================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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: 000-26000
-----------------
DATALOGIX INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
New York 13-3132256
(State of Incorporation) (I.R.S. Employer
Identification No.)
100 Summit Lake Drive, Valhalla, New York 10595
(Address of principal executive offices) (Zip Code)
(914) 747-2900
(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 November 8, 1996, the registrant had outstanding 11,713,875 shares of
Common Stock, $.01 par value.
================================================================================
<PAGE>
DATALOGIX INTERNATIONAL INC.
QUARTERLY REPORT ON FORM 10-Q
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
Page No.
--------
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - September 30, 1996 and
June 30, 1996 ................................................... 3
Condensed Consolidated Statement of Operations - Three Months Ended
September 30, 1996 and 1995 ..................................... 4
Condensed Consolidated Statement of Cash Flows - Three Months
Ended September 30, 1996 and 1995 ............................... 5
Notes to Condensed Consolidated Financial Statements .............. 6
Item 2. Management's Discussion & Analysis of Financial Condition and
Results of Operations ............................................. 7
PART II - OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K ............................. 16
SIGNATURES ................................................................. 17
CIMPRO AND DATALOGIX ARE REGISTERED TRADEMARKS OF DATALOGIX INTERNATIONAL INC.
GEMMS IS A TRADEMARK OF DATALOGIX INTERNATIONAL INC. ORACLE IS A REGISTERED
TRADEMARK OF ORACLE CORPORATION. ALL OTHER COMPANY AND PRODUCT NAMES MENTIONED
HEREIN ARE USED FOR IDENTIFICATION PURPOSES ONLY, AND MAY BE TRADEMARKS OF THEIR
RESPECTIVE COMPANIES.
2
<PAGE>
DATALOGIX INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
September 30, June 30,
1996 1996
-------- --------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents ............................. $ 32,186 $ 34,019
Accounts receivable, less allowance for
doubtful accounts of $2,580 and $2,025,
respectively ....................................... 11,246 13,930
Prepaid expenses and other current assets ............. 896 747
-------- --------
Total current assets ............................... 44,328 48,696
Fixed assets, net ........................................ 3,140 3,356
Computer software development costs, less accumulated
amortization of $2,132 and $1,890, respectively ....... 3,091 2,883
Deferred income taxes .................................... 2,732 2,732
Other assets ............................................. 237 237
-------- --------
Total assets ....................................... $ 53,528 $ 57,904
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ...................................... $ 1,315 $ 2,632
Accrued liabilities ................................... 5,307 5,162
Customer advances and unearned revenue ................ 3,028 3,900
Notes payable and other obligations ................... 3,515 4,666
-------- --------
Total current liabilities .......................... 13,165 16,360
Unearned revenue ......................................... 321 269
-------- --------
Total liabilities .................................. 13,486 16,629
-------- --------
Shareholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000
shares; none issued ................................ -- --
Common stock, $.01 par value; authorized 40,000,000
shares; issued and outstanding 11,711,777 shares at
September 30, 1996 and 11,158,231 shares at
June 30, 1996 ..................................... 117 112
Additional paid-in capital ............................ 72,806 72,160
Accumulated deficit ................................... (31,870) (29,903)
Treasury stock, at cost ............................... (704) (704)
Cumulative translation adjustment ..................... (237) (293)
Deferred compensation ................................. (70) (97)
-------- --------
Total shareholders' equity ........................ 40,042 41,275
-------- --------
Total liabilities and shareholders' equity ........ $ 53,528 $ 57,904
======== ========
See accompanying notes.
3
<PAGE>
DATALOGIX INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
September 30,
-----------------------
1996 1995*
-------- --------
Revenues:
License fees ................................... $ 1,427 $ 3,349
Services ....................................... 6,910 5,817
-------- --------
Total revenues .............................. 8,337 9,166
-------- --------
Operating expenses:
Cost of license fees ........................... (240) 604
Cost of services ............................... 3,841 3,430
Sales and marketing ............................ 3,111 3,175
Research and development ....................... 1,777 2,268
General and administrative ..................... 2,256 1,283
-------- --------
Total operating expenses .................... 10,745 10,760
-------- --------
Loss from operations ........................ (2,408) (1,594)
Interest income, net ............................. 441 485
-------- --------
Loss before taxes ........................... (1,967) (1,109)
Benefit for income taxes ......................... -- 411
-------- --------
Net loss .................................... $ (1,967) $ (698)
======== ========
Loss per share ................................... $ (0.17) $ (0.06)
======== ========
Weighted average number of common and
common equivalent shares outstanding ............. 11,714 10,896
======== ========
* The first quarter of fiscal 1996 was restated as a result of certain
accounting adjustments as disclosed in the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996.
See accompanying notes.
4
<PAGE>
DATALOGIX INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
September 30,
1996 1995
-------- --------
Cash used in operating activities ........................ $ (1,907) $ (2,231)
-------- --------
Cash flows from investing activities:
Capital expenditures .................................. (220) (889)
Capitalized software costs ............................ (450) (400)
-------- --------
Net cash used in investing activities ............... (670) (1,289)
-------- --------
Cash flows from financing activities:
Net borrowings on financing arrangements .............. 37 308
Payment of stock issuance costs ...................... -- (517)
Proceeds from exercise of options and warrants ........ 651 67
-------- --------
Net cash provided by (used in) financing activities . 688 (142)
-------- --------
Effect of exchange rate changes on cash .................. 56 (141)
-------- --------
Net decrease in cash and cash equivalents ........... (1,833) (3,803)
Cash and cash equivalents at beginning of period ......... 34,019 43,762
-------- --------
Cash and cash equivalents at end of period .......... $ 32,186 $ 39,959
======== ========
See accompanying notes.
5
<PAGE>
DATALOGIX INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A - BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial reporting and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management of Datalogix
International Inc. (the "Company"), all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair presentation have been
included in the accompanying unaudited financial statements. Operating results
for the three month period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the full fiscal year ending
June 30, 1997. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996.
B - LOSS PER SHARE:
Loss per share is determined by dividing net loss by the weighted
average number of common stock and common stock equivalents outstanding during
the period.
Computations of weighted average shares for the three months ended
September 30, 1996 and 1995 does not include the dilutive effect of options and
warrants as they were antidilutive for these periods.
C - QUARTERLY FINANCIAL INFORMATION:
The first quarter of fiscal 1996 was restated as a result of certain
accounting adjustments as disclosed in the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996.
6
<PAGE>
DATALOGIX INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(In thousands, except share, per share and percentage data)
FORWARD-LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE ANTICIPATED BY SUCH STATEMENTS. SUCH RISKS AND UNCERTAINTIES,
INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS ASSOCIATED WITH: THE COMPANY'S
RELIANCE UPON ORACLE CORPORATION ("ORACLE") AND OTHER STRATEGIC PARTNERS, THE
EXTENT OF MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS, THE IMPACT OF COMPETITIVE
PRODUCTS AND PRICING, COMPETITION FROM LARGER ENTITIES SUCH AS SAP AG ("SAP"),
THE NEED TO CONTINUOUSLY ENHANCE AND UPGRADE COMPANY PRODUCTS, THE LIKELIHOOD
THAT THE INCREASED COMPLEXITY OF THE COMPANY'S SYSTEMS WILL RESULT IN
DIFFICULTIES IN RESOLVING PRODUCT DEFECTS AND SOFTWARE BUGS, SALES IN
INTERNATIONAL MARKETS AND RELATED RISKS, AND WARRANTY OBLIGATIONS. ALSO, THERE
CAN BE NO ASSURANCE THAT THE ANNOUNCED MERGER WITH ORACLE WILL BE CONSUMMATED.
THESE RISKS ARE ELABORATED IN GREATER DETAIL IN THE "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" SECTIONS OF THIS
QUARTERLY REPORT AND THE COMPANY'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED JUNE
30, 1996. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH REFLECT MANAGEMENT'S ANALYSIS ONLY AS OF THE
DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE
FORWARD-LOOKING STATEMENTS, TO REFLECT EVENTS OR CIRCUMSTANCES THAT MAY ARISE
AFTER THE DATE HEREOF.
OVERVIEW
Datalogix International Inc. ("Datalogix" or the "Company") was founded
in 1981 to develop open systems software for process manufacturers. In 1983, the
Company introduced CIMPRO, the first open systems software specifically designed
for process manufacturing companies, and in fiscal 1991 (year ended June 30,
1991), the Company introduced GEMMS, the first open, client/server software
specifically designed for process manufacturers.
The Company derives revenues from licensing software and providing
related services. Services include fees from software maintenance (customer
support) agreements and training, consulting and custom programming services.
Customers are generally billed an initial fee for the software upon delivery. A
maintenance fee is typically billed initially and annually thereafter at the
option of the customer, entitling licensees to routine annual support and
software updates. Training, consulting and custom programming services are
contracted for separately and typically are provided on a time and materials
basis.
The Company currently markets its products and services primarily
through a direct sales force in the United States and both directly and
indirectly in other parts of the world. The Company has established strategic
alliances and relationships with a number of organizations that it believes are
important to the sales, marketing and worldwide support of its products. The
Company's relationships with complementary software vendors, hardware vendors
and professional service firms provide marketing and sales leads to the
Company's direct sales force, expand the distribution of its products and expand
its product offerings and service capabilities.
In September 1994, the Company entered into a significant strategic
alliance with Oracle, a leading supplier of information management software.
Under this strategic alliance, Oracle is marketing GEMMS under the name Oracle
GEMMS as Oracle's preferred solution for process manufacturing software. Oracle
markets GEMMS internationally and domestically and is licensed to distribute and
support GEMMS outside the United States. This arrangement with Oracle has been a
major component of the Company's strategy in seeking to obtain wider
distribution of its software internationally.
The Company has experienced a number of important developments during
the first fiscal quarter of 1997 as summarized below.
7
<PAGE>
DATALOGIX INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(In thousands, except share, per share and percentage data)
MERGER AGREEMENT WITH ORACLE. On September 24, 1996, the Company
executed an Agreement and Plan of Merger (the "Merger Agreement") with Oracle,
pursuant to which a wholly owned subsidiary of Oracle (the "Acquisition
Subsidiary") will be merged with and into the Company (the "Merger"). Pursuant
to the Merger Agreement, Oracle, which currently owns 13.4 percent of the
outstanding shares of the Company's common stock, will purchase all of the
remaining issued and outstanding shares, excluding treasury stock, for $8.00 per
share, or an aggregate of approximately $81 million. Each such share of common
stock (and associated preferred stock purchase rights) will be converted into
the right to receive $8.00 per share payable to the holder thereof, without
interest. The parties have agreed that the structure of the Merger may be
modified, at the election of Oracle, such that in lieu of the Acquisition
Subsidiary merging with and into the Company, the Company may merge with and
into the Acquisition Subsidiary, or such other structure provided for in the
Merger Agreement as Oracle may elect. Consummation of the Merger is subject to
certain closing conditions, including shareholder consent and regulatory
approval. The description of the Merger Agreement contained herein is qualified
in its entirely by reference to the Merger Agreement, which is incorporated
herein by reference as Exhibit 2.1.
ADOPTION OF SHAREHOLDER RIGHTS PLAN. In August 1996, the Company
adopted a shareholder rights plan pursuant to which preferred stock purchase
rights were distributed as a dividend at a rate of one right for each share of
the Company's common stock. The Company adopted the plan to protect shareholders
against unsolicited attempts to acquire control of the Company on terms that the
Company's Board of Directors believes are unfavorable or contrary to the best
interests of all shareholders. The rights are intended to enable all of the
Company's shareholders to realize the long-term value of their investment in the
Company. The rights do not preclude a takeover, but put on notice anyone seeking
to acquire the Company to negotiate with the Board prior to attempting a
takeover. In connection with the execution of the Merger Agreement on September
24, 1996, the Company amended the plan to exclude the Merger from triggering the
exerciseability of such rights.
CHANGES IN SENIOR MANAGEMENT. In July 1996, the employment of Richard
C. Giordanella, the Company's then Chief Executive Officer, was terminated. Upon
his departure, Raymond V. Sozzi, who had joined the Company as President and
Chief Operating Officer earlier that month, was appointed Acting Chief Executive
Officer. In September 1996, Richard J. Willemin joined the Company as its Chief
Financial Officer.
CONTINUED OPERATING LOSSES. Sales of GEMMS continued to be
disappointing during the fiscal quarter ended September 30, 1996. The GEMMS
market is comprised of large multinational process companies and is
characterized by relatively few, complex and high price transactions. There has
been a sharp acceleration in a trend in which large process manufacturers
shifted away from focused manufacturing-based "point" solutions to broader,
fully integrated "supply chain management" solutions with the ability to manage
information with vendors, customers and partners across the supply chain, often
on a global basis. Manufacturers seek greater control over the entire supply
chain to minimize raw material inventories, ensure the timing of deliveries from
suppliers, reduce manufacturing cycle times, minimize the efficiency of
warehousing and transportation systems and provide superior response times to
customers.
The increased complexity and breadth of this new generation of
information products has favored suppliers with fully integrated software
solutions and worldwide services and support, including Oracle, SAP and others.
As a result, in the fiscal quarter ended September 30, 1996, the Company
continued to suffer competitive losses.
Responding to this competitive threat, Datalogix has become
increasingly involved with various "best-of breed" partners to augment existing
GEMMS software modules. The Company's alliance with Oracle was another critical
component of this competitive response.
8
<PAGE>
DATALOGIX INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(In thousands, except share, per share and percentage data)
As the solutions demanded by customers became more complex and the
number of third parties involved in the sales process increased, the average
sales cycle began to expand in fiscal 1996. This lengthened sales cycle
continues to have a detrimental effect on bookings for GEMMS.
Functionality and performance gaps in earlier, less mature versions of
GEMMS and previous delays in product releases were other factors continuing to
adversely impact current sales. These product issues adversely affected customer
references in some cases, a critical factor in securing new sales. While the
Company has worked aggressively to provide satisfactory solutions to affected
customers and product improvements in subsequent releases of GEMMS address many
of these issues, restoring customer confidence and regaining positive references
in these cases is a slow process.
CIMPRO sales were also disappointing as competitive pressures increased
in the mid-range process manufacturing market. Newer products offered by the
Company's competitors featured graphical user interfaces (GUI's) superior to
that of CIMPRO. The Company released its latest version of CIMPRO (version 5.2)
in October 1996 which, among other improvements, includes a much enhanced GUI.
As a result of the various factors that negatively impacted revenues
during the first quarter of fiscal 1997, as described above, the Company expects
to continue incurring operating losses through at least the second fiscal
quarter.
For additional information see the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage of total revenues represented by certain line items in the Company's
consolidated statement of operations:
Percentage of Total Revenues
Three Months Ended September 30,
1996 1995
------- -------
Revenues:
License fees ................................. 17.1% 36.5%
Services ..................................... 82.9 63.5
------- -------
Total revenues ............................. 100.0 100.0
------- -------
Operating expenses:
Cost of license fees ......................... (2.9) 6.6
Cost of services ............................. 46.1 37.4
Sales and marketing .......................... 37.3 34.6
Research and development ..................... 21.3 24.7
General and administrative ................... 27.1 14.1
------- -------
Total operating expenses ................... 128.9 117.4
------- -------
Loss from operations ....................... (28.9) (17.4)
Interest income, net ........................... 5.3 5.3
------- -------
Loss before taxes .......................... (23.6) (12.1)
Benefit for income taxes ....................... -- 4.5
------- -------
Net loss ................................... (23.6)% (7.6)%
======= =======
9
<PAGE>
DATALOGIX INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(In thousands, except share, per share and percentage data)
TOTAL REVENUES
The Company's revenues are derived from two sources: license fees and
services. Total revenues in the first fiscal 1997 quarter ended September 30,
1996 were $8,337, a 9% decrease over fiscal 1996 first quarter revenues of
$9,166. The decrease in the first fiscal quarter of 1997 over the comparable
quarter of fiscal 1996 resulted from a significant decline in license fees
partially offset by growth in services revenues. The growth in services revenues
reflects the incremental maintenance fees and the training, consulting and
custom programming services primarily associated with the growth in license fees
generated during fiscal 1996.
LICENSE FEES
License fees include: (i) revenues from software license agreements
entered into between the Company and its customers with respect to both the
Company's products and third party products distributed by the Company, and (ii)
royalties due the Company from third parties that distribute the Company's
products. License fees for GEMMS represented 66% and 57% of total license fees
for the first fiscal quarter of 1997 and 1996, respectively, with CIMPRO
accounting for the balance.
Software license fees were $1,427 in the first fiscal quarter of 1997
ended September 30, 1996, a 57% decline from the levels reported in the first
fiscal quarter of 1996. This decline reflects lower sales levels for both GEMMS
(a 50% decline) and CIMPRO ( a 67% decline).
GEMMS license fees amounted to $948 in the first fiscal quarter of 1997
as compared with $1,894 in first fiscal quarter 1996. The decline in GEMMS
resulted primarily from lower licensing revenues for the GEMMS product resulting
from several factors as discussed in the Overview section, including increased
competition from larger vendors offering fully integrated "supply chain
management" solutions; a longer selling cycle due to the increased complexity of
enterprise wide solutions involving multiple partners and software products;
product quality issues related particularly to earlier versions of GEMMS which
impacted customer references; and previous delays of product releases.
GEMMS Release 3.2 introduced in fiscal 1996 has corrected many of the
problems associated with earlier versions, including the integration to the
Oracle financial module. A more robust sales and order processing module is also
being developed to broaden GEMMS functionality in future releases. However, the
Company believes the above issues will continue to negatively impact sales of
new GEMMS licenses over at least the next three to six months, and there is no
assurance that corrective measures taken will result in a substantial increase
in sales beyond that point.
CIMPRO license fees totaled $479 in the first fiscal quarter of 1997 as
compared with $1,455 in first fiscal quarter of 1996. The decline in CIMPRO
sales reflects competitive losses to other software vendors servicing the
mid-range process manufacturing market as discussed in the Overview section.
Another factor which may have adversely affected CIMPRO sales in the critical
final week of the quarter was the announcement of the merger agreement with
Oracle which occurred on September 24, 1996. This event has created uncertainty
in the minds of some prospective CIMPRO customers concerning Oracle's intention
to continue marketing and upgrading the CIMPRO product following the merger.
This uncertainty is expected to continue to adversely impact sales of new CIMPRO
licenses through the second quarter of fiscal 1997.
International license fees of $582 in the first fiscal quarter of 1997
represented an increase over levels of $108 achieved in the first fiscal quarter
of 1996, as the international distributor arrangement with Oracle continued to
generate modest incremental revenues. The percentage of license fees related to
international sales increased from 3% in first fiscal quarter 1996 to 41% in
first fiscal quarter 1997. This increase primarily reflects the substantial
decrease in domestic license fees as well as an increase in international fees
in the first quarter of fiscal 1997.
10
<PAGE>
DATALOGIX INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(In thousands, except share, per share and percentage data)
SERVICES REVENUE
Services revenue includes fees from software maintenance agreements and
training, consulting and custom programming services. Maintenance fees,
including first year maintenance, are billed separately and are recognized
ratably over the period of the maintenance agreement. Training, consulting and
custom programming service revenues are recognized as the services are
performed. Services revenue was $6,910 in the first fiscal quarter of 1997, a
19% increase over the first fiscal quarter of 1996.
Services revenue for GEMMS represented 75% and 73% of total services
revenue for the first fiscal quarters of 1997 and 1996, respectively, with
CIMPRO accounting for the balance. The percentage of services revenue related to
international accounts increased to 15% in the first fiscal quarter of 1997 from
8% in the comparable period in fiscal 1996.
Services revenue growth generally lags license revenue growth as the
incremental maintenance fees and the training, consulting and custom programming
services associated with new license fees commence after the license fee
revenues are recognized. Services revenue growth in the first fiscal quarter of
1997 relative to the comparable period in 1996 reflects additional licensing
activity in fiscal 1996. Due to the continued decline in GEMMS license fees,
which is anticipated to continue over at least the next three to six months, the
Company expects only modest growth in services revenue, if any, over the
remainder of fiscal 1997.
COST OF LICENSE FEES
Cost of license fees consists primarily of royalties paid to Oracle for
sales and marketing support and royalties paid to other third parties for
products licensed by the Company, estimated warranty costs, amortization of
capitalized software development costs, and, to a lesser extent, the costs of
product media, duplication, manuals and shipping.
The Company pays Oracle a royalty equal to 30% of revenues from license
fees and first year maintenance fees paid by new GEMMS customers in the United
States that utilize Oracle's database. This royalty is retroactively reduced to
20% if Oracle fails to meet at least 70% of certain sales goals for each
contract year ending September 6. Oracle did not achieve this sales threshold
for the period ending September 6, 1996. As a result, Datalogix recorded a
credit against future royalties payable to Oracle in fiscal 1997 equal to $525.
The Company reports the royalties paid to Oracle for U.S. GEMMS
customers on Oracle databases as a cost of license fees. To the extent revenues
from such customers increase as a percentage of total revenues, cost of license
fees as a percentage of total revenues also increase and gross margins decline.
In exchange for its international distribution rights, Oracle pays the
Company a royalty equal to 40% or more of the license fees and maintenance fees
received by Oracle from international customers of GEMMS. Oracle also pays the
Company license fees for certain sales in the United States where Oracle sells
directly to the customer. Royalties and license fees from Oracle included in
license revenues amounted to $763 and $113 in the first fiscal quarters of 1997
and 1996, respectively. There is no offsetting entry to cost of license fees
that is attributable to the royalty and license fee revenues earned by the
Company from Oracle. Accordingly, to the extent such royalties and license fees
from Oracle increase as a percentage of revenues, the Company's gross margins
increase.
Included in cost of license fees is $242 of amortization of capitalized
software, compared with $244 in the first fiscal quarter of 1996.
11
<PAGE>
DATALOGIX INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(In thousands, except share, per share and percentage data)
The following table sets forth, for the periods indicated, the
relationship of cost of license fees and license fee revenues:
Three Months
Ended September 30,
-------------------
1996 1995
---- ----
License fees ............................................. $ 1,427 $3,349
Cost of license fees ..................................... (240) 604
Cost of license fees as a percentage of license fees .... (16.8)% 18.0%
Without the benefit of the aforementioned Oracle royalty reduction of
$525, cost of license fees as a percentage of license fees would have been 20%
as compared to 18% in the prior year
COST OF SERVICES
Cost of services consist primarily of personnel costs for training,
consulting and customer support. Also included are warranty costs for actual or
planned commitments to provide implementation and technical services to
customers to improve customer satisfaction in response to various implementation
and post-implementation problems. The following table sets forth, for the
periods indicated, the relationship of cost of services and services revenues:
Three Months
Ended September 30,
-------------------
1996 1995
---- ----
Services revenue ......................................... $ 6,910 $5,817
Cost of services ......................................... 3,841 3,430
Cost of services as a percentage of services revenues .... 55.6% 59.0%
Cost of services declined slightly as a percentage of services revenue
during the first fiscal quarter of 1997 versus the comparable quarter of the
prior year, due primarily to the increase in services revenues.
SALES AND MARKETING
Sales and marketing expenses consist primarily of salaries, commissions
and bonuses paid to sales and marketing personnel and travel and promotional
expenses. Sales and marketing expenses of $3,111 for the first fiscal quarter of
1997 were flat to the comparable quarter of fiscal 1996. These expenses as a
percentage of total revenues increased to 37% in fiscal 1997 from 35% in fiscal
1996, the result of applying relatively fixed costs to a lower revenue base.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of engineering
personnel costs and the costs of outside consultants involved in product
development efforts. The Company believes that a significant level of investment
in research and development is essential to achieve and maintain a market
leadership position. Research and development expenses are generally charged to
operations as incurred. Certain software development costs, however, are
capitalized in accordance with Statement of Financial Accounting Standards No.
86 ("FAS 86") once technological feasibility is established upon completion of a
detailed program design. Such capitalized software development costs are
amortized to cost of license fees over a period of three to five years. The
following table sets
12
<PAGE>
DATALOGIX INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(In thousands, except share, per share and percentage data)
forth for the periods indicated the relationship between the Company's gross
research and development expenditures and the research and development expenses
recorded on the Company's statement of operations:
Three Months
Ended September 30,
-------------------
1996 1995
---- ----
Gross research and development cash expenditures ......... $ 2,227 $2,668
Amounts capitalized for software development costs ....... (450) (400)
Write-off of capitalized software development costs ...... -- --
------- ------
Research and development expenses ........................ $ 1,777 $2,268
------- ------
Gross research and development expenditures as a
percentage of total revenues ........................... 26.7% 29.1%
Capitalized software as a percentage of gross
research and development expenditures .................. 20.2% 15.0%
Gross research and development expenditures decreased 17% in the first
quarter of fiscal 1997 as compared with the first quarter of fiscal 1996. The
decrease was attributable to (1) a $200 expense credit recorded in the first
fiscal quarter of 1997 for a reimbursement from Oracle of costs incurred in
developing a version of GEMMS compatible with the Oracle software development
toolset and (2) reduced use of outside contractors.
In the first quarter of fiscal 1997, the Company capitalized 20.2% of
its gross research and development expenditure, in accordance with FAS 86,
related principally to current planned releases of both CIMPRO and GEMMS. Since
fiscal 1993, the amounts of software development costs capitalized have ranged
from 8% to 20% of gross research and development expenditures. The high
percentage of capitalization in first quarter of fiscal 1997 results from the
fact that the gross expenditure base was relatively low for the reasons
described above. The Company expects that the rate of capitalization of software
development costs will continue to fluctuate depending on the state of
development of any given project.
GENERAL AND ADMINISTRATIVE
General and administrative ("G&A") expenses consist primarily of
salaries of administrative, executive, financial and legal personnel; outside
professional and recruiting fees; bad debt expense and settlements of customer
claims. General and administrative expenses amounted to $2,256 in the first
fiscal quarter of 1997, a $973 increase (76%) over prior year. These expenses
amounted to 27% of revenues, as compared with 14% in the comparable prior year
period. Investment banking and legal fees of approximately $750 in connection
with the Oracle merger, and executive sign-on bonuses of $150, primarily
accounted for this increase.
INTEREST INCOME, NET
Interest income, net, was $441 in the first quarter of fiscal 1997
versus $485 in the first fiscal quarter of 1996. The slight decrease reflects
lower cash balances following operating losses incurred over the past year.
PROVISION FOR INCOME TAXES
The Company recorded no tax benefit related to the operating losses
incurred during the first quarter of fiscal 1997. The full amount of the benefit
was offset by an increase in the valuation allowance against the related
deferred tax asset. Had the Company recorded such a benefit, the effective tax
rate would have approximated 38%.
13
<PAGE>
DATALOGIX INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(In thousands, except share, per share and percentage data)
QUARTERLY INFORMATION AND FACTORS AFFECTING OPERATING RESULTS
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Such fluctuations have resulted in significant volatility
in the price of the Company's common stock. Quarterly revenues and operating
results will likely continue to fluctuate as a result of a variety of factors
including the Company's lengthy sales cycle, the proportion of revenues
attributable to license fees versus services revenues, the proportion of
international revenues to total revenues, changes in product mix, changes in the
level of operating expenses, demand for the Company's products, the size and
timing of individual license transactions, the level of GEMMS sales achieved by
Oracle, the introduction of new products and product enhancements by the Company
or its competitors, changes in customer budgets, competitive conditions in the
industry and general economic conditions. Further, the purchase of the Company's
products generally involves a significant commitment of capital, with the
attendant delays frequently associated with large capital expenditures and
authorization procedures within an organization. For these and other reasons,
the sales cycles for the Company's products are typically lengthy and subject to
a number of significant risks over which the Company has little or no control,
including customers' budgetary constraints and internal authorization reviews.
The Company historically has operated with little backlog because its software
products are generally shipped as orders are received. The Company has often
recognized a substantial portion of its revenues in the last month of the
quarter, with these revenues frequently concentrated in the last week of the
quarter. As a result, license fees in any quarter are substantially dependent on
orders booked and shipped in the last month and last week of that quarter. A
small variation in the timing of recognition of specific revenues is likely to
adversely and disproportionately affect the Company's operating results for a
quarter because the Company establishes its expenditure levels on the basis of
its expected future revenues and only a small portion of the Company's
marketing, research, development and general and administrative expenses vary
with its revenues in the short run. Accordingly, the Company believes that
period to period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as indicative of future performance.
There can be no assurance that the Company's revenues will grow in future
quarters or that the Company will be profitable on a quarterly basis.
The Company's business has experienced and is expected to continue to
experience significant seasonality, due in part to customer buying patterns. In
recent years, the Company generally has had greater demand for its products in
the fourth fiscal (June) quarter and has had weaker demand for its products
during the first fiscal (September) quarter. These fluctuations are caused
primarily by customer budgeting and purchasing patterns, by the Company's sales
commission policies which compensate sales personnel on the basis of annual
performance quotas, and by the Company's practice of devoting a significant
portion of sales resources to the functions of hiring and training in the first
quarter of the fiscal year. Notwithstanding these factors, the license fee
revenues for the first quarter of fiscal 1997 were significantly below the
Company's expectations.
The Company's results of operations are also subject to a wide number
of other factors, some of which are beyond the Company's control. Although the
Company's strategic alliances are an important asset, particularly the Oracle
alliance, the Company's results of operations could be adversely affected if
Oracle or other strategic partners do not perform as expected or if the Company
fails to maintain these relationships. The software applications business for
manufacturing companies is intensely competitive and competition in the software
applications market for process manufacturers is expected to increase
substantially. Moreover, the market is characterized by rapid technological
change, frequent new product introductions, evolving industry standards and
changes in customer demand. The Company's future performance will depend in part
on its ability to continue strengthening its own product offerings. As with any
complex software product, there can be no assurance that future development will
not encounter technical problems that delay the introduction or affect the
performance of new products.
14
<PAGE>
DATALOGIX INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(In thousands, except share, per share and percentage data)
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents totaled $32,186 at September
30, 1996, a $1,833 decrease from June 30, 1996. This decrease was primarily
attributable to the operating loss in the first fiscal quarter of 1997. The
available cash at September 30, 1996 is primarily attributable to the net
proceeds of $37,954 received from the Company's initial public offering of
2,495,000 shares of common stock in June 1995. Working capital was $31,163 at
September 30, 1996, down $1,173 from the amount at June 30, 1996.
In the fourth quarter of fiscal 1996, the Company's board of directors
authorized the repurchase of up to one million shares of the Company's stock.
Purchases can be made from time to time on the open market, based upon market
and business conditions. As of September 30, 1996, the Company had repurchased
85,000 shares for a total purchase price of $633.
The Company's capital expenditures totaled $220 during the first fiscal
quarter of 1997. As of September 30, 1996, the Company did not have any material
commitments for capital expenditures.
The Company believes that the available cash and cash equivalents and
cash flows from operations will be sufficient to fund its operations for at
least through fiscal 1997.
15
<PAGE>
DATALOGIX INTERNATIONAL INC.
PART II - OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The following exhibits are included herein:
Exhibit Description
- ------------- ---------------------------------------------------------------
***2.1 Agreement and Plan of Merger, dated as of September 24, 1996,
between Oracle Corporation, a Delaware corporation ("Oracle"),
Delphi Acquisition Corporation, a Delaware corporation and a
wholly owned subsidiary of Oracle, and Datalogix International
Inc., a New York corporation.
*3.1 Restated Certificate of Incorporation of Registrant as amended
to date.
**3.2 Amended and Restated By-Laws dated as of August 27, 1996.
*4.1 Specimen Common Stock Certificate of Registrant.
4.2 See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining rights of
holders of Common Stock of the Company.
**4.3 Rights Agreement, dated as of August 27, 1996, between the
Company and The First National Bank of Boston, as Agent.
***4.4 Amendment No. 1 to Rights Agreement, dated as of September 24,
1996, between the Company and The First National Bank of
Boston.
^10.1 Employment Agreement between the Company and Raymond Sozzi,
President, COO and Acting Chief Executive Officer dated June
28, 1996. Addendum dated July 30, 1996 to Employment Agreement
for Raymond Sozzi. See Exhibit 10.1
^10.2 Employment Agreement between the Company and Raymond Sozzi
dated June 28, 1996.
^^10.3 Amendment to Employment Agreement between the Company and
Raymond Sozzi, dated September 13, 1996.
^^^10.4 Employment Agreement between the Company and Richard Willemin,
Chief Financial Officer, dated September 26, 1996.
11.1 Computation of Earnings Per Share.
27.1 Financial Data Schedule.
- ----------
* Incorporated by reference to the Registration Statement on
Form S-1 (File No. 33-91746) as declared effective by the
Securities and Exchange Commission on June 15, 1995.
** Incorporated by reference to Form 8-K dated August 27, 1996.
*** Incorporated by reference to Form 8-K dated September 24,
1996.
^ Incorporated by reference to Form 10-K dated June 30, 1996.
^^ Incorporated by reference to the Company's Preliminary Proxy
Statement on Schedule 14A filed on October 10, 1996.
^^^ Incorporated by reference to Form 10-K/A-1 dated June 30,
1996.
(b) Reports on Form 8-K:
The Company filed Form 8-K dated August 27, 1996. In addition,
the Company filed two reports on Form 8-K dated September 24, 1996, one
disclosing the Agreement and Plan of Merger with Oracle and the other announcing
an anticipated loss for fiscal 1996 and certain restatements affecting first and
second fiscal quarters of 1996. Exhibits to the 8-K for the rights to announce
adoption of a shareholder rights plan and amendments to the Company's Bylaws
were filed accordingly.
16
<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, thereunto duly authorized.
DATALOGIX INTERNATIONAL INC.
November 14, 1996 /s/ RAYMOND V. SOZZI
- ----------------- ----------------------------------------
Raymond V. Sozzi
President, Chief Operating Officer and
Acting Chief Executive Officer
(Principal Executive Officer)
November 14, 1996 /s/ RICHARD J. WILLEMIN
- ----------------- ----------------------------------------
Richard J. Willemin
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 11.1
DATALOGIX INTERNATIONAL INC.
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
Three Months Ended
September 30,
-------------------------
1996 1995
----------- ------------
Primary
Net loss .......................................... $(1,967,000) $ (698,000)
=========== ============
Weighted average number of common shares
outstanding ..................................... 11,713,875 10,896,076
Weighted average stock options and warrants
outstanding ..................................... -- --
----------- ------------
Weighted average number of common shares
outstanding, as adjusted ........................ 11,713,875 10,896,076
=========== ============
Loss per share .................................... $ (0.17) $ (0.06)
=========== ============
Fully Diluted
Net loss .......................................... $(1,967,000) $ (698,000)
=========== ============
Weighted average number of common shares
outstanding ..................................... 11,713,875 10,896,076
Weighted average stock options and warrants
outstanding ..................................... -- --
----------- ------------
Weighted average number of common shares
outstanding, as adjusted ........................ 11,713,875 10,896,076
=========== ============
Loss per share .................................... $ (0.17) $ (0.06)
=========== ============
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 32,186
<SECURITIES> 0
<RECEIVABLES> 13,826
<ALLOWANCES> 2,580
<INVENTORY> 0
<CURRENT-ASSETS> 44,328
<PP&E> 6,392
<DEPRECIATION> 3,252
<TOTAL-ASSETS> 53,528
<CURRENT-LIABILITIES> 13,165
<BONDS> 0
0
0
<COMMON> 117
<OTHER-SE> 39,925
<TOTAL-LIABILITY-AND-EQUITY> 53,528
<SALES> 0 <F1>
<TOTAL-REVENUES> 8,337
<CGS> 0 <F2>
<TOTAL-COSTS> 10,745
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0 <F3>
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> (1,967)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,967)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
<FN>
<F1> LICENSE FEES 1,427, SERVICES 6,910
<F2> COST OF LICENSE FEES (240), COST OF SERVICES 3,841
<F3> PROVISION FOR DOUBTFUL ACCOUNTS INCLUDED IN (TOTAL COSTS)
</FN>
</TABLE>
