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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File Number 0-26212
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PURE SOFTWARE INC.
(Exact name of registrant specified in its charter)
DELAWARE 94-3141575
- ----------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1309 South Mary Avenue
Sunnyvale, California 94087
(Address of principal executive offices)
Telephone: (408) 720-1600
(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
------------ ------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
17,767,942 shares of Common Stock, $.0001 par value, as of August 2, 1996.
This report on Form 10-Q, including all exhibits, contains 14 pages.
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<PAGE>
PURE SOFTWARE INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995......................... 2
Condensed Consolidated Statements of Operations
For the three months and six months ended
June 30, 1996 and 1995...................................... 3
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 1996 and 1995............. 4
Notes to Condensed Consolidated Financial Statements.......... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...........11
Item 6. Exhibits and Reports on Form 8-K..............................11
SIGNATURES................................................................12
INDEX TO EXHIBITS.........................................................13
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
PURE SOFTWARE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
June 30, December 31,
-------- ------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................... $13,989 $ 5,835
Short term investments ............................................ 30,675 31,600
Accounts receivable, net .......................................... 14,483 11,913
Prepaid expenses and other assets ................................. 1,233 1,030
Deferred tax assets ............................................... 705 705
---------------- ----------------
Total current assets ........................................... 61,085 51,083
Property and equipment, net ........................................ 6,743 5,288
Other assets, net .................................................. 1,534 1,731
================ ================
Total assets ................................................... $69,362 $58,102
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of bank borrowings and capital lease obligations .. $ -- $321
Accounts payable .................................................. 2,163 996
Accrued payroll and related expenses .............................. 3,842 3,075
Accrued merger and integration expenses............................ 280 1,887
Other accrued expenses ............................................ 1,695 1,264
Deferred revenue .................................................. 12,489 8,591
Income taxes ...................................................... 4,080 2,134
---------------- ----------------
Total current liabilities ...................................... 24,549 18,268
Stockholders' equity:
Common stock ................................................... 2 2
Additional paid-in capital ..................................... 49,804 48,379
Cumulative translation adjustment .............................. (568) (150)
Accumulated deficit............................................. (4,425) (8,397)
---------------- ----------------
Total stockholders' equity ..................................... 44,813 39,834
---------------- ----------------
Total liabilities and stockholders' equity.......................... $69,362 $58,102
================ ================
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
2
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<TABLE>
PURE SOFTWARE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
--------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product ................................... $11,865 $7,725 $22,388 $13,782
Maintenance and other ..................... 4,632 2,540 9,236 4,728
------------- --------------- ---------------- ---------------
Total revenues ......................... 16,497 10,265 31,624 18,510
------------- --------------- ---------------- ---------------
Cost of revenues:
Product ................................... 390 350 798 459
Maintenance and other ..................... 1,114 555 1,997 1,045
------------- --------------- ---------------- ---------------
Total cost of revenues ................. 1,504 905 2,795 1,504
------------- --------------- ---------------- ---------------
Gross margin ........................... 14,993 9,360 28,829 17,006
------------- --------------- ---------------- ---------------
Operating expenses:
Sales and marketing ....................... 7,892 5,084 15,399 9,104
Research and development .................. 2,786 1,738 5,418 3,336
General and administrative ................ 1,394 1,172 2,761 2,110
In-process research and development ....... -- -- -- 10,100
------------- --------------- ---------------- ---------------
Total operating expenses ............... 12,072 7,994 23,578 24,650
------------- --------------- ---------------- ---------------
Income (loss) from operations .............. 2,921 1,366 5,251 (7,644)
Other income ............................... 359 155 666 277
------------- --------------- ---------------- ---------------
Income (loss) before income taxes ...... 3,280 1,521 5,917 (7,367)
Income taxes ............................... 1,083 401 1,945 601
============= =============== ================ ===============
Net income (loss) ...................... $2,197 $1,120 $3,972 $(7,968)
============= =============== ================ ===============
Net income per share ....................... $0.11 $0.20
============= ================
Shares used in per share computation ....... 19,997 19,921
============= ================
Income (loss) before pro forma income taxes. $1,521 $(7,367)
Pro forma income taxes ..................... 579 1,042
-------------- ---------------
Pro forma net income (loss) ................ $ 942 $(8,409)
============== ===============
Pro forma net income (loss) per share ...... $0.05
$(0.53)
============== ===============
Shares used in per share computation ....... 17,486 15,891
============== ===============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
PURE SOFTWARE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Six Months Ended
----------------------------
June 30, June 30,
-------- --------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................. $3,972 $(7,968)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization ................................ 1,712 655
In-process research and development .......................... -- 10,100
Changes in operating assets and liabilities:
Accounts receivable ......................................... (2,570) (3,126)
Prepaid expenses and other current assets ................... (203) (312)
Deferred tax assets ......................................... -- (86)
Accounts payable ............................................ 1,167 729
Accrued merger and integration .............................. (1,607) --
Accrued payroll and related expenses ........................ 767 662
Other accrued expenses ...................................... 431 (190)
Deferred revenue ............................................ 3,898 1,722
Income taxes ................................................ 1,946 427
--------------- ---------------
Net cash provided by operating activities .................. 9,513 2,613
--------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment ........................... (2,861) (1,830)
Other assets .................................................. (109) (291)
Acquisition of QualTrak Corporation, net of cash acquired ..... -- (1,439)
Purchases of short-term investments ........................... 925 --
--------------- ---------------
Net cash used for investing activities ..................... (2,045) (3,560)
--------------- ---------------
Cash flows from financing activities:
Repayment of bank borrowings, net ............................. (321) (25)
Proceeds from issuance of common stock, net ................... 1,425 26
S Corporation distributions to stockholders .................... -- (1,297)
--------------- ---------------
Net cash provided by (used for) financing activities ....... 1,104 (1,296)
--------------- ---------------
Effect of foreign currency exchange rate changes on cash ....... (418) --
--------------- ---------------
Change in cash and cash equivalents ............................ 8,154 (2,243)
Cash and cash equivalents, beginning of period ................. 5,835 8,995
=============== ===============
Cash and cash equivalents, end of period ....................... $13,989 $6,752
=============== ===============
Redeemable convertible preferred stock issued in
connection with acquisition of QualTrak Corporation ........ -- $9,904
============== ==============
Cash paid during the period for:
Interest ...................................................... $14 $28
============== ==============
Taxes ......................................................... $24 $259
============== ==============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
4
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PURE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The unaudited condensed consolidated financial statements included
herein reflect all adjustments, consisting only of normal recurring adjustments,
which in the opinion of management are necessary to fairly state the Company's
and its subsidiaries' condensed consolidated financial position, the results of
their operations, and their cash flows for the periods presented. These
financial statements should be read in conjunction with the Company's audited
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995. The consolidated results of
operations for the periods ended June 30, 1996 are not necessarily indicative of
the results to be expected for any subsequent quarter or for the entire fiscal
year ending December 31, 1996.
(2) Net Income Per Share and Pro Forma Net Income (Loss) Per Share
Net income per share is computed using the weighted average number of
common shares outstanding and dilutive common equivalent shares from options to
purchase common stock (using the treasury stock method).
Pro forma net income (loss) per share is computed using pro forma net
income (loss) and is based on the weighted average number of shares outstanding
of common stock and dilutive common equivalent shares from stock options using
the treasury stock method. In accordance with certain Securities and Exchange
Commission (SEC) Staff Accounting Bulletins, such computations include all
common and common equivalent shares issued within 12 months of the initial
public offering date as if they were outstanding for all prior periods presented
using the treasury stock method and the initial public offering price.
The difference between primary and fully diluted net income (loss) per
share is either not significant or anti-dilutive in all periods presented.
(3) Acquisitions
QualTrak Corporation
On March 17, 1995, the Company acquired QualTrak Corporation
("QualTrak"), a provider of quality assurance software tools. Pursuant to the
acquisition, all of the shares of outstanding common stock of QualTrak and
options therefor were exchanged for (i) 822,363 shares of the Company's Series D
redeemable convertible preferred stock or options therefor; (ii) $2,000,000 in
cash or the right to receive cash and (iii) a contingent right to receive
additional shares of the Company's common stock, which right has subsequently
terminated.
The acquisition was accounted for as a purchase with the results of
QualTrak included from the acquisition date. The total purchase price of
$11,904,000 was assigned to the fair value of the net assets acquired, including
$543,000 to the net tangible assets acquired, $10,100,000 to in-process research
and development, $591,000 to goodwill, $420,000 to purchased software and
$250,000 to a royalty arrangement. The value of the in-process research and
development was charged to operations on the acquisition date. Goodwill,
purchased software and prepaid royalties are amortized on a straight-line basis
over 5 years, 18 months, and 3 years, respectively.
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<PAGE>
Performix, Inc.
On November 21, 1995, the Company acquired Performix, Inc.
("Performix"), a provider of client/server load and performance testing tools.
Pursuant to the acquisition, all of the shares of outstanding common stock of
Performix were exchanged for 1,591,475 shares of the Company's common stock. All
options to purchase Performix common stock then outstanding were assumed by the
Company. Each assumed option continues to have, and is subject to, the same
terms and conditions set forth in the respective option agreement applicable to
such option immediately prior to the date of acquisition, subject to adjustment
of the number of shares and exercise price thereof to reflect the exchange ratio
of Performix shares for the Company's shares.
The acquisition was accounted for as a pooling of interests, and
accordingly, the Company's Unaudited Condensed Consolidated Financial Statements
have been restated to include the financial position and results of Performix
for all periods presented.
(4) Proposed Merger with Atria Software, Inc.
On May 2, 1996 the stockholders of the Company approved an amendment to
the Certificate of Incorporation increasing the authorized number of shares of
common stock to 80,000,000.
On June 6, 1996 the Company entered into an Agreement and Plan of
Reorganization (the "Agreement") with Atria Software, Inc. ("Atria"), a
publicly-held company that develops, markets and supports software that
facilitates the management of complex software development, enhancement and
maintenance. Under the terms of the Agreement, the Company will issue 1.544615
shares of common stock for each outstanding share of Atria common stock. In
addition, each outstanding option or right to purchase Atria common stock under
Atria's various stock option and stock purchase plans will be assumed by the
Company and will become an option or right to purchase the Company's common
stock after giving effect to the 1.544615 exchange ratio. Consummation of the
merger contemplated by the Agreement is conditioned upon the affirmative vote of
both companies' shareholders, among other conditions. The Board of Directors of
Pure has unanimously approved the Agreement and transactions contemplated
thereby. A special meeting of Pure stockholders is scheduled to be held on
August 23, 1996 to consider and vote upon the proposed merger of Pure and Atria
and other related matters. The terms of the proposed merger between the Company
and Atria, including conditions required to be satisfied in order to consummate
the transactions and certain Risk Factors to be considered in evaluating the
proposed transaction are set forth in detail in the Company's Prospectus/Joint
Proxy Statement dated July 26, 1996. These financial statements should be
considered in conjunction with the matters described in the Prospectus/Joint
Proxy Statement dated July 26, 1996.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company operates in a rapidly changing environment that involves a number of
risks and uncertainties, including those set forth in this discussion under
"Potential Fluctuations in Quarterly Results", the merger and successful
integration of the Company and Atria Software, Inc. ("Atria") and other risks
detailed from time to time in the Company's SEC reports, including the Annual
Report on Form 10-K for the year ended December 31, 1995. In addition, the
discussion of the Company's results of operations should be read in conjunction
with the terms of the proposed merger with Atria which are described in detail
in the Prospectus/Joint Proxy Statement dated July 26, 1996, including the
satisfaction of the conditions of the transaction, as well as the risk factors
set forth therein.
Results of Operations
Revenues
The Company's revenues are derived from license fees for its software
products, from software maintenance fees and from other sources. Product
revenues are derived from product licensing fees. Maintenance and other revenues
are derived from software maintenance fees, from training fees, from consulting
fees and from royalties for technology licenses. Fees for maintenance, training
and consulting are generally billed separately from licenses for the Company's
products. The Company recognizes revenue in accordance with the provisions of
American Institute of Certified Public Accountants Statement of Position No.
91-1, Software Revenue Recognition. Product revenues from software licenses are
recognized upon shipment to an end-user if collection is probable and remaining
vendor obligations are insignificant. Product returns and sales allowances are
estimated and provided for at the time of sale. Maintenance revenues from
ongoing customer support and product upgrades are recognized ratably over the
term of the maintenance agreement. Payments for maintenance fees are generally
received in advance and are nonrefundable. Revenues for training and consulting
are recognized when the services are performed. Revenues from royalties for
technology licenses are recognized when earned and when collection is probable.
Total revenues increased 60% to $16.5 million for the three months
ended June 30, 1996 from $10.3 million for the three months ended June 30, 1995
and increased 71% to $31.6 million for the six months ended June 30, 1996 from
$18.5 million for the prior year's comparable six months. Total revenues
increased primarily due to increased unit sales of software licenses and
increased maintenance, training and consulting fees resulting from a larger
installed base. The Company distributes the majority of its products through its
direct sales force and continues to expand its multi-channel distribution
strategy as well as expand international operations, particularly in Europe
during the 1996 periods.
Product Revenues. Revenues from product licenses increased 54% to $11.9
million for the three months ended June 30, 1996 from $7.7 million for the three
months ended June 30, 1995 and increased 62% to $22.4 million for the six months
ended June 30, 1996 from $13.8 million for the prior year's comparable six
months. Substantially all of the period-to-period growth in product revenues for
both the three and six month periods was due to higher unit sales of software
licenses. The higher unit sales resulted from an increase in the number of
direct sales personnel worldwide and a new product release in the second quarter
of 1996.
Maintenance and Other Revenues. Maintenance and other revenues
increased 84% to $4.6 million for the three months ended June 30, 1996 from $2.5
million for the three months ended June 30, 1995 and increased 96% to $9.2
million for the six months ended June 30, 1996 from $4.7 million for the prior
year's comparable six months. The growth was primarily attributable to a larger
installed base requiring incremental maintenance, training and consulting.
International Revenues. International revenues as a percentage of total
revenues increased to 38% for the three months ended June 30, 1996 from 29% for
the three months ended June 30, 1995 and increased to 35% to $11.0 million for
the six months ended June 30, 1996 from $5.0 million or 27% for the prior year's
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<PAGE>
comparable six month period. The increase was primarily due to the increase in
the number of direct sales and marketing personnel and expansion of operations
in the international market.
Cost of Revenues
Cost of Product Revenues. Cost of product revenues consists primarily
of product media and duplication, manuals, packaging materials and shipping
expenses. Cost of product revenues increased 12% to $390,000 for the three
months ended June 30, 1996 from $350,000 for the three months ended June 30,
1995, representing 3% and 5% of product revenues for the respective periods. For
the six month periods ended June 30, 1996 and 1995, the cost of product revenues
was $798,000 and $459,000, respectively, representing 4% and 3% of product
revenues for the respective periods. The increase in dollar amount of cost of
product revenue for the 1996 periods was primarily due to the higher volume of
products shipped and the amortization of certain intangible assets capitalized
in connection with the QualTrak Corporation ("Qualtrak") acquisition. In
connection with the acquisition of QualTrak, purchased software of $420,000 and
prepaid royalties of $250,000 were capitalized and are amortized as a cost of
product revenues over 18 months and three years, respectively. For the six
months ended June 30, 1996, the Company amortized $42,000 of prepaid royalties
and $140,000 of purchased software. Cost of product revenues as a percentage of
product revenues has varied primarily as the result of variations in product
mix.
Cost of Maintenance and Other Revenues. Cost of maintenance and other
revenues consists primarily of costs incurred in providing telephone support,
product upgrades, and training and consulting to customers. Cost of maintenance
and other revenues increased 100% to $1.1 million for the three months ended
June 30, 1996 from $555,000 for the three months ended June 30, 1995,
representing 24% and 22% of related maintenance and other revenue for each
period, respectively. Cost of maintenance and other revenues increased 100% to
$2.0 million for the six months ended June 30, 1996 from $1.0 million for the
comparable prior year period, representing 22% of the related revenues for each
six month period. The increase in dollar amount was primarily due to the
increase in the number of customer support, training and consulting personnel
and related overhead costs necessary to support a larger installed base and
expanded product line.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses of sales and marketing personnel and
promotional expenses. Sales and marketing expenses increased 55% to $7.9 million
for the three months ended June 30, 1996 from $5.1 million for the three months
ended June 30, 1996, representing 48% and 50%, respectively, of total revenues.
For the six month period ended June 30,1996 sales and marketing expense
increased 69% to $15.4 million from $9.1 million for the prior year comparable
period, representing 49% of total revenues for each six month period. The dollar
increase in sales and marketing expenses for all periods is primarily
attributable to the domestic and international expansion of the Company's sales
force and related travel expenses and increased marketing activities, including
trade shows, seminars and promotional expenses.
Research and Development. Research and development expenses increased
65% to $2.8 million for the three months ended June 30, 1996 from $1.7 million
for the three months ended June 30, 1995, representing 17% of total revenues for
each period. For the six month period ended June 30, 1996, research and
development expenses increased 64% to $5.4 million from $3.3 million for the
prior year's comparable period, representing 17% and 18% of total revenues,
respectively. The dollar increase in research and development expense was
primarily due to increased staffing and associated support for software
engineers required to expand and enhance the Company's product line.
General and Administrative. General and administrative expenses
increased 17% to $1.4 million for the three months ended June 30, 1996 from $1.2
million for the three months ended June 30, 1996, representing 8% and 12%,
respectively, of total revenues. For the six month period ended June 30, 1996,
general and administrative expenses increased 33% to $2.8 million from $2.1
million for the prior year's comparable period, representing 9% and 11% of total
revenues, respectively. The dollar increase for the 1996 periods was primarily
8
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due to increased staffing and associated expenses necessary to manage and
support the Company's growth. General and administrative expenses as a
percentage of revenues have decreased for the 1996 periods in relation to the
1995 periods as the result of increased revenue growth and economies of scale.
The Company has recorded $720,000 in goodwill associated with the acquisition of
QualTrak which was capitalized and is being amortized over five years. For the
six months ended June 30, 1996, the Company amortized $74,000 of goodwill.
In-Process Research and Development. On March 17, 1995, the Company
acquired QualTrak for a purchase price of $11.9 million, of which $10.1 million
was allocated to in-process research and development and expensed at the time of
acquisition.
Other Income
Other income consists of the net effect of interest income, interest
expense and miscellaneous income and expense items. Other income was $359,000
for the three months ended June 30, 1996 as compared to $155,000 for the three
months ended June 30, 1995. Other income was $666,000 for the six months ended
June 30, 1996 as compared to $277,000 for the six months ended June 30, 1995.
The increase in other income for each period primarily resulted from interest
income generated from higher average cash balances.
Income Taxes
The Company's effective income tax rate for the three and six month
period ended June 30, 1996 was 33%. The effective rates for the three and six
months ended June 30, 1995 were 26% and 8%, respectively. These rates differ
from the statutory rate primarily due to state income tax in 1996 and
nonrecurring charges incurred in connection with the acquisition of QualTrak in
1995. Income tax expense for the three and six months ended June 30, 1996 were
$1.1 million and $1.9 million, respectively. The Company incurred income tax
expense of $401,000 and $601,000 for the three and six months ended June 30,
1995, respectively, despite its operating loss for the six months ended June 30,
1995 because the in-process research and development expense incurred in
connection with the acquisition of QualTrak was not deductible for tax purposes.
Potential Fluctuations In Quarterly Results
The Company's quarterly operating results have in the past and may in
the future fluctuate significantly depending on factors such as demand for the
Company's products, the size and timing of orders, the number, timing and
significance of new product announcements by the Company and its competitors,
the ability of the Company to develop, introduce and market new and enhanced
versions of the Company's products on a timely basis, the level of product and
price competition, changes in operating expenses, changes in average selling
prices and product mix, changes in the Company's sales incentive strategy, sales
personnel changes, the mix of direct and indirect sales, product returns and
general economic factors, among others. The Company's products are typically
shipped shortly after orders are received and consequently, order backlog at the
beginning of any quarter typically represents only a small portion of that
quarter's expected revenues. Furthermore, the Company has often recognized a
substantial portion of its revenues in the last month of a quarter, with these
revenues frequently concentrated in the last weeks or days of a quarter. As a
result, product revenues in any quarter are substantially dependent on orders
booked and shipped in that quarter, and revenues for any future quarter are not
predictable with any significant degree of accuracy. Product revenues are also
difficult to forecast because the market for software quality products is
rapidly evolving and the Company's sales cycle, from initial evaluation to
multiple license purchases and the provision of support services, varies
substantially from customer to customer. The Company's expense levels, however,
are based in significant part on the Company's expectations of future revenues
and therefore are relatively fixed in the short run. If revenue levels are below
expectations, operating results are likely to be adversely affected. Net income
may be disproportionately affected by an unanticipated decline in revenue for a
particular quarter because a relatively small amount of the Company's expenses
varies with its revenue in the short run. As a result, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as any indication of future
performance. Due to all of the foregoing factors, it is likely that in some
future quarter the Company's operating results will be below the expectations of
public market analysts and investors. In such event, the price of the
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Company's common stock would likely be materially adversely affected. The
Company was incorporated in October 1991 and did not begin shipping products
until January 1992. The Company's limited operating history makes the prediction
of future operating results difficult or impossible. Although the Company has
experienced growth in revenues in recent years, there can be no assurance that,
in the future, the Company will sustain revenue growth or remain profitable on a
quarterly or annual basis.
The Company's business historically has not experienced significant
seasonality. However, as international sales increase, the Company expects
increased seasonality in customers' buying patterns, particularly as a result of
sales to Europe and Asia.
Liquidity and Capital Resources
Since inception, the Company has financed its operations primarily
through the sale of stock and cash generated from operations. Cash and cash
equivalents totaled $14.0 million at June 30, 1996 compared to $5.8 million at
December 31, 1995. The increase in cash and cash equivalents was primarily due
to cash generated by operations and proceeds from the issuance of common stock,
partially offset by capital additions related to the expansion of operations. As
of June 30, 1996, the Company had short-term investments of $30.7 million with a
maturity date of greater than three months from the date of purchase.
In the six months ended June 30, 1996 and 1995, $9.5 million and $2.6
million, respectively, was generated by operations. For the six months ended
June 30, 1996, net cash was provided by operations primarily as a result of the
net income and deferred revenue generated during the period. For the six months
ended June 30, 1995, net cash was provided by operations primarily because the
net loss of $8.0 million included a non-cash charge of $10.1 million related to
in-process research and development in connection with the QualTrak acquisition.
In each period, the Company experienced significant growth in receivables,
accompanying the Company's increased sales volumes, which was partially offset
by increases in accounts payables, income taxes and deferred revenue. For the
six months ended June 30, 1996, there was a reduction in the merger and
integration accrual of $1.6 million as the result of payment of certain costs
related to the Performix acquisition.
In the six months ended June 30, 1996 and 1995, the Company utilized
$2.9 million and $1.8 million, respectively, of cash to purchase property and
equipment. The purchases of property and equipment were primarily for computer
hardware and software to support the Company's growing employee base. In the six
months ended June 30, 1995, the Company also used cash of $1.4 million in
connection with the acquisition of QualTrak. The Company expects that the rate
of purchases of property and equipment will remain constant or increase.
Net cash provided by financing activities in the six months ended June
30, 1996 consisted primarily of $1.4 million from the issuance of common stock
though the employee stock purchase plan and exercise of stock options. In the
six months ended June 30, 1995 net cash was used primarily for a distribution to
stockholders of Performix.
From time to time, the Company evaluates acquisitions of businesses,
products or technologies that complement the Company's business. The Company has
no present understandings, commitments or agreements with respect to any
material acquisitions of other businesses, products or technologies. Any such
transactions, if consummated, may use a portion of the Company's working capital
or require the issuance of additional debt or equity instruments.
The Company believes that its current cash balances, short-term
investments, and anticipated cash flow from operations will be sufficient to
meet its working capital and capital expenditure requirements for at least the
next twelve months.
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PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on May 2, 1996, the
following matters were voted upon by stockholders pursuant to proxies solicited
pursuant to Regulation 14A:
The following indviduals were elected to the Board of Directors:
Votes For Votes Withheld
--------- --------------
Reed Hastings 11,484,403 6,908
Audrey MacLean 11,484,403 6,908
Andrew S. Rachleff 11,484,403 6,908
Aki Fujimura 11,458,875 32,436
Thomas A. Jermoluk 11,484,403 6,908
Larry Sonsini 11,484,403 6,908
<TABLE>
The following proposals were approved at the Company's Annual Meeting of
Stockholders:
<CAPTION>
Affirmative Negative Broker
Votes Votes Abstained Non-Votes
----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
1. Amendment of the Company's
Certificate of Incorporation to increase
the authorized number of shares of
Common Stock to 80,000,000. 10,440,909 1,048,532 1,270 0
2. Ratify the appointment of KPMG
Peat Marwick PPL as independent
auditors for the fiscal year ending
December 31, 1996. 11,490,511 600 200 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits.
11.1 Statement Regarding Computation of Net Income and
Pro Forma Net Income (Loss) Per Share.
b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
11
<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.
Date: August 12, 1996 PURE SOFTWARE INC.
By: /s/ Chuck Bay
--------------------------------
Chuck Bay
Vice President, Finance, Chief
Financial Officer, General Counsel
and Secretary (Duly Authorized
Officer and Principal Financial
Officer)
12
<PAGE>
INDEX TO EXHIBITS
Exhibit
No.
- ------
11.1 Statement Regarding Computation of Net Income and Pro Forma Net
Income (Loss) Per Share
13
Exhibit 11.1
<TABLE>
PURE SOFTWARE INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME AND PRO FORMA NET INCOME (LOSS) PER SHARE
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
--------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income ................................................... $2,197 $3,972 --
====== ======
Pro forma net income (loss) after pro forma income taxes ..... $ 942 -- $(8,049)
======= =======
Weighted average number of common
shares outstanding ..................................... 17,605 8,195 17,497 9,269
Weighted average number of preferred
shares outstanding on an as if
converted basis ........................................ -- 6,845 -- 6,512
Number of common stock equivalents
as a result of stock options
outstanding using the treasury stock
method ................................................. 2,392 2,407 2,424 --
Number of common shares issued and
stock options granted in accordance
with Staff Accounting Bulletin
No. 83 (2) ............................................. -- 39 -- 110
Shares used in per share computation .......................... 19,997 17,486 19,921 15,891
------- ------- ------- -------
Per share amounts ............................................. $0.11 $0.05 $0.20 $(0.53)
===== ===== ===== ======
<FN>
- --------------
(1) This exhibit presents the primary and fully diluted per share computations.
There is no material difference in the per share amounts when applying
either method.
(2) Common shares issued by the Company during the twelve months immediately
preceding the initial public offering date plus the number of common
equivalent shares which were issued during the same period pursuant to the
grant of stock options (using the treasury stock method and offering price)
have been included in the calculation of common equivalent shares pursuant
to Securities and Exchange Commission Staff Accounting Bulletin No. 83.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000946487
<NAME> Pure Software Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 13,989,000
<SECURITIES> 30,675,000
<RECEIVABLES> 14,483,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 61,085,000
<PP&E> 6,743,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 69,362,000
<CURRENT-LIABILITIES> 24,549,000
<BONDS> 0
<COMMON> 2,000
0
0
<OTHER-SE> 49,804,000
<TOTAL-LIABILITY-AND-EQUITY> 69,362,000
<SALES> 22,388,000
<TOTAL-REVENUES> 31,624,000
<CGS> 798,000
<TOTAL-COSTS> 2,795,000
<OTHER-EXPENSES> 23,578,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,917,000
<INCOME-TAX> 1,945,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,972,000
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
