<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________________
FORM 10-Q/A
AMENDMENT NO. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
Commission File Number 0-25794
____________________
OPEN ENVIRONMENT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-3168610
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
25 Travis Street
Boston, Massachusetts 02134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 562-0900
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. [X] Yes [_] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The Registrant had 7,445,466 shares of Common Stock, $.01 par value,
outstanding as of November 9, 1995.
===============================================================================
<PAGE>
OPEN ENVIRONMENT CORPORATION
QUARTERLY REPORT ON FORM 10-Q/A
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - Financial Information
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1995 and December 31, 1994
(restated) 1
Condensed Consolidated Statements of Income
for the three months ended September 30, 1995
and 1994 and the nine months ended
September 30, 1995 and 1994 (restated) 2
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1995
and 1994 (restated) 3
Notes to Condensed Consolidated Financial
Statements (restated) 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, as Amended 7
PART II - Other Information 10
ITEM 6. Exhibits and Reports on Form 8-K
Signatures 11
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Restated)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,740,021 $ 1,693,118
Marketable securities 13,725,774 94,589
Accounts receivable, net 11,151,849 3,869,596
Prepaid expenses and other current assets 913,460 606,511
------------- ------------
Total current assets 31,531,104 6,263,814
Property and equipment, net 3,306,439 2,049,392
Capitalized software costs, net 655,370 427,879
Investment in and advances to joint ventures 1,327,590 387,862
Deferred income taxes 64,842 137,362
Other assets 615,031 209,349
------------- ------------
$37,500,376 $ 9,475,658
============= ============
LIABILITIES
Current liabilities:
Notes payable $ 1,845,726
Accounts payable and accrued expenses 4,148,794 $ 2,828,470
Advance billings and customer deposits 501,219 640,833
Deferred maintenance revenue 914,267 780,345
Income taxes payable 651,669 269,260
Current portion of capital lease obligations 198,310 245,489
------------- ------------
Total current liabilities 8,259,985 4,764,397
Deferred income taxes 172,270
Obligations under capital leases, less current portion 75,347 206,089
Series A Convertible Preferred Stock 5,854,332
Common stockholders' equity (deficiency)
Common stock 80,270 51,754
Additional paid-in capital 30,111,920 777,126
Retained earnings 2,472,854 1,149,690
Treasury stock (3,500,000) (3,500,000)
------------- ------------
Total common stockholders' equity (deficiency) 29,165,044 (1,521,430)
------------- ------------
$37,500,376 $ 9,475,658
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
------------ ------------ ------------- -------------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Revenues
Software $5,876,290 $3,542,378 $16,227,234 $ 7,019,100
Maintenance and service fees 1,612,988 1,011,968 4,490,413 1,991,696
Education and training 507,587 744,111 1,562,059 3,626,065
------------ ------------ ------------- -------------
Total revenues 7,996,865 5,298,457 22,279,706 12,636,861
------------ ------------ ------------- -------------
Cost of revenues
Cost of software, maintenance and services 1,427,741 1,113,580 3,777,411 2,935,294
Cost of education and training 385,756 479,881 1,184,784 1,672,075
------------ ------------ ------------- -------------
Total cost of revenues 1,813,497 1,593,461 4,962,195 4,607,369
------------ ------------ ------------- -------------
Gross profit 6,183,368 3,704,996 17,317,511 8,029,492
Operating expenses
Selling and marketing 3,240,681 2,123,842 8,938,871 4,752,830
General and administrative 974,491 618,579 2,659,810 1,578,871
Research and development 1,103,552 567,792 3,111,550 1,333,495
Special one-time charge related to acquisition
of Jarrah Technologies Pty. Ltd. 678,655 678,655
------------ ------------ ------------- -------------
Total operating expenses 5,997,379 3,310,213 15,388,886 7,665,196
------------ ------------ ------------- -------------
Operating income 185,989 394,783 1,928,625 364,296
Equity in loss of joint venture (34,844) (273,643) (62,761)
Other income (expense), net 249,989 4,683 447,398 86,579
------------ ------------ ------------- -------------
Income before income taxes 435,978 364,622 2,102,380 388,114
Provision for income taxes 169,000 85,507 637,372 107,525
------------ ------------ ------------- -------------
Net income $ 266,978 $ 279,115 $ 1,465,008 $ 280,589
============ ============ ============= =============
Net income per share $0.03 $0.04 $0.18 $0.04
============ ============ ============= =============
Dividends $141,844
=============
Dividends per share $0.02
=============
Weighted average shares outstanding 8,572,125 6,737,039 7,919,327 6,322,948
============ ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1995 1994
-------------- --------------
(Restated)
<S> <C> <C>
Operating activities
Net income $1,465,008 $280,589
Adjustments to net income
Depreciation 991,197 402,486
Amortization of capitalized software 212,162 129,933
Allowance for doubtful accounts 221,848 17,464
Equity in loss of joint venture 267,246 62,761
Deferred income taxes (187,935) (64,231)
Changes in operating assets and liabilities
Accounts receivable (7,512,926) (629,210)
Prepaid expenses and other current assets (215,877) (328,656)
Other assets (403,154) (33,522)
Accounts payable and accrued expenses 1,324,204 1,291,712
Advance billings and customer deposits (140,418) (276,278)
Deferred maintenance revenue 138,201 259,387
Income taxes payable 403,148 (46,115)
Due to related party (2,347) (76,335)
-------------- --------------
Net cash provided by (used in) operating activities (3,439,643) 989,985
Investing activities
Purchase of marketable securities (35,896,244) (51,815)
Proceeds from maturities of marketable securities 22,261,984
Investment in and advances to joint ventures (1,206,474) (434,692)
Purchase of property and equipment (2,254,530) (861,237)
Additions to capitalized software (438,990) (369,157)
-------------- --------------
Net cash used in investing activities (17,534,254) (1,716,901)
Financing activities
Net proceeds of notes payable to bank 1,845,726 60,000
Repayment of capital lease obligations (177,921) (81,224)
Net proceeds from issuance of common stock 22,879,165 392,000
Repayment of stockholder notes 77,482
Dividends paid (141,844)
Exercise of stock options 629,813 81,967
-------------- --------------
Net cash provided by financing activities 25,034,939 530,225
-------------- --------------
Effect of exchange rates on cash (14,139) 32,656
Net increase (decrease) in cash and equivalents 4,046,903 (164,035)
Cash and equivalents at beginning of period 1,693,118 918,409
-------------- --------------
Cash and equivalents at end of period $5,740,021 $754,374
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited condensed consolidated financial statements presented have been
prepared by Open Environment Corporation and subsidiaries (the "Company")
without audit and, in the opinion of management, reflect all adjustments
consisting only of normal recurring adjustments necessary for fair presentation
of the financial results for the interim periods shown. The results of
operations for the interim periods shown in this report are not necessarily
indicative of results for any future interim period or for the entire fiscal
year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted, although the Company believes that the disclosures
included are adequate to make the information presented not misleading.
Restatement of Financial Statements
Prior to the second quarter of 1995, the Company and certain of its customers
entered into non-cancellable letters of understanding ("Non-cancellable LOUs")
whereby the Company's customers agreed to purchase certain software and services
from the Company and which specified a future date at or on which a mutually
acceptable software license and services agreement would be finalized. In eight
instances, the parties agreed to enter into a mutually acceptable software
license and services agreement within a specified period (the "Specified
Period") after the date of execution of such Non-cancellable LOU. At the time of
revenue recognition all products were delivered, the Company believed that
persuasive evidence existed to document an agreement to license the Company's
software by the customer and there were no significant contingencies existing at
the date of revenue recognition. After a review by the staff of the Securities
and Exchange Commission (the "Staff"), the Company has agreed that the
recognition of revenue under such Non-cancellable LOUs should be delayed until
the earlier of the date such software license and services agreements were
executed by the parties (the "L&S Execution Date") or the expiration of the
Specified Period. The length of the Specified Periods ranged from two days to 45
days. The Company has restated its historical financial statements contained in
certain of its reports filed pursuant to the Securities Exchange Act of 1934
with respect to the five Non-cancellable LOUs where the earlier of the L&S
Execution Date or the end of the Specified Period occurred in the quarter
following the date of execution of the Non-cancellable LOU. The changes decrease
revenue and net income reported in the fourth quarter of 1994 and increase
revenue and net income reported in each of the first and second quarters of
1995. There was no change in the aggregate revenue and net income reported over
such three quarter period.
The following summarizes the effect of the restatement on the consolidated
financial statements of the Company for the period presented:
<TABLE>
<CAPTION>
As Reported Restated
----------- --------
Nine months ended September 30, 1995
<S> <C> <C>
Revenues $ 21,668,346 $ 22,279,706
Cost of software, maintenance and
services 3,740,729 3,777,411
Gross profit 16,742,833 17,317,511
Selling and marketing expenses 8,883,848 8,938,871
Provision for income taxes 502,263 657,373
Net income 1,080,463 1,465,008
Net income per share .14 .18
Accounts receivable 11,151,849 11,151,849
Total assets 37,500,376 37,500,376
Accounts payable and
accrued expenses 4,148,794 4,148,794
Income taxes payable 651,669 651,669
Stockholders' equity $ 29,165,044 $ 29,165,044
</TABLE>
2. Acquisition of Jarrah Technologies Pty. Limited
On August 31, 1995, the Company issued 408,000 shares of its common stock in
exchange for all outstanding shares of the capital stock of Jarrah Technologies
Pty. Limited ("Jarrah Technologies"), an Australian corporation. The
acquisition was accounted for as a pooling of interests and, accordingly, the
accompanying consolidated financial statements of the Company have been restated
to include the accounts and operations of Jarrah Technologies for all periods
prior to the acquisition. The Company recorded a special one-time charge of
approximately $679,000 in the period ended September 30, 1995 for expenses
related to the acquisition. Charges included professional fees and charges for
regulatory and filing matters ($265,000), travel costs ($222,000), marketing and
collaterals ($139,000), lease termination costs and miscellaneous other costs
($53,000). Substantially all of these charges were incurred prior to September
30, 1995. Separate results of the combining entities for the three and nine
months ended September 30, 1994 are as follows:
4
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1994 September 30, 1994
------------------------- --------------------------
<S> <C> <C>
Total revenues:
Open Environment Corporation $4,039,449 $ 9,234,125
Jarrah Technologies 1,259,008 3,402,736
------------------------- --------------------------
Total $5,298,457 $12,636,861
========================= ==========================
Net income (loss):
Open Environment Corporation $160,156 ($38,889)
Jarrah Technologies 118,959 319,478
------------------------- --------------------------
Total $279,115 $280,589
========================= ==========================
Net income (loss) per share:
Open Environment Corporation $0.02 ($0.01)
Jarrah Technologies 0.02 0.05
------------------------- --------------------------
Total $0.04 $0.04
========================= ==========================
</TABLE>
4. Consolidated Financial Statement Information
Initial Public Offering
On April 13, 1995, the Company completed its initial public offering of common
stock whereby 3,162,500 shares were sold to the public in exchange for net
proceeds of approximately $44,000,000. Of these amounts, the Company issued
1,700,000 shares in exchange for net proceeds of approximately $23,000,000.
Net Income Per Share
Net income per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding during each period. Included in
these amounts are dilutive common stock options and 1,428,571 shares of Series A
Convertible Preferred Stock which automatically converted upon the closing of
the initial public offering into 999,998 shares of common stock. Fully diluted
and primary earnings per share data are the same for each period presented.
Investment Securities
All of the Company's investment securities are classified as held-to-maturity.
Investment securities are deemed to be held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity. Investment
securities at September 30, 1995 consisted of U.S. Treasury securities and
obligations of U.S. government agencies of $14,658,000, tax-exempt mutual and
money market funds of $866,000 and 90-day bank notes of $2,106,000. Investment
securities at December 31, 1994 consisted of $1,000,000 of 30-day bank notes.
Investment securities with maturities of greater than 90 days at date of
purchase, which consisted of U.S. Treasury securities and obligations of U.S.
government agencies in the amount of $13,653,000 at September 30, 1995, are
classified as marketable securities.
Foreign Currency Translation
Assets and liabilities of foreign operations are translated at year end exchange
rates, and statement of operations accounts are translated at average exchange
rates. Gains and losses from translation are not material for the periods
presented. Foreign currency transaction gains and losses are included in the
statements of operations and are not material for the periods presented.
5. Investment in and Advances to Joint Ventures
On January 17, 1994, the Company entered into a joint venture with a Japanese
corporation to develop, distribute, promote and market the Company's software
products and provide related education services in Japan. Under the terms of
the agreement, the Company owned 50% of the outstanding voting common stock and
two shares of the non-voting preferred stock. Concurrent with this agreement,
the Company granted the joint venture an exclusive license to establish,
develop, distribute and market the Company's software products and educational
services in Japan. In return for this license, the Company receives royalties
from the sale of these products and services as follows: software products
(40%); educational services (25%); and maintenance services (60%).
On September 30, 1995, the Company sold 30.5% of the outstanding voting common
stock of the joint venture to its joint venture partner for $488,000, which
approximated the Company's cost basis in the joint venture. As a result, the
Company currently owns 19.5% of the voting common stock of the joint venture.
The Company will account for its remaining investment in the joint venture using
the cost method. At September 30, 1995, investment in and advances to joint
ventures consisted of the amount due from the Japanese joint venture partner for
the sale proceeds of $488,000, investment in and advances
5
<PAGE>
to the Japanese joint venture of $747,000, and investments in other
miscellaneous joint ventures of $93,000.
6. Related Party Transactions
The Company entered into a reseller agreement with Cambridge Technology Group,
Inc. ("CTG"). CTG is principally owned by the Company's Chairman of the Board
and stockholder. Under the terms of the Reseller Agreement, as amended, CTG was
appointed as a non-exclusive reseller of the Company's products in the U.S. and
Canada effective February 1, 1995. Prior to February 1, 1995, CTG did not
distribute the Company's products. Pursuant to this agreement, CTG receives a
50% discount from list prices of the Company's software and a 30% discount from
list prices on the Company's educational programs. The Company is permitted to
cancel the agreement at any time upon payment to CTG of a termination fee equal
to $2,500,000 less 20% of aggregate list price value of software products sold
by CTG under the reseller agreement. Sales to CTG under this agreement during
the three months ended September 30, 1995 amounted to $550,000.
6
<PAGE>
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARY
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, as Amended
Introduction
- ------------
On August 31, 1995, the Company issued 408,000 shares of its common stock in
exchange for all outstanding shares of the capital stock of Jarrah Technologies
Pty. Limited ("Jarrah Technologies"), an Australian corporation. The
acquisition was accounted for as a pooling of interests and, accordingly, the
accompanying consolidated financial statements have been restated to include the
accounts and operations of Jarrah for all periods prior to the merger.
Restatement of Financial Statements
- -----------------------------------
Prior to the second quarter of 1995, the Company and certain of its customers
entered into non-cancellable letters of understanding ("Non-cancellable LOUs")
whereby the Company's customers agreed to purchase certain software and services
from the Company and which specified a future date at or on which a mutually
acceptable software license and services agreement would be finalized. In eight
instances, the parties agreed to enter into a mutually acceptable software
license and services agreement within a specified period (the "Specified
Period") after the date of execution of such Non-cancellable LOU. At the time of
revenue recognition all products were delivered, the Company believed that
persuasive evidence existed to document an agreement to license the Company's
software by the customer and there were no significant contingencies existing at
the date of revenue recognition. After a review by the staff of the Securities
and Exchange Commission (the "Staff"), the Company has agreed that the
recognition of revenue under such Non-cancellable LOUs should be delayed until
the earlier of the date such software license and services agreements were
executed by the parties (the "L&S Execution Date") or the expiration of the
Specified Period. The length of the Specified Periods ranged from two days to 45
days. The Company has restated its historical financial statements contained in
certain of its reports filed pursuant to the Securities Exchange Act of 1934
with respect to the five Non-cancellable LOUs where the earlier of the L&S
Execution Date or the end of the Specified Period occurred in the quarter
following the date of execution of the Non-cancellable LOU. The changes decrease
revenue and net income reported in the fourth quarter of 1994 and increase
revenue and net income reported in each of the first and second quarters of
1995. There was no change in the aggregate revenue and net income reported over
such three quarter period.
The following summarizes the effect of the restatement on the consolidated
financial statements of the Company for the period presented:
<TABLE>
<CAPTION>
As Reported Restated
----------- --------
Nine months ended September 30, 1995
<S> <C> <C>
Revenues $ 21,668,346 $ 22,279,706
Cost of software, maintenance
and services 3,740,729 3,777,411
Gross profit 16,742,833 17,317,511
Selling and marketing expenses 8,883,848 8,938,871
Provision for income taxes 502,263 657,373
Net income 1,080,463 1,465,008
Net income per share .14 .18
Accounts receivable 11,151,849 11,151,849
Total assets 37,500,376 37,500,376
Accounts payable and
accrued expenses 4,148,794 4,148,794
Income taxes payable 651,669 651,669
Stockholders' equity $ 29,165,044 $ 29,165,044
</TABLE>
Results of Operations
- ---------------------
Total revenues increased 51% to $7,997,000 in the three months ended September
30, 1995 from $5,298,000 in the three months ended September 30, 1994. For the
nine months ended September 30, 1995, total revenues increased 76% to
$22,280,000 from $12,637,000 in the nine months ended September 30, 1994.
The revenue increases were largely attributable to software license fees, which
increased to $5,876,000 in the three months ended September 30, 1995 from
$3,542,000 in the three months ended September 30, 1994, and to $16,227,000 in
the nine months ended September 30, 1995 from $7,019,000 in the nine months
ended September 30, 1994. Software revenues accounted for 73% of total revenues
for the nine months ended September 30, 1995 as compared to 56% for the nine
months ended September 30, 1994. Also contributing to the increase in total
revenues were increases in maintenance and service fees, which increased to
$1,613,000 in the three months ended September 30, 1995 from $1,012,000 in the
three months ended September 30, 1994, and to $4,490,000 in the nine months
ended September 30, 1995 from $1,992,000 in the nine months ended September 30,
1994. These increases reflect growing market awareness and acceptance of the
Company's software products as well as a broadening of the Company's installed
base.
These increases were partially offset by a decrease in education revenues to
$508,000 in the three months ended September 30, 1995 from $744,000 in the three
months ended September 30, 1994, and to $1,562,000 in the nine months ended
September 30, 1995 from $3,626,000 in the nine months ended September 30, 1994.
These decreases are consistent with the Company's shift away from the use of
education to further market awareness to the use of education as technical
training for software licensing.
Revenues from Jarrah Technologies and other international customers accounted
for $3,544,000 (44%) of total net revenues for the three months ended September
30, 1995, as compared to $1,358,000 (26%) for the three months ended September
30, 1994, and $9,904.000 (46%) for the nine months ended September 30, 1995 as
compared to $5,011,000 (40%) for the nine months ended September 30, 1994. This
increase is attributable to a combination of direct and channel sales to
international customers as the Company continues to enter additional markets to
expand its operations outside of the United States. The Company believes that
international sales will continue to represent a significant portion of the
Company's net revenue. However, the percentage of revenue derived from
international sales will likely fluctuate based on the timing of orders from
international customers and resellers and the addition of new international
customers and resellers.
Cost of revenues increased to $1,813,000 for the three months ended September
30, 1995 from $1,593,000 for the three months ended September 30, 1994, and
gross margins improved to 77% for the three months ended September 30, 1995 from
70% for the three months ended September 30, 1994. Gross margins
7
<PAGE>
improved on a year-to-date basis to 78% for the nine months ended September 30,
1995 as compared to 64% for the nine months ended September 30, 1994. These
improvements reflect the product shift from the lower-margin education business
(24% gross margin in the nine months ended September 30, 1995) to the higher-
margin software and services business (82% gross margin in the nine months ended
September 30, 1995).
Selling and marketing expenses increased to $3,241,000 in the three months ended
September 30, 1995 from $2,124,000 in the three months ended September 30, 1994,
and to $8,939,000 in the nine months ended September 30, 1995 from $4,753,000 in
the nine months ended September 30, 1994. Selling and marketing expenses
represent 40% of total revenues for the nine months ended September 30, 1995 as
compared to 38% for the nine months ended September 30, 1994. These increases
are the result of the hiring of additional personnel and increased marketing
programs as the Company continues to develop its direct sales force, build its
marketing channels and increase its promotional activities to broaden market
awareness. The Company expects to continue to invest a significant amount of
its resources in its selling and marketing efforts.
General and administrative expenses increased to $974,000 in the three months
ended September 30, 1995 from $619,000 in the three months ended September 30,
1994 and to $2,660,000 in the nine months ended September 30, 1995 from
$1,579,000 in the nine months ended September 30, 1994. The increase is largely
the result of the addition of infrastructure to support international expansion.
However, general and administrative expenses remained consistent as a percentage
of revenues at 12% in the three and nine months ended September 30, 1995 as
compared to 12% in the three months ended September 30, 1994 and 13% in the nine
months ended September 30, 1994.
Research and development expenses increased to $1,104,000 in the three months
ended September 30, 1995 from $568,000 in the three months ended September 30,
1994, and to $3,112,000 in the nine months ended September 30, 1995 from
$1,333,000 in the nine months ended September 30, 1994. These increases reflect
significant personnel increases in the research and development department.
Software development costs capitalized under FAS 86 for the three months ended
September 30, 1995 amounted to $349,000, while amortization of previously
capitalized software amounted to $132,000, as compared to capitalizations of
$26,000 and amortization expense of $70,000 for the three months ended September
30, 1994. Software development costs capitalized for the nine months ended
September 30, 1995 amounted to $439,000, while amortization of previously
capitalized software amounted to $212,000, as compared to capitalizations of
$369,000 and amortization expense of $130,000 for the nine months ended
September 30, 1994. The increase in software development costs capitalized
under FAS 86 for the three months ended September 30, 1995 is due to the
development of the Company's Entera Version 3.0 product, which reached the point
of technological feasibility in that quarter. The Company expects to continue
to increase its research and development expenses to keep pace with the
technological needs of the marketplace.
In connection with the acquisition of Jarrah, the Company recorded non-recurring
and special charges of $679,000 ($441,000 net of tax) in the three month period
ended September 30, 1995. Charges included direct transaction costs and the
estimated costs to be incurred in the integration of Jarrah Technologies into
the Company.
During the third quarter, the Company sold a portion of its interest in its
Japanese joint venture to its joint venture partner. The interest was sold at
the Company's original cost basis. The transaction results in the Company now
owning 19.5% of the joint venture and accordingly, accounting for the joint
venture under the equity method has been discontinued. The Company will
continue to recognize royalty revenue from the joint venture, but will no longer
recognize any share of the venture's operating income or loss.
Other income increased to $250,000 in the three months ended September 30, 1995
and $447,000 for the nine months ended September 30, 1995 from $5,000 in the
three months ended September 30, 1994 and $87,000 for the nine months ended
September 30, 1994. These increases reflect the investment of the net proceeds
from the initial public offering of the Company's common stock in April 1995.
8
<PAGE>
The Company's effective tax rate increased to approximately 32% for the nine
months ended September 30, 1995 from 28% for the nine months ended September 30,
1994 due to the diminishing impact of available R&D credits.
Liquidity and Capital Resources
- -------------------------------
As of September 30, 1995, the Company's cash and cash equivalents increased to
$5,740,000 from $1,693,000 at December 31, 1994, and the Company also held
marketable securities amounting to $13,726,000 at September 30, 1995. The
increase in cash and cash equivalents and marketable securities was primarily
the result of the initial public offering of the Company's common stock in April
1995.
Prior to the initial public offering, the Company had financed operations
through operating cash flow, a bank line of credit, and through a private equity
placement. Operations in 1993 and most of 1994 were financed through operating
cash flow. The Company completed a two-step private equity placement in
November 1994 in which it issued bridge notes in the amount of $3,500,000 and
issued Series A Convertible Preferred Stock in the amount of $6,000,000. A
portion of the proceeds from the Series A Convertible Preferred Stock financing
was used to repay the bridge notes.
In February 1995, the Company renegotiated its bank line of credit (which was
executed in March 1995) which has a demand line of credit of $2,000,000 and a
revolving equipment line of $1,000,000. Availability under the demand line of
credit is based on a percentage of qualified accounts receivable. Borrowings
outstanding on December 31, 1995 under the revolving equipment line convert to a
two-year term note. Interest on the demand line of credit accrues at the prime
rate, and interest on the revolving equipment line accrues at prime plus one-
quarter percent. As of September 30, 1995, aggregate borrowings under the line
of credit amounted to $1,845,000, which were principally used to finance a
portion of the $2,254,000 in property and equipment additions due to the hiring
of additional personnel, the acquisition of new computer equipment and regional
office buildouts.
While the Company believes that the net proceeds from the initial public
offering, borrowings under its line of credit facility and cash flow from
operations will be adequate to meet its planned capital requirements for the
remainder of 1995, acquisition opportunities could require the Company to seek
additional capital prior to such time. There is no assurance that, if the
Company seeks additional financing, such financing will be available upon
acceptable terms, if at all.
Dividends paid in 1995 were paid out of Jarrah prior to it becoming a subsidiary
of the Company. The Company does not expect to declare or pay dividends to
stockholders in the foreseeable future.
9
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
A. Exhibits
Exhibit 10.1 - Stock Purchase Agreement dated as of August 30, 1995, by
and among Open Environment Corporation, Jarrah Technologies Pty. Limited and
Philip Copeland, Elizabeth Copeland and Richard Wallace (incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange
Commission on September 15, 1995).
Exhibit 11.1 - Statement regarding computation of Net Income Per Share
(restated).
B. Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated September 15, 1995
with respect to the acquisition of Jarrah Technologies Pty. Limited, which was
Form 8-K was subsequently amended by a Form 8-K/A filed on November 10, 1995.
10
<PAGE>
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 hereunto duly authorized.
OPEN ENVIRONMENT CORPORATION
Date: October 10, 1996 By: /s/Philip R. Copeland
--------------------------
Philip R. Copeland, Acting Chief Executive
Officer
(Principal Executive Officer)
By: /s/James J. Driscoll
------------------------
James J. Driscoll, Vice President of
Finance
(Principal Financial Officer and Principal
Accounting Officer)
11
<PAGE>
Exhibit 11.1
OPEN ENVIRONMENT CORPORATION AND SUBSIDIARIES
Computation of Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
(Restated)
<S> <C> <C> <C> <C>
Weighted average shares of
common stock outstanding
Common stock equivalents: 7,408,984 4,610,560 6,326,243 4,768,956
Series A Convertible
Preferred Shares 999,998 377,289 622,709
Dilutive effect of
stock options 1,163,141 1,126,481 1,215,795 931,283
----------- ----------- ----------- -----------
8,572,125 6,737,039 7,919,327 6,322,948
=========== =========== =========== ===========
Net income $ 266,978 $ 279,115 $1,465,008 $ 280,589
=========== =========== =========== ===========
Net income per share $0.03 $0.04 $0.18 $0.04
=========== =========== =========== ===========
</TABLE>
