252
International products and professional services 3,792 9,327 16,742 26,315
-------- -------- -------- --------
Total revenues 11,185 25,808 45,338 80,818
OPERATING EXPENSES:
Domestic products 1,274 3,779 5,139 13,271
Domestic professional services 1,744 4,694 6,270 15,088
International products and professional services 3,755 4,564 12,821 15,242
Cost of license and maintenance 2,476 4,824 6,836 13,144
Research and development 2,244 2,947 6,676 11,168
Corporate overhead 3,043 4,685 10,669 13,739
-------- -------- -------- --------
Total operating expenses 14,536 25,493 48,411 81,652
INCOME (LOSS) FROM OPERATIONS, BEFORE WRITE-OFF OF
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT,
RESTRUCTURING CHARGES, OR OTHER INCOME:
Domestic products 4,714 7,596 18,127 23,980
Domestic professional services (339) 412 (940) 2,164
International products and professional services 37 4,763 3,921 11,073
Cost of license and maintenance (2,476) (4,824) (6,836) (13,144)
Research and development (2,244) (2,947) (6,676) (11,168)
Corporate overhead (3,043) (4,685) (10,669) (13,739)
-------- -------- -------- --------
TOTAL INCOME (LOSS) FROM OPERATIONS, BEFORE
WRITE-OFF OF PURCHASED IN-PROCESS RESEARCH AND
DEVELOPMENT, RESTRUCTURING CHARGES, OR
OTHER INCOME: (3,351) 315 (3,073) (834)
Write-off of purchased in-process research and
Development -- -- -- (5,013)
Restructuring charges (928) -- (928) (4,790)
Merger expenses (1,658) -- (1,658) --
Other income 820 432 2,751 2,745
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES $ (5,117) $ 747 $ (2,908) $ (7,892)
======== ======== ======== ========
</TABLE>
The Company operates in one industry which includes the development,
marketing and support of business solutions that enable large organizations
worldwide to 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.
11
<PAGE> 12
8. EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share ("EPS") data were computed as follows (in
thousands, except per share date):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BASIC EPS:
Numerator: Net income (loss) $ (3,325) $ 487 $ (1,892) $ (5,133)
-------- -------- -------- --------
Denominator:
Weighted average common shares outstanding 18,092 18,054 18,010 18,443
-------- -------- -------- --------
Basic EPS $ (0.18) $ 0.03 $ (0.11) $ (0.28)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
DILUTED EPS:
Numerator: Net income (loss) $ (3,325) $ 487 $ (1,892) $ (5,133)
-------- -------- -------- --------
Denominator:
Weighted average common shares outstanding 18,092 18,054 18,010 18,443
Dilutive effect of stock options -- 141 -- --
-------- -------- -------- --------
Total shares 18,092 18,195 18,010 18,443
-------- -------- -------- --------
Diluted EPS $ (0.18) $ 0.03 $ (0.11) $ (0.28)
======== ======== ======== ========
</TABLE>
12
<PAGE> 13
ITEM 2. 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 elsewhere in this Form 10-Q, in "Factors That May Affect Future
Results" in the Company's Form 10-K for the year ended June 30, 1999 and other
risks detailed from time to time in the Company's filings with the Securities
and Exchange Commission ("SEC"). See "Special Note on Forward-Looking
Statements."
OVERVIEW
On April 27, 2000 Viasoft and Allen Systems Group, Inc. ("Allen Systems")
announced the execution of a merger agreement (the "Merger Agreement") providing
for Allen Systems and its wholly-owned subsidiary ASG Sub, Inc. ("ASG Sub") to
acquire Viasoft through a cash tender offer followed by a merger. As part of the
Merger Agreement, Viasoft has agreed, upon the purchase of a majority of the
shares outstanding on a fully diluted basis by ASG Sub, to purchase the
remaining shares tendered with its available cash. On May 4, 2000, ASG Sub and
Viasoft offered to purchase all outstanding shares of Viasoft's common stock for
$8.40 per share on the terms and conditions of an offer to purchase submitted to
the Viasoft shareholders. Following completion of the tender offer and subject
to satisfaction of certain conditions, ASG Sub will be merged into Viasoft, with
Viasoft surviving as a wholly-owned subsidiary of Allen Systems. This offer is
scheduled to expire on Friday, June 2, 2000, unless extended. (See Note 2 to the
Consolidated Financial Statements).
Viasoft believes that its business, results of operations, financial
condition and liquidity may be materially adversely affected by the announcement
of the proposed acquisition by Allen Systems. Consummation of the proposed
acquisition of Viasoft by Allen Systems is subject to certain conditions,
including the condition that at least 51% of the shares of Viasoft common stock
outstanding on a fully-diluted basis are tendered and not withdrawn. In
addition, the Merger Agreement with Allen Systems imposes restrictions on
Viasoft's conduct of its business and its ability to take certain actions
without Allen System's consent. These restrictions could have a material adverse
affect on Viasoft's business.
For additional information about the announced transactions with Allen
Systems and ASG Sub, see the Schedule TO filed by Allen Systems, ASG Sub and
Viasoft with the SEC and the Solicitation/Recommendation Statement filed by
Viasoft with the SEC.
On July 15, 1999, Viasoft and Compuware Corporation ("Compuware") announced
the execution of a merger agreement (the "Compuware Merger Agreement") providing
for Compuware to acquire Viasoft through a cash tender offer, subject to the
satisfaction of certain conditions. The expiration date of this offer had been
extended a number of times, in order to provide additional time to evaluate
available options to defend a civil action filed by the Antitrust Division of
the Department of Justice ("DOJ") to block the acquisition. The Compuware Merger
Agreement was terminated by Viasoft and Compuware on January 18, 2000. (See Note
3 to the Consolidated Financial Statements).
Viasoft believes that its business, results of operations, financial
condition and liquidity have been materially adversely affected by the
announcement of the proposed acquisition by Compuware, the DOJ
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litigation and resulting termination of the Compuware Merger. Relationships with
customers have been adversely affected and revenues from product licenses and
professional services have declined as customers have delayed or reconsidered
purchase decisions. In addition, the Company has experienced significant
employee attrition as a result of the announcement of the Compuware transaction
and the subsequent delays and uncertainty. Loss of employees has been most
significant in the marketing and administration functions and in the sales
force, particularly in the United States. The Company believes that its
business, results of operations, financial condition and liquidity may be
further materially adversely affected, as the Company works to recover from the
effects of the terminated Compuware transaction. Among other things, Viasoft
will be required to restructure and rebuild its workforce and reinforce both its
customer relationships and position in the marketplace following termination of
the proposed merger. In the third quarter of fiscal 2000, the Company announced
the reorganization of its business into product line divisions. Implementing
this reorganization required a workforce reduction of approximately 54 people.
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 reseller channel established during fiscal 1998
primarily to sell the OnMark 2000 product line.
Revenue is recognized in accordance with Statement of Position ("SOP") 97-2,
"Software Revenue Recognition" and SOP 98-9, which modifies SOP 97-2 with
respect to certain transactions involving multiple element arrangements.
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 has been received 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.
The discussion of results of operations for the three and nine months ended
March 31, 2000 and 1999 below excludes the effect of restructuring charges,
purchased in-process research and development charges and the non-recurring
charge related to the terminated merger with Compuware. (See Notes to
Consolidated Financial Statements).
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
REVENUES
Total revenues were $11,185,000 for the quarter ended March 31, 2000, as
compared to $25,808,000 for the quarter ended March 31, 1999. Software license
fees were $2,307,000 for the quarter ended March 31, 2000, a decrease of 78%
from $10,693,000 in the quarter ended March 31, 1999. The
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decrease in software license fees related to customer decisions to postpone or
reconsider purchases due to the proposed acquisition of the Company by
Compuware, loss of sales personnel as a result of the transaction and the
slowdown in the worldwide demand for the Company's year 2000 mainframe and
desktop software tools. Beginning in late fiscal 1999, OnMark 2000 license
revenues began to decline significantly both domestically and internationally.
This decline continued to accelerate as the year 2000 approached. Management
believes that the year 2000 market is substantially over and that the Company
will receive minimal, if any, year 2000 related revenue in the next two
quarters. In addition, management believes that license fee revenue may continue
to be adversely affected as the Company works to recover from the effects of the
terminated Compuware transaction, and may also be adversely affected by the
recent announcement of the Allen Systems transaction.
Maintenance fees were $6,818,000 in the quarter ended March 31, 2000,
compared to $8,407,000 in the quarter ended March 31, 1999, a decrease of 19%.
With the Company's entry into the desktop software market with the OnMark 2000
product line, it has been the Company's experience that a large number of OnMark
customers do not purchase maintenance services. As a result, the Company has
experienced erosion in maintenance revenue because a large percentage of license
sales in late fiscal 1998 and throughout fiscal 1999 were OnMark 2000 licenses
without maintenance agreements. Also, management believes some customers may not
have renewed maintenance as a result of the proposed Compuware transaction, as
well as customer re-evaluations of software requirements for their enterprise.
In fiscal 1999 and continuing into fiscal 2000, the Company saw instances of
maintenance cancellations that management believes were the result of customers
canceling maintenance after completion of their year 2000 remediation projects.
Professional services fees were $2,049,000 for the quarter ended March 31,
2000, a decrease of 69% from $6,693,000 in the quarter ended March 31, 1999. In
April 1999, the Company announced a reorganization of its operations to
transition to a solutions-driven model focused on e-business enablement, and
accordingly developed plans to grow its services business. Management believed
that the Company could experience weakness in professional services fee revenue
and margins as it transitioned to this new model. As a result of the
announcement of the proposed acquisition of the Company by Compuware in July
1999, the Company was not able to fully implement the planned transition to a
solutions-based model. The decrease in professional services fee income is a
result of customers, both domestically and internationally, who delayed or
reconsidered decisions regarding signing new service agreements while the
outcome of the merger with Compuware was undetermined. Management believes that
professional services fee revenue may continue to be adversely affected by the
terminated merger with Compuware for the reasons discussed above and may also be
adversely affected by the recent announcement of the Allen Systems transaction.
COST OF REVENUES
Cost of software license and maintenance fees, which includes royalties,
cost of customer support and packaging and product documentation, was $2,542,000
in the quarter ended March 31, 2000. This includes a one-time charge of
$1,000,000 relating to the write off of SHL intangible assets (see Note 4 to the
Consolidated Financial Statements). Excluding this one-time charge, cost of
software license and maintenance fees was $1,542,000 in the quarter ended March
31, 2000, a decrease of 59% from $3,785,000 in the quarter ended March 31, 1999.
Excluding the one-time charge referred to above, gross margins on software
license and maintenance fees increased to 83% in the quarter ended March 31,
2000, compared to 80% in the quarter ended March 31, 1999. A decrease in royalty
expenses due to the decrease in sales of the OnMark 2000 product line was the
primary reason for the margin improvement and the reduction in costs. All
products in the OnMark product line require royalty payments to third
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parties. As noted above, OnMark revenues have declined significantly
year-over-year. Other factors contributing to the decrease in cost of software
license and maintenance fees and improvement in margins included lower software
license fee revenues, the reduction in the number of customer support personnel
and third party consultants used for customer support worldwide as a result of
the Company's fiscal 1999 and 2000 reorganizations and personnel attrition due
to the terminated Compuware transaction.
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 $2,777,000 in the quarter ended March 31,
2000, a decrease of 53% from $5,965,000 in the quarter ended March 31, 1999. The
decrease in expenses was primarily a result of lower subcontractor costs in line
with the decrease in professional services fee revenues. The gross margin for
professional services was a negative 36% in the quarter ended March 31, 2000,
compared to 11% in the quarter ended March 31, 1999. The negative margin was a
result of the Company's inability to cover the costs of the overhead in the
professional services group due to the decline in professional services fee
revenue in the second quarter of fiscal 2000. The Company believes that negative
professional services margins may continue in the near term as the Company works
to recover from the effects of the terminated Compuware transaction.
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 $4,537,000 in the quarter ended
March 31, 2000, a decrease of 55% from $9,987,000 in the quarter ended March 31,
1999. The decrease is attributable primarily to a decrease in the number of
sales and marketing personnel and their related costs as a result of attrition
due to the Company's fiscal 1999 and 2000 reorganization plans and the
terminated Compuware transaction. In addition, bonuses and commissions declined
due to the decrease in license revenues. Furthermore, external consulting,
marketing and promotional costs declined as the Company reprioritized strategic
marketing programs in anticipation of the proposed merger with Compuware. Sales
and marketing expense as a percentage of total revenues was 41% in the quarter
ended March 31, 2000, and 39% in the quarter ended March 31, 1999. Management
anticipates that sales and marketing expenses will increase as Viasoft takes
steps to reinforce customer relationships and its position in the marketplace
following the termination of the Compuware transaction.
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 $2,244,000 in the
quarter ended March 31, 2000, compared to $2,933,000 in the quarter ended March
31, 1999, representing a decrease of 23% between comparable quarters. A decrease
in third-party development costs along with the decrease in development
personnel as a result of the Company's reorganization are the primary reasons
for the decline in research and development expenses. As a percentage of total
revenues, research and development costs increased to 20% in the quarter ended
March 31, 2000, from 11% for the quarter ended March 31, 1999, primarily as a
result of the decrease in revenues.
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
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and administrative expenses were $2,436,000 in the quarter ended March 31, 2000,
a decrease of 14% from $2,823,000 in the quarter ended March 31, 1999. This
decrease is primarily a result of decreased general and administrative personnel
and their related costs as a result of attrition due to the terminated Compuware
transaction. As a percentage of total revenues, general and administrative
expenses were 22% in the quarter ended March 31, 2000, compared to 11% in the
quarter ended March 31, 1999. This increase is primarily due to the overall
decrease in revenues.
OTHER INCOME (EXPENSE)
Other income was $820,000 in the quarter ended March 31, 2000, compared to
$432,000 in the quarter ended March 31, 1999. The increase is primarily a result
of an overall decrease in foreign exchange losses.
INCOME TAX BENEFIT/PROVISION
The Company's income tax benefit was $1,792,000 in the quarter ended March
31, 2000, compared to an income tax provision of $260,000 in the quarter ended
March 31, 1999. The Company's effective rate for the quarters ended March 31,
2000 and 1999 was 35% .
COMPARISON OF NINE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
REVENUES
Total revenues were $45,338,000 for the nine months ended March 31, 2000, as
compared to $80,818,000 for the quarter ended March 31, 1999. Software license
fees were $14,323,000 for the nine months ended March 31, 2000, a decrease of
58% from $34,166,000 in the nine months ended March 31, 1999. The decrease in
software license fees related to customer decisions to postpone or reconsider
purchases due to the proposed acquisition of the Company by Compuware and,
additionally, the slowdown in the worldwide demand for the Company's year 2000
mainframe and desktop software tools. Beginning in late fiscal 1999, OnMark 2000
license revenues began to decline significantly both domestically and
internationally. This decline has continued to accelerate as the year 2000
approached. Management believes that the year 2000 market is substantially over
and the Company will receive minimal, if any, year 2000 related revenue in the
next two quarters. In addition, management believes that license fee revenue may
continue to be adversely affected as the Company works to recover from the
effects of the terminated Compuware transaction and may also be adversely
affected by the recent announcement of the Allen Systems transaction.
Maintenance fees were $22,944,000 for the nine months ended March 31, 2000,
compared to $25,549,000 in the nine months ended March 31, 1999, a decrease of
10%. With the Company's entry into the desktop software market with the OnMark
2000 product line, it has been the Company's experience that a large number of
OnMark customers do not purchase maintenance services. As a result, the Company
has experienced erosion in maintenance revenue because a large percentage of
license sales in late fiscal 1998 and throughout fiscal 1999 were OnMark 2000
licenses without maintenance agreements. Also, management believes some
customers may not have renewed maintenance as a result of the proposed Compuware
transaction, as well as customer re-evaluations of software requirements for
their enterprise. In addition, in fiscal 1999 and continuing into fiscal 2000,
the Company saw instances of maintenance cancellations that management believes
were the result of customers canceling maintenance after completion of their
year 2000 remediation projects.
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Professional services fees were $8,051,000 for the nine months ended March
31, 2000, a decrease of 62% from $21,072,000 in the quarter ended March 31,
1999. In April 1999, the Company announced a reorganization of its operations to
transition to a solutions-driven model focused on e-business enablement, and
accordingly developed plans to grow its services business. Management believed
that the Company could experience weakness in professional services fee revenue
and margins as it transitioned to this new model. As a result of the
announcement of the proposed acquisition of the Company by Compuware in July
1999, the Company was not able to fully implement the planned transition to a
solutions-based model. The decrease in professional services fee income is a
result of customers, both domestically and internationally, who delayed or
reconsidered decisions regarding signing new services agreements while the
outcome of the merger with Compuware was undetermined. Management believes that
professional services fee revenue will continue to be adversely affected by the
terminated merger with Compuware for the reasons discussed above and may also be
adversely affected by the recent announcement of the Allen Systems transaction.
COST OF REVENUES
Cost of software license and maintenance fees was $7,037,000 in the nine
months ended March 31, 2000. This includes a one-time charge of $1,000,000 taken
in the third quarter relating to the write off of SHL intangible assets (see
Note 4 to the Consolidated Financial Statements). Excluding this one-time
charge, cost of software license and maintenance fees was $6,037,000 in the nine
months ended March 31, 2000, a decrease of 50% from $12,140,000 in the nine
months ended March 31, 1999. Excluding the one-time charge referred to above,
gross margins on software license and maintenance fees increased to 84% for the
nine months ended March 31, 2000, compared to 80% for the nine months ended
March 31, 1999. A decrease in royalty expenses due to the decrease in sales of
the OnMark 2000 product line was the primary reason for the margin improvement
and the reduction in costs. All products in the OnMark product line require
royalty payments to third parties. As noted above, OnMark revenues have declined
significantly year-over-year. Other factors contributing to the decrease in cost
of software license and maintenance fees are the reduction in the number of
customer support personnel and third party consultants used for customer support
worldwide as a result of the Company's fiscal 1999 and 2000 reorganizations,
personnel attrition due to the terminated Compuware transaction and lower
product packaging costs and external consulting costs as a result of the
reduction in OnMark revenue.
Cost of professional services fees was $9,798,000 in the nine months ended
March 31, 2000, a decrease of 46% from $18,064,000 in the nine months ended
March 31, 1999. The decrease in expenses was primarily a result of lower
subcontractor costs in line with the decrease in professional services fee
revenues. The gross margin for professional services was a negative 22% in the
nine months ended March 31, 2000, compared to a positive margin of 14% in the
nine months ended March 31, 1999. The negative margin was a result of the
Company's inability to cover the costs of the overhead in the professional
services group due to the decline in professional services fee revenue. The
Company believes that negative professional services margins may continue in the
near term as the Company works to recover from the effects of the terminated
Compuware transaction.
SALES AND MARKETING
Sales and marketing expenses were $16,539,000 in the nine months ended March
31, 2000, a decrease of 49% from $32,331,000 in the nine months ended March 31,
1999. Certain expenses totaling approximately $600,000 which had been classified
as sales and marketing expenses in the first quarter of fiscal 2000 have been
reclassified to general and administrative in the year-to-date presentation to
more accurately reflect the nature of the expenses. Sales and marketing expenses
as a percentage of total
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revenues were 36% in the nine months ended March 31, 2000, and 40% in the same
period in fiscal 1999. These decreases are attributable primarily to a decrease
in the number of sales and marketing personnel and their related costs as a
result of attrition due to the Company's fiscal 1999 and 2000 reorganization
plans and the terminated Compuware transaction. Bonuses and commissions declined
due to the decrease in license revenues. Furthermore, external consulting,
marketing and promotional costs declined during this period as the Company
reprioritized strategic marketing programs in anticipation of the proposed
merger with Compuware. Also, in fiscal 1999, the Company took a $1.1 million
charge for bad debts which was not necessary in fiscal 2000. Management
anticipates that sales and marketing expenses will increase as Viasoft takes
steps to reinforce customer relationships and its position in the marketplace
following termination of the Compuware transaction.
RESEARCH AND DEVELOPMENT
Research and development expenditures were $6,676,000 in the nine months
ended March 31, 2000, compared to $11,155,000 in the nine months ended March 31,
1999, a decrease of 40%. In fiscal 1999, research and development charges of
$1.5 million for third-party development of certain technologies acquired during
the first nine months of fiscal 1999 were incurred. There were no such
expenditures made in fiscal 2000. This lack of significant third-party
development expenses, combined with the decrease in development personnel as a
result of the Company's reorganization, account for the decline in research and
development expenses. Research and development costs increased to 15% of total
revenues in the nine months ended March 31, 2000, from 14% for the nine months
ended March 31, 1999, primarily as a result of the reduction in total revenues.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $8,361,000 for the nine months
ended March 31, 2000, as compared to $7,962,000 in the nine months ended March
31, 1999. Certain expenses totaling approximately $600,000 which had been
classified as sales and marketing expenses in the first quarter of fiscal 2000
have been reclassified to general and administrative in the year-to-date
presentation to more accurately reflect the nature of the expenses. General and
administrative expenses have increased 5% year-over-year. This increase is
primarily a result of additional amortization of intangibles related to the
EraSoft and SHL acquisitions and additional external consulting costs related to
the Company's year 2000 readiness project, offset by savings in personnel costs
as a result of attrition due to the Company's reorganization and the terminated
Compuware transaction. As a percentage of total revenues, general and
administrative expenses were 18% in the nine months ended March 31, 2000,
compared to 10% in the nine months ended March 31, 1999. This increase is
primarily due to the overall decrease in revenues and the increase in expenses
noted above.
OTHER INCOME (EXPENSE)
Other income was $2,751,000 in the nine months ended March 31, 2000,
compared to $2,745,000 in the nine months ended March 31, 1999.
INCOME TAX BENEFIT/PROVISION
The Company's income tax benefit was $1,016,000 in the nine months ended
March 31, 2000, compared to a benefit of $2,759,000 in the nine months ended
March 31, 1999. The Company's effective rate for the nine months ended March 31,
2000 and 1999, was 35%.
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had cash and cash equivalents and investments
of $88,323,000, representing an increase of $2,273,000 from the total of
$86,050,000 at June 30, 1999. The increase is primarily from cash generated from
operations.
During the first three quarters of fiscal 2000, the Company generated
$4,706,000 from income before depreciation, amortization and other non-cash
items, and used $2,627,000, resulting in $2,079,000 of net cash provided by
operations. During the first three quarters in fiscal 1999, the Company
generated $8,783,000 from income before depreciation, amortization and other
non-cash items, and used $1,744,000, resulting in $7,039,000 of net cash
provided by operations.
The Company's investing activities provided cash of $10,587,000 in the nine
months ended March 31, 2000 and used cash of $2,756,000 in the nine months ended
March 31, 1999. In the nine months ended March 31, 2000, cash was provided by
investment sales and maturities exceeding purchases. In the nine months ended
March 31, 1999, cash was used to purchase investments, for the acquisition of
SHL and, to a lesser extent, the purchase of furniture, fixtures, and equipment,
all partially offset by investment maturities.
The Company's financing activities provided cash of $511,000 and used cash
of $12,523,000 in the nine months ended March 31, 2000 and 1999, respectively.
In the nine months ended March 31, 2000, cash was provided by sales of treasury
stock for stock option exercises and the employee stock purchase plan. In the
nine months ended March 31, 1999, cash was used to purchase shares of treasury
stock through the Company's stock repurchase program.
As of March 31, 2000, the Company did not have any material commitments for
capital expenditures. For the remainder of fiscal 2000, the Company anticipates
capital expenditures of approximately $100,000, primarily for personal computer
upgrades.
The Company expects that 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.
YEAR 2000 CONSIDERATIONS
The following disclosure is a year 2000 readiness disclosure statement
pursuant to the Year 2000 Readiness and Disclosure Act of 1998.
The Company has received no reports of significant year 2000 related
problems experienced by the Company's customers with regard to any of the
Company's products or services. In addition, the Company has not experienced any
significant year 2000 issues with respect to its internal systems or the systems
of a material vendor or strategic partner. However, there can be no assurances
that the Company will not experience significant unanticipated negative
consequences caused by undiscovered year 2000 problems in its internal systems,
products and services provided by third parties or the products and services
provided by the Company to its customers. The Company continues to monitor its
product support and internal organization and the status of vendor-provided
services for any indications that the year 2000 issue had impacted its products,
its material internal systems or its material third party relationships. Any
such year 2000 problem could have a material adverse effect on the Company's
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business, results of operations and financial condition in the future.
The Company budgeted approximately $5.6 million for its year 2000
compliance program and has incurred approximately $5.2 million of these
expenses. These expenses began in 1995, when the Company first began the
assessment and remediation of internally developed programs, and the final
expenses were incurred in the quarter ending March 31, 2000, primarily for
staffing and expenses related to extensive coverage provided by the Company
during the millennium weekend.
A more detailed discussion of certain risks associated with the year 2000
issue and the Company's actions and plans to address this issue is set forth in
the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1999, as well as the quarterly reports on Form 10-Q for the quarters ended
September 30, 1999 and December 31, 1999.
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 $380,000
from foreign currency fluctuations in the nine months ended March 31, 2000,
compared to a loss of $587,000 in the nine months ended March 31, 1999.
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 and comprehensive income in the
Company's Consolidated Financial Statements.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Form 10-Q contains
express or implied forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby.
Included in such forward-looking statements are those statements in "Year 2000
Considerations" regarding the Company's plans and expectations relating to the
Company's year 2000 compliance. 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 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, risks associated with the
announcement of the proposed transaction with Allen Systems, risks associated
with the reorganization of the Company, the affect of the termination of the
proposed acquisition by Compuware and potential claims made against the Company
by Compuware,
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risks associated with the Company's efforts to restructure and rebuild its
workforce and reinforce both customer relationships and its position in the
marketplace following termination of the Compuware transaction, the Company's
dependence on the rapidly declining year 2000 century date conversion market,
both mainframe and desktop, and dependence on its ESW primary product line, the
volatility of the Company's common stock price, fluctuations in revenues and
operating results, the Company's ability to manage changes in its professional
services business and risks associated with a professional services business,
including volatility of workload, ability to successfully manage consulting
projects, proper allocation of resources and hiring, training and retaining
qualified personnel, risks associated with international operations including
longer payment cycles and exchange rate fluctuations, the Company's ability to
manage rapid change in its business and industry, the Company's ability to
enhance existing products and develop or acquire new products and technology to
keep pace with technological developments and evolving industry standards and to
respond to changes in customer needs, the Company's dependence on key management
and technical personnel and increasing competition to attract skilled personnel,
and general economic and business conditions, as well as factors discussed
elsewhere in this Form 10-Q, in "Factors That May Affect Future Results" in the
Company's Form 10-K for the year ended June 30, 1999, and other risks detailed
from time to time in the Company's filings with the Securities and Exchange
Commission.
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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On October 29, 1999, the United States Department of Justice ("DOJ") filed
a civil antitrust lawsuit against Compuware and Viasoft in the United States
District Court of the District of Columbia to block the proposed acquisition of
Viasoft by Compuware. The DOJ alleged that competition in the mainframe
testing/debugging and fault diagnostic tool markets would be substantially
lessened as a result of the proposed transaction. On January 18, 2000, Viasoft
and Compuware agreed to terminate the proposed acquisition. Following
termination of the transaction, the DOJ lawsuit was dismissed without prejudice
pursuant to a stipulation among the parties on January 24, 2000.
On January 24, 2000, Viasoft received a letter from Compuware claiming that
Viasoft violated the previously terminated merger agreement with Compuware and
demanding $10 million in damages. Compuware alleged that Viasoft violated its
obligations under the merger agreement to refrain from seeking alternative
take-over proposals and, as a result, failed to use reasonable efforts to obtain
regulatory approval and consummate the proposed transaction. Viasoft has stated
that there is no basis for these claims and believes the Compuware allegations
to be entirely without merit. To Viasoft's knowledge, Compuware has not
commenced any legal proceedings with respect to its claims. Any proceedings that
are commenced with respect to this matter will be defended vigorously.
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On April 27, 2000, the Company amended the Rights Agreement between the
Company and Harris Trust and Savings Bank relating to the preferred stock
purchase rights previously issued by the Company to holders of its common stock,
in order to permit the proposed transaction with Allen Systems to proceed
without triggering the rights under the Rights Agreement. (See Item 2.
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations.)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
NUMBER DESCRIPTION
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
A Form 8-K Current Report dated March 13, 2000 was filed to report
under Item 5 the press release issued by the Company announcing the annual
meeting of stockholders of the Company.
A Form 8-K Current Report dated April 27, 2000 was filed to report
under Item 5 the press release issued by the Company and Allen Systems
announcing Allen Systems' proposed acquisition of the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Viasoft, Inc.
Date: May 12, 2000 By /s/ Steven D. Whiteman
----------------------
Steven D. Whiteman
President
Acting Chief Accounting Officer
23
<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 March 31,
2000 and the related consolidated statements of operations for the three months
ended March 31, 2000 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 38,172
<SECURITIES> 33,745
<RECEIVABLES> 11,694
<ALLOWANCES> 751
<INVENTORY> 0
<CURRENT-ASSETS> 87,873
<PP&E> 11,955
<DEPRECIATION> 8,002
<TOTAL-ASSETS> 118,310
<CURRENT-LIABILITIES> 25,329
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 92,801
<TOTAL-LIABILITY-AND-EQUITY> 118,310
<SALES> 45,318
<TOTAL-REVENUES> 45,338
<CGS> 16,835
<TOTAL-COSTS> 50,997
<OTHER-EXPENSES> 496
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,247)
<INCOME-PRETAX> (2,908)
<INCOME-TAX> (1,016)
<INCOME-CONTINUING> (1,892)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,892)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
