<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
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Commission File Number: 0-26592
THE VANTIVE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0266662
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2455 AUGUSTINE DRIVE
SANTA CLARA, CALIFORNIA 95054
(408) 982-5700
(Address and telephone number of principal executive offices)
Indicate by check mark whether 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
--- ---
The number of shares of the Registrant's $0.001 par value Common Stock
outstanding on May 8, 1996, was 11,977,886.
This report consists of 16 pages.
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THE VANTIVE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of 3
March 31, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations 4
for the Quarters Ended March 31, 1996 and March 31,
1995
Condensed Consolidated Statements of Cash Flows for 5
the Quarters Ended March 31, 1996 and March 31,
1995
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II: OTHER INFORMATION
Item 1: Legal Proceedings 14
Item 2: Changes in Securities 14
Item 3: Defaults upon Senior Securities 14
Item 4: Submissions of Matters to a Vote of Security Holders 14
Item 5: Other Information 14
Item 6: Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS
THE VANTIVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $16,984 $17,614
Short-term investments ............................................... 9,772 8,815
Accounts receivable, net ............................................. 5,538 4,049
Prepaid expenses and other current assets ............................ 1,293 1,265
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Total current assets ............................................... 33,587 31,743
Property and equipment, net .......................................... 3,333 2,628
Other assets ......................................................... 225 216
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TOTAL ASSETS ............................................................. $37,145 $34,587
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.............................. $ 4,978 $ 4,328
Deferred revenues .................................................... 3,588 2,952
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Total current liabilities .......................................... 8,566 7,280
Long-term liabilities ................................................ 578 650
STOCKHOLDERS' EQUITY
Preferred Stock: $.001 par value, 2,000,000 shares authorized; no
shares issued and outstanding at March 31, 1996 ...................... -- --
Common Stock: $.001 par value, 50,000,000 shares authorized;
11,947,619 shares at December 31, 1995 and 11,971,968 shares at
March 31, 1996 issued and outstanding ................................ 12 12
Additional paid-in-capital ........................................... 31,538 31,538
Accumulated deficit .................................................. (3,549) (4,893)
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Total stockholders' equity ......................................... 28,001 26,657
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................... $37,145 $34,587
======= =======
</TABLE>
3
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THE VANTIVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1995
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
REVENUES:
License fees ..................................... $ 7,088 $ 3,053
Services ......................................... 3,725 1,134
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Total revenues ................................. 10,813 4,187
COST OF REVENUES:
Cost of licenses ................................. 56 35
Cost of services ................................. 2,322 1,053
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Total cost of revenues ......................... 2,378 1,088
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GROSS MARGIN ......................................... 8,435 3,099
OPERATING EXPENSES:
Sales and marketing .............................. 4,826 1,876
Research and development ......................... 1,102 707
General and administrative ....................... 1,079 414
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Total operating expenses ....................... 7,007 2,997
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OPERATING INCOME ..................................... 1,428 102
OTHER INCOME ......................................... 272 9
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INCOME BEFORE PROVISION FOR INCOME TAXES ............. 1,700 111
PROVISION FOR INCOME TAXES ........................... 340 11
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NET INCOME ........................................... $ 1,360 $ 100
======= =======
NET INCOME PER SHARE ................................. $ 0.11 $ 0.01
======= =======
SHARES USED IN PER SHARE COMPUTATION ................. 12,733 10,574
</TABLE>
4
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THE VANTIVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1996 1995
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................... $ 1,360 $ 100
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization .......................................... 249 119
Provision for doubtful account ......................................... 200 100
Increase in deferred rent .............................................. 33 --
Changes in net assets and liabilities -
Increase in accounts receivable ..................................... (1,689) (1,207)
Decrease (increase) in prepaid expenses and other current assets .... 64 (35)
Increase in other assets ............................................ (101) (85)
Increase (decrease) in accounts payable ............................. 101 (325)
Increase in accrued liabilities ..................................... 580 273
Increase in deferred revenues ....................................... 636 265
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Net cash provided by (used in) operating activities ................. 1,433 (795)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments ....................................... (85) --
Purchase of property and equipment ....................................... (868) (150)
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Net cash used in investing activities ............................... (953) (150)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ................................... 8 34
Repurchase of common stock ............................................... (9) --
Payment on capital leases obligations .................................... (137) (72)
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Net cash used in financing activities ............................... (138) (38)
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NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENT ........................................................... 342 (983)
EFFECT OF EXCHANGE RATE CHANGES ON CASH ...................................... (15) 6
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............................... 26,429 3,154
======= =======
CASH AND CASH EQUIVALENTS, END OF PERIOD ..................................... $26,756 $ 2,177
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITY
Cash paid for interest ................................................... $ 42 $ 22
======= =======
</TABLE>
5
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THE VANTIVE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. However, the Company believes
that the disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
The unaudited information has been prepared on the same basis as the
annual financial statements and, in the opinion of the Company's management,
reflects all normal recurring adjustments necessary for a fair presentation of
the information for the periods presented. Operating results for any quarter are
not necessarily indicative of the results for any future periods.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. Intercompany accounts and
transactions have been eliminated.
REVENUES
The Company generates revenues from licensing the rights to use its
software products directly to end-users and indirectly through sublicense fees
from resellers. The Company also generates revenues from sales of post-contract
support, consulting and training services performed for customers who license
its products.
Revenues from perpetual software license agreements are recognized upon
shipment of the software if there are no significant post-delivery obligations,
if collection is probable and if payment is due within one year. If an
acceptance period is required, revenues are recognized upon the earlier of
customer acceptance or the expiration of the acceptance period. The Company
enters into reseller arrangements that typically provide for sublicense fees
payable to the Company based on a percent of the Company's list price.
Sublicense fees are recognized as reported by the reseller in relicensing the
Company's products to end-users.
Revenues from post-contract support services are recognized ratably
over the term of the support period. If post-contract support services are
included free or at a discount in a license agreement, such amounts are
allocated out of the license fee at their fair market value based on the value
established by independent sale of such post-contract support services to
customers. Consulting revenues are primarily related to implementation services
performed on a time and materials basis under separate service arrangements
related to the installation of the Company's software products. Revenues from
consulting and training services are recognized as services are performed. If a
transaction includes both license and service elements, license fee revenue is
recognized upon shipment of the software, provided services do not include
significant customization or modification of the base product and the payment
term for licenses are not subject to acceptance criteria. In cases where license
fee payments are contingent upon the acceptance of services, revenues from both
the license and the service elements are deferred until the acceptance criteria
are met.
6
<PAGE> 7
NET INCOME PER SHARE
Except as noted below, net income per share is computed using the
weighted average number of outstanding shares of common and common equivalents
from outstanding stock options (when dilutive using the treasury stock method).
Common equivalent shares were excluded from the computation if their effect was
antidilutive except that, pursuant to the Securities and Exchange Commission
Staff Accounting Bulletins and staff policy, such computations include all
common and common stock equivalent shares issued within 12 months preceding the
filing date of the Company's initial public offering as if they were outstanding
for all periods presented (using the treasury stock method assuming the public
offering price). Mandatorily redeemable convertible preferred stock and warrants
outstanding during the period were included (using the if converted method) in
the computation as common equivalent shares even though the effect is
antidilutive. Primary and fully diluted earnings per common share were
substantially the same in all periods presented.
SOFTWARE DEVELOPMENT COST
The Company capitalizes eligible computer software development cost
upon the establishment of technological feasibility, which the Company has
defined as completion of a working model. For the periods presented, costs
eligible for capitalization were insignificant and, thus, the Company charged
all software development costs to research and development expense.
INVESTMENTS
Investments have been accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115. The Company classifies its
investments as held to maturity investments as defined under the provisions of
SFAS 115 and measures such investments at amortized cost in its balance sheet.
7
<PAGE> 8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE VANTIVE CORPORATION
The Company was founded in October 1990 to develop software to enable
businesses to improve their customer service. The Company was engaged
principally in research and development from inception through December 31,
1992. The Company introduced its first product, Vantive Support, in July 1992,
and introduced Vantive Quality and the Oracle version of Vantive Support in the
fall of 1993. The Company introduced Vantive HelpDesk in August 1994, Vantive
Sales in early 1995, and Vantive FieldService in early 1996. License fees for
the Company's software products consist of (i) a per server fee based on the
specific Vantive Enterprise application(s) licensed and (ii) a fee based on the
maximum number of concurrent or named users allowed to access those
applications. Most of the Company's revenues to date have resulted from
non-recurring license fees based on sales of concurrent user licenses. The
remaining revenues are primarily attributable to service revenues, which include
post-contract support, consulting and training revenue. Of these service
revenues, only post-contract support revenues are expected to be recurring.
Post-contract support revenues accounted for approximately 12.9% of total
revenues in the three months ended March 31, 1996. Because concurrent user fees
are not application specific, the breakdown of revenues attributable to specific
applications for customers that have purchased more than one application cannot
be precisely determined by the Company. However, the Company believes that most
of its revenues have been derived from fees associated with Vantive Support and,
to a lesser degree, Vantive HelpDesk. In any period, a significant portion of
the Company's revenues may be derived from significant sales to a limited number
of customers. However, no customer accounted for 10% or more of total revenues
in the three months ended March 31, 1996. As significant sales to a particular
customer are typically non-recurring, the Company does not believe its future
results are dependent on recurring revenues from any particular customer.
The Company's revenues are derived from software license fees and fees
for its services. License revenues consist of license fees for the Company's
products as well as fees from sublicensing third party software products. The
Company generally recognizes license fees upon shipment of software products if
there are no significant post-delivery obligations, if collection is probable
and if the license agreement requires payment within one year. If significant
post-delivery obligations exist or if a product is subject to customer
acceptance, revenues are deferred until no significant obligations remain or
acceptance has occurred. Revenues from services have to date consisted primarily
of consulting revenues, post-contract support revenues and, to a lesser extent,
training revenues. Consulting and training revenues generally are recognized as
services are performed. Post-contract support revenues are recognized ratably
over the term of the support period, which is typically one year. See Note 2 of
Notes to Condensed Consolidated Financial Statements.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties,
including those discussed below that could cause actual results to differ
materially from historical results or those anticipated. In this report, the
words, "anticipates," "believes," "expects," "future," "intends," and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof.
8
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RESULTS OF OPERATIONS
The following table sets forth the percentages that income statement
items are to total revenues for the three months ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1995
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
REVENUES:
License fees ..................................... 65.6% 72.9%
Services ......................................... 34.4 27.1
----- -----
Total revenues ................................. 100.0 100.0
COST OF REVENUES:
Licenses ......................................... 0.5 0.8
Services ......................................... 21.5 25.2
----- -----
Total cost of revenues ......................... 22.0 26.0
----- -----
GROSS MARGIN ......................................... 78.0 74.0
OPERATING EXPENSES:
Sales and marketing .............................. 44.6 44.8
Research and development ......................... 10.2 16.9
General and administrative ....................... 10.0 9.9
----- -----
Total operating expenses ....................... 64.8 71.6
OPERATING INCOME ..................................... 13.2 2.4
OTHER INCOME ......................................... 2.5 0.3
----- -----
INCOME BEFORE PROVISION FOR INCOME TAXES ............. 15.7 2.7
PROVISION FOR INCOME TAXES ........................... 3.1 0.3
----- -----
NET INCOME ........................................... 12.6% 2.4%
===== =====
</TABLE>
REVENUES
LICENSE. License revenues increased by 132% from $3.1 million to $7.1
million in the quarters ended March 31, 1995 and 1996, respectively. This
increase in license revenues was due to the market's growing acceptance of the
Company's products, the introduction of the Company's products using the Oracle
relational database management system and the Microsoft NT operating system, and
increased sales as a result of the expansion of the Company's direct sales
force. The Company does not believe that the historical growth rates of license
revenues will be sustainable or are indicative of future results.
SERVICE. Service revenues are primarily comprised of fees from
consulting, post-contract support and, to a lesser extent, training services.
Service revenues increased by 228% from $1.1 million to $3.7 million in the
quarters ended March 31, 1995 and 1996, respectively. This increase in service
revenues occurred primarily due to the increase in consulting, post-contract
support and training services associated with increased sales of the Company's
applications. As the Company implements its strategy of encouraging third party
organizations such as systems integrators to become proficient in implementing
the Company's products, the Company expects consulting revenues as a percentage
of total revenues may decrease.
9
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COST OF REVENUE
LICENSE. Cost of license revenues includes the cost of product media,
product duplication and manuals. Cost of license revenues was approximately
$35,000 in the quarter ended March 31, 1995 and approximately $56,000 in the
quarter ended March 31, 1996, or 1.1% and 0.8% of the related license revenues,
respectively. The increase in the dollar amount is primarily due to the
increases in volume shipments of the Company's software applications.
SERVICE. Cost of service revenues is primarily comprised of
employee-related costs and fees for third-party consultants incurred in
providing consulting, post-contract support and training services. Cost of
service revenues was $1.1 million in the quarter ended March 31, 1995, and $2.3
million in the quarter ended March 31, 1996, or 92.9% and 62.3% of the related
service revenues for these periods, respectively. This increase in absolute
dollars was due primarily to increases in consulting, support and training
personnel during these periods. Cost of service revenues decreased as a
percentage of service revenues between the quarter ended March 31, 1995, and the
quarter ended March 31, 1996, primarily due to increased service revenues during
this period. The cost of services as a percentage of service revenues may vary
between periods due to the mix of services provided by the Company and the
resources used to provide these services.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased from $1.9
million, or 44.8% of revenues, in the quarter ended March 31, 1995, to $4.8
million, or 44.6% of revenues, in the quarter ended March 31, 1996. The increase
in absolute dollars was primarily related to the expansion of the Company's
sales and marketing resources, increased commissions expense as a result of
higher sales levels and increased marketing activities, including direct mail,
trade shows and promotional expenses.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
from $0.7 million, or 16.9% of revenues, in the quarter ended March 31, 1995, to
$1.1 million, or 10.2% of revenues, in the quarter ended March 31, 1996.
Research and development expenses increased in absolute dollars primarily as a
result of an increase in personnel to support the Company's product development
activities
Research and development expenses are generally charged to operations
as incurred. In accordance with Statement of Financial Accounting Standards No.
86, costs which were eligible for capitalization for these periods were
insignificant, and the Company charged all software development costs to
research and development expense.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased from $0.4 million, or 9.9% of revenues, in the quarter ended March 31,
1995, to $1.1 million, or 10.0% of revenues, in the quarter ended March 31,
1996. General and administrative expenses increased in absolute dollars during
these periods primarily due to the addition of staff and information system
investments to support the growth of the Company's business during these
periods.
PROVISION FOR INCOME TAXES. The Company's provision for state, federal
and foreign income taxes for the three months ended March 31, 1996, was
$340,000, based upon an estimated effective tax rate of approximately 20%
resulting primarily from state and federal alternate minimum and foreign taxes.
As of December 31, 1995, the Company had net operating loss carryforwards for
Federal tax reporting purposes of approximately $2.5 million. The Company had
other tax credit carryforwards of approximately $0.5 million. The net operating
loss and research and development tax credit carryforwards expire in 2005
through 2009 if not utilized.
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BUSINESS RISKS
This report includes number of forward-looking statements which reflect
the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed below that could cause actual results
to differ materially from historical results or those anticipated. In this
report, the words "anticipates," "believes," "intends," "future," and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof.
FUTURE OPERATING RESULTS UNCERTAIN. The Company has experienced
significant growth in revenues in recent periods. The Company does not believe
that the historical growth rates of revenues, or the corresponding declines of
operating expenses as a percentage of revenues, will be sustainable or are
indicative of future results. In addition, the Company's limited operating
history makes the prediction of future operating results difficult or
impossible. The Company's future operating results will depend on many factors,
including demand for the Company's products, the level of product and price
competition, the ability of the Company to develop and market new products and
to control costs, the ability of the Company to expand its direct sales force
and indirect distribution channels and the ability to attract and retain key
personnel. In particular, the ability of the Company to achieve significant
revenue growth in the future will depend on its success in adding a substantial
number of direct sales personnel in future periods. Competition for such
personnel is intense, and there can be no assurance that the Company can retain
its existing sales personnel or that it can attract, assimilate or retain
additional highly qualified sales personnel in the future. Further, the Company
believes, based on interactions with its customers and potential customers, that
the purchase of its products is relatively discretionary and generally involves
a significant commitment of capital. As a result, in the event of any downturn
in any potential customer's business or the economy in general, purchases of the
Company's products may be deferred or canceled, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's quarterly
operating results have in the past varied and may in the future vary
significantly depending on factors such as the size, timing and recognition of
revenue from significant orders, increased competition, the timing of new
product releases by the Company and its competitors, market acceptance of the
Company's products, changes in the Company's and its competitors' pricing
policies, the mix of license and service revenue, budgeting cycles of its
customers, seasonality, the mix of direct and indirect sales, changes in
operating expenses, changes in Company strategy, personnel changes, foreign
currency exchange rates and general economic factors. Further, the Company
believes, based on interactions with its customers and potential customers, that
the purchase of its products is relatively discretionary and generally involves
a significant commitment of capital. As a result, in the event of any downturn
in any potential customer's business or the economy in general, purchases of the
Company's products may be deferred or canceled.
A significant portion of the Company's revenues in any quarter are
typically derived from non-recurring sales to a limited number of customers.
Accordingly, revenues in any one quarter are not indicative of revenues in any
future period. In addition, like many software applications companies, the
Company has generally recognized a substantial portion of its revenues in the
last month of each quarter, with these revenues concentrated in the last weeks
of the quarter. Any significant deferral of purchases of the Company's products
could have a material adverse effect on the Company's business, results of
operations and financial condition in any particular quarter, and to the extent
that significant sales occur earlier than expected, operating results for
subsequent quarters may be adversely affected. Product revenues are also
difficult to forecast because the market for customer interaction software
products is rapidly evolving. The Company's sales cycle is typically six to nine
months and varies substantially from customer to customer. In addition, the
Company expects that sales derived through indirect channels, which are harder
to predict and may have lower margins than direct sales, will increase as a
percentage of total revenues. As a result of these factors, quarterly revenues
for any future quarter are not predictable with any significant degree of
certainty. The Company's expense levels are based, in part, on its expectations
as to future revenues. If revenues are below expectations, operating results are
likely to be adversely affected. Net income may be disproportionately affected
by a reduction in revenues, because a significant portion of the Company's
expenses do not vary with revenues. The Company may also choose to reduce prices
or increase spending in response to
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<PAGE> 12
competition or to pursue new market opportunities. In particular, if new
competitors, technological advances by existing competitors, or other
competitive factors require the Company to invest significantly greater
resources in research and development efforts, the Company's operating margins
in the future may be adversely affected. The foregoing statements regarding the
Company's future revenues and net income are forward-looking statements, and
actual results may vary substantially depending upon a variety of factors
described in this paragraph and elsewhere in this report.
Because of these factors, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and that
such comparisons should not be relied upon as indications 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 Company's Common Stock
would likely be materially adversely affected.
RAPID TECHNOLOGICAL CHANGE AND PRODUCT DEVELOPMENT RISKS. The
client/server application software market is subject to rapid technological
change, changing customer needs, frequent new product introductions and evolving
industry standards that may render existing products and services obsolete. As a
result, the Company's position in its existing markets or other markets that it
may enter could be eroded rapidly by product advances. The life cycles of the
Company's products are difficult to estimate. The Company's growth and future
financial performance will depend in part upon its ability to enhance existing
applications, develop and introduce new applications that keep pace with
technological advances, meet changing customer requirements, respond to
competitive products and achieve market acceptance.
The Company's product development efforts are expected to require, from
time to time, substantial investments by the Company in product development and
testing. There can be no assurance that the Company will have sufficient
resources to make the necessary investments. The Company has in the past
experienced development delays, and there can be no assurance that the Company
will not experience such delays in the future. There can be no assurance that
the Company will not experience difficulties that could delay or prevent the
successful development, introduction or marketing of new or enhanced products.
In addition, there can be no assurance that such products will meet the
requirements of the marketplace and achieve market acceptance, or that the
Company's current or future products will conform to industry requirements. If
the Company is unable, for technological reasons, to develop and introduce new
and enhanced products in a timely manner, the Company's business, results of
operations and financial condition could be materially adversely affected.
Software products as complex as those offered by the Company may
contain errors that may be detected at any point in the products' life cycles.
The Company has in the past discovered software errors in certain of its
products and has experienced delays in shipment of products during the period
required to correct these errors. There can be no assurance that, despite
testing by the Company and by current and potential customers, errors will not
be found, resulting in loss of, or delay in, market acceptance and sales,
diversion of development resources, injury to the Company's reputation, or
increased service and warranty costs, any of which could have a material adverse
effect on the Company's business, results of operations and financial condition.
INTERNATIONAL OPERATIONS. The Company believes that its continued
growth and profitability will require expansion of its international operations.
To successfully expand international sales, the Company must establish
additional foreign operations, hire additional personnel and recruit additional
international resellers. To the extent that the Company is unable to do so in a
timely manner, the Company's growth in international sales, if any, will be
limited, and the Company's business, results of operations and financial
condition could be materially adversely affected. As the Company continues to
expand its international operations, significant costs may be incurred ahead of
any anticipated international revenues, which could have a material adverse
effect on the Company's business, results of operations and financial condition.
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INCREASED USE OF THIRD PARTY DEVELOPMENT TOOLS. The Company currently
markets a proprietary application development environment for its customers to
tailor its applications. This application development environment is also used
by the Company to build and modify its applications products. While the Company
believes based on interactions with its customers and potential customers, that
it currently derives significant competitive advantage from this proprietary
application development environment, it believes that competitive pressures,
technological changes demanded by customers, and significant advances in the
sophistication of third party application development tools such as Visual Basic
for Applications will require the Company to make greater use of third party
tools in the future.
This could require the Company to invest significant resources in
rewriting some or all of its applications products utilizing these third party
tools and/or to enter into license arrangements with third parties which could
result in higher royalty payments and a loss of product differentiation. There
can be no assurance that the Company would be able to successfully rewrite its
applications or enter into commercially reasonable licenses, and the costs of,
or inability or delays in, doing so could have a material adverse effect on the
Company's business, results of operations and financial condition.
FINANCIAL CONDITION
Total assets as of March 31, 1996, increased $2.6 million from December
31, 1995. The increase was primarily due to increases in short-term investments,
accounts receivable and property and equipment. The combined balance of cash and
short-term investments increased by $327,000, primarily due to increased net
income. Net accounts receivable increased $1.5 million primarily due to
increased sales activity. Net property and equipment increased $705,000
primarily due to equipment purchases associated with supporting the growth of
the Company's business during this period.
Total liabilities as of March 31, 1996, increased $1.2 million from
December 31, 1995. The increase was primarily due to increases in accounts
payable and accrued liabilities and deferred revenues of $650,000 and $636,000,
respectively. These increases were primarily due to increased expense levels and
accruals associated with a higher transaction volume and associated deferrals of
revenues related to post-contract support.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided cash of $1.4 million in the three months
ended March 31, 1996. The primary source of these funds was net income and
increases in deferred revenue and accrued liabilities, partially offset by
increases in accounts receivable. Operating activities used $795,000 in the
three months ended March 31, 1995, primarily due to increases in accounts
receivable.
Investing activities used cash of $953,000 in the three months ended
March 31, 1996, primarily for the purchase of capital equipment and, to a lesser
extent, purchase of short-term, interest-bearing, investment-grade securities.
Investing activities used cash of $150,000 in the three months ended March 31,
1995, primarily for the purchase of capital equipment. The Company does not
currently have any material commitments for capital equipment acquisitions.
Financing activities has been primarily for payments on capital lease
obligations in the three months ended March 31, 1996 and 1995.
13
<PAGE> 14
At March 31, 1996, the Company's principal sources of liquidity were
its cash, cash equivalents and short-term investments of $26.8 million and a
$3.0 million line of credit agreement which expires in May 1996. Under the terms
of the agreement, the Company may borrow up to $3.0 million under a revolving
line of credit which includes sublimits of $500,000 for letters of credit. The
line of credit is secured by substantially all of the Company's assets. Advances
under the line of credit are limited to 80% of eligible accounts receivable.
Borrowings accrue interest at the bank's prime rate for line of credit
borrowings. The line of credit contains provisions that prohibit the payment of
cash dividends, and require quarterly profitability and maintenance of specified
levels of tangible net worth and certain financial ratios. At March 31, 1996, no
borrowings were outstanding under this line. The Company believes that existing
cash and short-term investment balance and potential cash flow from operations
will be sufficient to meet its cash requirements for the foreseeable future.
While operating activities may provide cash in certain periods to the extent the
Company experiences growth in the future, operating and investing activities may
use cash, and consequently, such growth may require the Company to obtain
additional sources of financing.
PART II: OTHER INFORMATION
Item 1: Legal Proceedings:
Not Applicable.
Item 2: Changes in Securities:
Not Applicable.
Item 3: Defaults upon Senior Securities:
Not Applicable.
Item 4: Submission of Matters to a Vote of Security Holders:
Not Applicable.
Item 5: Other Information:
Not Applicable.
14
<PAGE> 15
<TABLE>
<CAPTION>
Item 6: Exhibits and Reports on Form 8-K:
<S> <C>
A. Exhibits
* 3.1 Form of Agreement and Plan of Merger between The Vantive
Corporation, a California corporation, and The Vantive
Corporation, a Delaware corporation.
* 3.2 Bylaws.
* 10.1 Form of Indemnity Agreement for officers and directors.
* 10.2 1991 Stock Option Plan, as amended.
* 10.3 1995 Outside Directors Stock Option Plan.
* 10.4 1995 Employee Stock Purchase Plan.
* 10.5 Offer Letter dated May 21, 1993 between the Company and John
R. Luongo.
* 10.6 Offer Letter dated April 6, 1995 between the Company and John
M. Jack.
*+ 10.7 Value Added Reseller License Agreement dated October 5, 1993
by and between Inference Corporation and the Company.
*+ 10.8 Basicscript License Agreement dated October 4, 1994 by
and between Henneberry Hill Technologies Corporation doing
business as Summit Software Company and the Company.
*+ 10.9 International VAR Agreement dated March 26, 1992 between
Oracle Corporation and the Company, as amended.
*+ 10.10 Value Added Remarketer Agreement dated December 20, 1991
between Sybase, Inc. and the Company, as amended.
* 10.11 Security and Loan Agreement dated May 12, 1995 between the
Company and Imperial Bank. *+ 10.12 Application Bridge API VAR
License Agreement dated January 22, 1993 between the Company
and Prospect Software, Inc.
*+ 10.13 Compensation Letter dated May 10, 1995 between the Company and
John R. Luongo.
*+ 10.14 Compensation Letter dated May 10, 1995 between the Company and
Steven M. Goldsworthy.
* 10.15 Lease Agreement dated January 13, 1995 between John Arrillaga,
Trustee, or his Successor Trustee, UTA dated July 20, 1977
(John Arrillaga Separate Property Trust) as amended, and
Richard T. Peery, Trustee, or his Successor Trustee, UTA dated
July 20, 1977 (Richard T. Peery Separate Property Trust) as
amended, and the Company.
</TABLE>
* Incorporated by reference from the Company's Registration Statement (No.
33-94244), declared effective on August 14, 1995.
+ Confidential Treatment has been granted for portions of this exhibit.
B. Reports of Form 8-K
No report of Form 8-K was filed by the Company during the
three month period ended March 31, 1996.
15
<PAGE> 16
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.
THE VANTIVE CORPORATION
Dated: May 13, 1996 By: /s/ Kathleen Murphy
-----------------------------------
Kathleen Murphy
Chief Financial Officer
(Principal Financial Officer)
Dated: May 13, 1996 By: /s/ Michael M. Loo
-----------------------------------
Michael M. Loo
Vice President, Finance
(Principal Accounting Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 16,984,000
<SECURITIES> 9,772,000
<RECEIVABLES> 6,063,000
<ALLOWANCES> 525,000
<INVENTORY> 0
<CURRENT-ASSETS> 33,587,000
<PP&E> 4,729,000
<DEPRECIATION> 1,396,000
<TOTAL-ASSETS> 37,145,000
<CURRENT-LIABILITIES> 8,566,000
<BONDS> 0
0
0
<COMMON> 12,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 37,145,000
<SALES> 7,088,000
<TOTAL-REVENUES> 10,813,000
<CGS> 56,000
<TOTAL-COSTS> 2,378,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 200,000
<INTEREST-EXPENSE> 42,000
<INCOME-PRETAX> 1,700,000
<INCOME-TAX> 340,000
<INCOME-CONTINUING> 1,360,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,360,000
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
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