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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 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 NO. 0-20740
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PLATINUM SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0277592
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
195 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92718-2402
(Address of principal executive offices, zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 453-4000
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
As of April 30, 1996, there were 16,479,261 shares of common stock outstanding.
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INDEX
PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item I - Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Condensed Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . 3
Unaudited Condensed Consolidated Statements of Operations . . . . . . . . . . . . . . . 4
Unaudited Condensed Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . 5
Notes to Unaudited Condensed Consolidated Financial Statements . . . . . . . . . . . . . 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations. . 9
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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PART I
FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS:
PLATINUM SOFTWARE CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------
March 31, June 30,
1996 1995
- -----------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 14,336 $ 26,276
Restricted cash - 476
Accounts receivable, net 8,978 14,205
Notes receivable from divestitures, net 1,665 957
Inventories 457 672
Prepaid expenses and other 1,714 1,785
- -----------------------------------------------------------------------------------------
Total current assets 27,150 44,371
Property and equipment, net 9,497 11,961
Notes receivable from divestitures, net - 3,534
Software development costs, net 2,423 3,000
Acquired intangible assets, net 1,305 2,403
Other assets 478 564
- -----------------------------------------------------------------------------------------
$ 40,853 $ 65,833
=========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of class action settlement $ 16,717 $ -
Accounts payable 2,983 3,920
Accrued expenses 8,178 5,964
Accrued restructuring costs 2,472 1,192
Deferred revenue 9,011 8,980
- -----------------------------------------------------------------------------------------
Total current liabilities 39,361 20,056
- -----------------------------------------------------------------------------------------
Long-term portion of class action settlement - 15,812
- -----------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock 31,996 31,996
Common stock 17 13
Additional paid-in capital 90,680 80,391
Notes receivable from officers (8,750) -
Accumulated foreign currency translation adjustments 240 304
Accumulated deficit (112,691) (82,739)
- -----------------------------------------------------------------------------------------
Total stockholders' equity 1,492 29,965
- -----------------------------------------------------------------------------------------
$ 40,853 $ 65,833
=========================================================================================
The accompanying notes are an integral part of these unaudited condensed
consolidated balance sheets.
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PLATINUM SOFTWARE CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- -----------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------
Revenues:
License fees $ 3,619 $ 8,386 $ 14,596 $25,730
Consulting and professional services 2,153 2,691 8,254 9,021
Support services 2,590 2,183 7,801 6,134
Royalty income - 112 505 394
- -----------------------------------------------------------------------------------------------
8,362 13,372 31,156 41,279
Cost of revenues 5,107 4,950 15,657 14,972
- -----------------------------------------------------------------------------------------------
Gross profit 3,255 8,422 15,499 26,307
- -----------------------------------------------------------------------------------------------
Operating expenses:
Sales and marketing 4,659 5,119 15,353 13,888
General and administrative 5,673 940 8,960 3,943
Software development 3,047 4,316 11,192 13,341
Charge for restructuring 4,200 - 9,800 -
- -----------------------------------------------------------------------------------------------
17,579 10,375 45,305 31,172
- -----------------------------------------------------------------------------------------------
Loss from operations (14,324) (1,953) (29,806) (4,865)
Other income (expense), net (186) 31 (146) 159
- -----------------------------------------------------------------------------------------------
Loss before provision for
income taxes (14,510) (1,922) (29,952) (4,706)
Provision for income taxes - 8 - 20
- -----------------------------------------------------------------------------------------------
Net loss $(14,510) $(1,930) (29,952) $(4,726)
===============================================================================================
Net loss per share $ (0.97) $ (0.15) $ (2.13) $ (0.37)
===============================================================================================
Shares used in computing
net loss per share 14,897 12,869 14,087 12,760
===============================================================================================
The accompanying notes are an integral part of these unaudited condensed
consolidated statements.
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PLATINUM SOFTWARE CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------
Nine Months Ended
March 31,
1996 1995
- -----------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(29,952) $ (4,726)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 4,794 4,091
Interest accretion on notes receivable from divestitures - (383)
Interest accretion on debenture issued in connection with
class action settlement 905 613
Charge for restructuring 9,800 -
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable, net 3,609 (1,982)
Decrease in inventories 215 241
(Increase) decrease in prepaid expenses and other 8 (98)
Decrease in other assets 59 48
Increase (decrease) in accounts payable (937) 196
Increase (decrease) in accrued expenses 1,992 (2,460)
Decrease in accrued restructuring costs (2,187) (2,097)
Increase (decrease) in deferred revenue 530 (6,279)
- -----------------------------------------------------------------------------------------------------
Cash used in operating activities (11,164) (12,836)
- -----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Payments received on notes receivable from divestitures 378 2,569
Increase in notes receivable from divestitures (411) (399)
Capital expenditures (2,151) (1,752)
Capitalized software development costs (306) (195)
- -----------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities (2,490) 223
- -----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock - 13,770
Payment on class action settlement - (1,000)
Exercise of common stock options 1,033 1,154
Issuance of common stock under the Employee Stock Purchase Plan 269 312
Decrease in restricted cash 476 -
- -----------------------------------------------------------------------------------------------------
Cash provided by financing activities 1,778 14,236
- -----------------------------------------------------------------------------------------------------
Effect of exchange rate on cash (64) 17
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (11,940) 1,640
Cash and cash equivalents, beginning of period 26,276 8,346
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 14,336 $ 9,986
=====================================================================================================
The accompanying notes are an integral part of these unaudited condensed
consolidated statements.
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PLATINUM SOFTWARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements present
the financial position of Platinum Software Corporation (the "Company") as of
March 31, 1996 and June 30, 1995, the results of its operations for the three
and nine month periods ended March 31, 1996 and 1995, and its cash flows for
the nine month periods ended March 31, 1996 and 1995, and have been prepared by
the Company in accordance with generally accepted accounting principles and
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC"). Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures in these
financial statements are adequate to make the information presented not
misleading. The unaudited condensed consolidated financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended June 30, 1995.
In the opinion of management, the unaudited condensed consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the Company's financial position
and results of operations.
The results of operations for the three and nine month periods ended March 31,
1996, are not necessarily indicative of the results of operations to be
expected for the entire fiscal year ending June 30, 1996.
REVENUE RECOGNITION
Revenue is recognized from licenses of software upon contract execution,
shipment of products and when the Company has performed all of its significant
contractual obligations. When a software license agreement obligates the
Company to provide more than one software module, all license revenue under the
agreement is deferred until all modules achieve general availability and are
delivered, except when the license agreement contains a specific financial
remedy in the event the unavailable module is not delivered. In such instance,
revenue is deferred in the amount attributable to the specific financial
remedy. The Company generally does not provide any post-contract customer
service or support as part of the software license fee; however, when such
services are provided for in the license agreement, an appropriate portion of
the license fee is deferred and amortized over the service or support period.
The Company's customers may enter into maintenance agreements with the Company
and such revenue is recognized ratably over the term of the agreement. Revenue
from consulting services is recognized as services are provided.
NET LOSS PER SHARE
Net loss per share is computed by dividing net loss by the weighted average
number of shares of common stock and common stock equivalents outstanding
during the period. During the quarter ended March 31, 1996, the Company issued
2,500,000 shares of restricted common stock to two officers of the Company at a
price of $3.50 per share. The shares are subject to vesting provisions and a
portion of the consideration for the shares included promissory notes secured
by the shares. The shares of common stock issuable in connection with the
repayment of the debenture which was issued in connection with the settlement
of the class action securities litigation have been treated as if they were
outstanding from July 26, 1995 to September 30, 1995. Due to the agreement to
rescind the Company's July 26, 1995 election to repay the debenture and the
reinstatement of the debenture (see "Contingencies"), the treatment for net
loss per share purposes of the shares of common stock issuable in connection
with the repayment of the debenture have been changed from being outstanding to
common stock equivalents from October 1, 1995 to March 31, 1996. However,
common stock equivalents were antidilutive for the three and nine month periods
ended March 31, 1996 and 1995, and therefore excluded from the calculation of
net loss per share for such periods.
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FISCAL 1996 RESTRUCTURING CHARGES
During the second quarter of fiscal 1996, the Company restructured its business
operations. As part of the restructuring, the Company discontinued the sale of
the version of its Platinum(R) SQL Enterprise product line that runs on the
Sybase/UNIX server platform. Also, the Company discontinued its direct sales
force for its Platinum SQL Enterprise product line, which resulted in the
termination of approximately 50 employees. As a result of this action, the
Company shifted the focus of its product distribution to third-party dealers or
value added resellers. The Company also expanded its field sales and corporate
marketing groups in an effort to support the distribution of its products
through its dealer channel. The Company terminated a total of approximately
100 employees as part of the second quarter restructuring, including
approximately 50 employees in its international, administrative and development
operations. During the second quarter of fiscal 1996, the Company recorded a
$5.6 million charge for the restructuring. The restructuring charge included
expenses related to work force reductions, severance payments, asset write
downs, lease termination costs and other costs.
In February 1996, the Company had another reduction in force of approximately
40 persons. This reduction in force resulted in an additional restructuring
charge of $4.2 million which was recorded in the third quarter of fiscal 1996.
The third quarter restructuring charge includes expenses related to work force
reductions, severance payments, lease termination costs, property and equipment
write-downs, reserves related to notes receivable from divestitures and other
costs.
CONTINGENCIES
On January 19, 1994, a complaint was filed against the Company and certain of
its officers and directors requesting certification of a class action, alleging
various violations of the Federal Securities Laws and claiming unspecified
compensatory damages and related fees and costs. A first amended class action
complaint was filed on April 18, 1994. On April 18, 1994, a derivative
complaint was filed against the Company and certain of its officers and
directors for violations of the Federal Securities Laws and breach of fiduciary
duties requesting unspecified compensatory and punitive damages from the
individual defendants on behalf of the Company. The Company was named as a
nominal defendant in the derivative action. A second class action suit was
filed on April 21, 1994, against the Company and certain of its officers. On
May 23, 1994, the District Court consolidated the class action complaints and
the derivative complaint into one action under the case name In Re Platinum
Software Corporation Securities Litigation, Case No. SACV-94-70-AHS, in the
U.S. District Court for the Central District of California. This consolidated
action includes three separate actions, Tauber v. Platinum Software
Corporation, Wolf v. Platinum Software Corporation, and Neomonitus v. Blackie,
et al.
In June 1994, the Company agreed to settle the litigation for $17.0 million,
$2.0 million in cash, of which $1.0 million was paid immediately, $1.0 million
was paid in December 1994, and $15.0 million was paid by issuing a redeemable,
convertible subordinated debenture in the principal amount of $15.0 million.
The debenture bore interest at eight percent and was subject to mandatory
redemption over a period of twenty-seven months following final court approval
of the settlement as follows: $5.0 million after nine months, $5.0 million
after eighteen months and $5.0 million after twenty-seven months. In lieu of
redeeming the debenture at a scheduled redemption date by making a cash
payment, the Company, at its option, could elect to repay the principal amount
of the debenture, plus interest accrued to date, by issuing common stock, or a
combination of stock and cash with the value of common stock determined at the
date of conversion. On September 26, 1994, the U.S. District Court approved
the settlement which became final thirty days thereafter.
On July 26, 1995, the Company elected to repay the first $5.0 million principal
installment, plus accrued interest thereon by issuing shares of common stock
and also elected to voluntarily repay the remaining $10.0 million principal
amount of the debenture and accrued interest thereon, by issuing shares of
common stock. The date fixed for the redemption was July 26, 1995. In
satisfaction of the above, the Company agreed to issue a total of 1,061,251
common shares in repayment of the debenture. In determining the number of
shares to be issued, the Company's common stock was valued at its average
closing price as quoted on the Nasdaq National Market for twenty of thirty days
preceding the tenth day prior to conversion, excluding the five highest and
five lowest days.
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Subsequent to July 26, 1995, the Company became engaged in discussions with the
attorneys for the plaintiff class regarding rescinding the July 26, 1995
election to repay the debenture and reinstating the debenture. Effective
February 28, 1996, the Company and Milberg, Weiss, Bershad, Hynes & Lerach, as
escrow agent ("the Escrow Agent") entered into an agreement in which the
election to repay the debenture by issuing shares of common stock was rescinded
and the debenture was reinstated. The terms of the debenture remain the same
except that the repayment terms were changed as follows: (i) the principal
amount of $7.5 million plus accrued interest is due on or before September 20,
1996 and (ii) the remaining principal amount of $7.5 million plus all accrued
interest is due on or before February 28, 1997. The Company and the Escrow
Agent also agreed that the Company may not elect to accelerate a mandatory
payment date on the debenture and exchange any principal amount of the
debenture by issuing shares of common stock if the election to exchange or the
computation period for the calculation of the number of shares to be issued in
the exchange falls within the period commencing fifteen (15) days prior to the
end of a fiscal quarter and ending forty-eight (48) hours following the
announcement of earnings for such quarter. In addition, the method for valuing
the Company's common stock for purposes of determining the number of shares to
be issued in an exchange was amended so that the determination of market value
shall be computed based on the average closing price during ten (10) of the
twenty (20) trading days preceding the redemption, excluding the closing price
on the five (5) highest and five (5) lowest days.
Since approximately April 1994, the Securities and Exchange Commission (the
"SEC") has been conducting an investigation relating to the circumstances
underlying the fiscal 1994 restatement of the Company's financial results and
possibly other matters. On May 9, 1996, the SEC announced that the Company,
without admitting or denying the SEC's findings, consented to the entry of an
administrative order that it cease and desist from future violations of the
books and records and internal control provisions of the Securities Exchange
Act of 1934.
The Company is subject to miscellaneous legal proceedings and other threatened
legal proceedings related to or arising out of the fiscal 1994 restructuring,
reduction in force and the discontinuance of certain client/server
applications. The Company is currently defending these proceedings and claims,
and anticipates that it will be able to resolve these matters in a manner that
will not have a material adverse effect on the Company's financial position or
results of operations.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
RESULTS OF OPERATIONS
Net loss for the third quarter of fiscal 1996 was $14.5 million or $0.97 per
share, as compared to a net loss of $1.9 million, or $0.15 per share, for the
comparable quarter of fiscal 1995. Net loss for the first nine months of
fiscal 1996 was $30.0 million, or $2.13 per share, as compared to a net loss of
$4.7 million or $0.37 per share for the comparable period of fiscal 1995.
Included in the results of operations for the three and nine month periods
ended March 31, 1996 was a $5.6 million restructuring charge incurred in the
second quarter of fiscal 1996 and a $4.2 million restructuring charge incurred
in the third quarter of fiscal 1996. The following summarizes the significant
aspects related to the Company's results of operations.
Revenues
Revenues were approximately $8.4 million and $13.4 million for the three months
ended March 31, 1996 and 1995, respectively, representing a decrease of 37% for
the three months ended March 31, 1996. Revenues were approximately $31.2
million and $41.3 million for the nine months ended March 31, 1996 and 1995,
respectively, representing a decrease of 25% for the nine months ended March
31, 1996. Included in revenues for the three months ended March 31, 1995, was
$1.3 million of license fee revenues that were previously deferred as part of
the fiscal 1994 restatement. Included in revenues for the nine months ended
March 31, 1996 and 1995 were $223,000 and $7.9 million, respectively, of
license fees that were previously deferred as part of the fiscal 1994
restatement. Excluding the impact of the license fee revenues deferred as part
of the fiscal 1994 restatement, revenues for the current quarter decreased $3.7
million, or 31% from the comparable quarter of fiscal 1995 and revenues for the
nine months ended March 31, 1996 decreased $2.4 million, or 7% from the
comparable nine month period of fiscal 1995.
Total license fee revenues were $3.6 million and $8.4 million for the three
months ended March 31, 1996 and 1995, respectively and $14.6 million and $25.7
million for the nine months ended March 31, 1996 and 1995, respectively.
Excluding license fee revenues that were deferred as part of the fiscal 1994
restatement, total license fee revenues were $3.6 million and $7.1 million for
the three months ended March 31, 1996 and 1995, respectively, and $14.4 million
and $17.8 million for the nine months ended March 31, 1996 and 1995,
respectively.
License fee revenues for the Company's Platinum SQL NT product line were
approximately $1.4 million and $414,000 for the three months ended March 31,
1996 and 1995, respectively, and $3.1 million and $1.1 million for the nine
months ended March 31, 1996 and 1995, respectively. The Company's Platinum SQL
NT product line was first released in the quarter ended December 31, 1994. The
Company attributes the growth in revenue from the Platinum SQL NT product in
the three and nine month periods ended March 31, 1996, in significant part, to
the increase in the number of authorized and trained Platinum SQL NT dealers.
License fee revenues for the Platinum-DOS and Platinum for Windows products
(first released in the quarter ended June 30, 1995) products were approximately
$1.5 million and $2.3 million for the three months ended March 31, 1996 and
1995, respectively, and $4.4 million and $7.1 million for the nine months ended
March 31, 1996 and 1995, respectively. The decrease in revenues resulted from
the unavailability of a complete Windows-based product suite. In December
1995, the Company released for general availability the Accounts Receivable and
Accounts Payable modules of Platinum for Windows, thus completing the suite of
core accounting software modules. The Company is scheduled to release the
remaining modules of Platinum for Windows (Order Entry, Purchase Order and
Inventory) during calendar year 1996. The Company has not yet achieved an
increase in Platinum for Windows license fee revenues over the prior quarter
principally due the unavailability of a complete suite of modules and due to
the Company's poor financial performance which caused customers to curtail
purchasing decisions or make purchases from other software vendors. See
"Certain Factors that May Affect Future Results - Disruption of Revenues." For
the remainder of fiscal 1996, the Company expects to achieve slightly increased
Platinum for Windows license fee revenues. See "Certain Factors That May
Affect Future Results - Forward Looking Statements."
Excluding license fee revenues that were deferred as part of the fiscal 1994
restatement, license fee revenues for the Company's Platinum SQL Enterprise
product line were approximately $331,000 and $3.3 million for the three months
ended March 31, 1996 and 1995, respectively, and $2.5 million and $7.0 million
for the nine months ended March 31, 1996 and 1995, respectively. In October
1995, the Company discontinued the sale of the version of its
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Platinum SQL Enterprise product line which runs on the Sybase/UNIX server
platform because of lack of recent license revenues (see "Notes to Unaudited
Condensed Consolidated Financial Statements - Fiscal 1996 Restructuring
Charges"). In addition, in October 1995, the Company discontinued its direct
sales force for this product. Since the end of the second quarter, the Company
hired three new senior executives. See "Certain Factors That May Affect Future
Results - Employees." Following an assessment of the Company's business
operations, the Company decided to sell a version of its client server
financial software product, Platinum SQL NT, which will run on the Sybase/UNIX
server platform. In addition, the Company has decided to start selling its
client server financial software product, Platinum SQL NT, through a direct
sales force and has commenced rebuilding a direct sales force which is intended
to be complementary to its third party dealer channel.
International license fee revenues decreased to $1.6 million for the three
months ended March 31, 1996 from $3.1 million for the three months ended March
31, 1995 and decreased to $4.7 million for the nine months ended March 31,
1996 from $7.3 million for the nine months ended March 31, 1995. The decreases
resulted principally from the discontinuance of the sale of the version of its
Platinum SQL Enterprise product line which runs on the Sybase/UNIX server
platform in international markets and the elimination of the direct sales force
for the Platinum SQL Enterprise product.
Consulting and professional services revenues decreased 20% from $2.7 million
for the three months ended March 31, 1995 to $2.2 million for the three months
ended March 31, 1996. The decrease was primarily due to the discontinuance of
the direct sales force and redeployment of consulting personnel to train and
support the Company's Platinum SQL NT VAR channel. Excluding the revenues of
the custom software development division, which was sold effective August 31,
1994, consulting and professional services revenues increased from $8.2 million
for the nine months ended March 31, 1995 to $8.3 million for the nine months
ended March 31, 1996. The increase was primarily attributable to an increase
in software implementation services which resulted from consulting services
sold as part of the sale of Platinum SQL Enterprise products. As a result of
the rebuilding of the direct sales force, the Company expects that consulting
and professional services revenues will increase in conjunction with the growth
of its direct sales force. See "Certain Factors That May Affect Future Results
- - Forward Looking Statements."
Support services revenues increased 19% from revenues of $2.2 million for the
three months ended March 31, 1995 to $2.6 million for the three months ended
March 31, 1996 and increased 27% from revenues of $6.1 million for the nine
months ended March 31, 1995 to $7.8 million for the nine months ended March 31.
1996. The increase was primarily attributable to an overall rise in the
installed base of end-users.
Gross Profit
Gross profit decreased as a percentage of revenues from 63% for the three
months ended March 31, 1995 to 39% for the three months ended March 31, 1996.
Gross profit decreased as a percentage of revenues from 64% for the nine months
ended March 31, 1995 to 50% for the nine months ended March 31, 1996. The
decrease in gross profit percentage in both periods is primarily due to lower
license fee revenues as a percentage of total revenues, which have higher
margins than consulting and professional services and support services
revenues.
Operating Expenses
Excluding the $4.2 million fiscal 1996 third quarter restructuring charge,
total operating expenses increased from $10.4 million for the three months
ended March 31, 1995 to $13.4 million for the three months ended March 31,
1996. Excluding the $5.6 million fiscal 1996 second quarter restructuring
charge and the $4.2 million fiscal 1996 third quarter restructuring charge,
total operating expenses increased from $31.1 million for the nine months ended
March 31, 1995 to $35.5 million for the nine months ended March 31, 1996. The
increases were due to the provision of additional reserves for accounts
receivable arising from Platinum SQL NT sales to third party dealers,
relocation costs associated with the hiring of new senior management
executives, additional reserves provided for estimated legal settlements
related to customer disputes and a write-down of property and equipment. Such
increases were offset in part by cost savings achieved from the termination of
approximately 100 employees during the second quarter of fiscal 1996 and 40
employees during the third quarter of fiscal 1996. Total operating expenses as
a percentage of revenues (excluding the fiscal 1996 third quarter restructuring
charge) were 160% and 78% for the three months ended March 31, 1996 and 1995,
respectively and 114% and 76% (excluding the fiscal 1996 second and third
quarter restructuring charges) for the nine months ended March 31, 1996 and
1995, respectively.
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Sales and marketing expenses were approximately $4.7 million and $5.1 million
for the three months ended March 31, 1996 and 1995, respectively, or
approximately 56% and 38% of total revenues. Sales and marketing expenses were
approximately $15.4 million and $13.9 million for the nine months ended March
31, 1996 and 1995, respectively, or approximately 49% and 34% of total
revenues. The increase during the nine months ended March 31, 1996 was
primarily attributable to the increase during fiscal 1995 and the first quarter
of fiscal 1996 in resources necessary to support the direct sales effort for
the Platinum SQL Enterprise product worldwide which was offset in part by
reduced employee costs following the termination of the same direct sales force
in October 1995. The decrease during the three months ended March 31, 1996 was
due to the cost savings achieved from the termination of the direct sales force
referenced above. The Company is in the process of re-establishing a direct
sales force, and, as a result, the Company expects the dollar amount of sales
and marketing expenses to increase over the next few quarters. See "Certain
Factors That May Affect Future Results - Forward Looking Statements."
General and administrative expenses were approximately $5.7 million and
$940,000 for the three months ended March 31, 1996 and 1995, respectively, or
approximately 68% and 7% of total revenues. General and administrative expenses
were approximately $9.0 million and $3.9 million for the nine months ended
March 31, 1996 and 1995, respectively, or approximately 29% and 10% of total
revenues. The increases were due to the provision of additional reserves for
accounts receivable arising from Platinum SQL NT sales to third party dealers,
relocation costs associated with the hiring of new senior management
executives, additional reserves provided for estimated legal settlements
related to customer disputes and a write-down of property and equipment. Such
increases were offset in part by cost savings achieved from the termination of
employees during the second and third quarter restructurings.
Software development expenditures were approximately $3.0 million and $4.4
million for the three months ended March 31, 1996 and 1995, respectively,
before capitalization of software costs of approximately $0 and $87,000.
Software development expenditures were approximately $11.5 million and $13.5
million for the nine months ended March 31, 1996 and 1995, respectively, before
capitalization of software costs of approximately $306,000 and $195,000. The
decreases in the amount of software development expenses was due to personnel
cuts and other cost savings in the fiscal 1996 second and third quarter
restructurings. Upon the release for general availability of the Company's
software products, the Company amortizes capitalized software development costs
over a five year period. Such amortization is included in cost of revenues. The
percentage of capitalized software development costs to total software
development costs was 0% for the three months ended March 31, 1996 and 2% for
the three months ended March 31, 1995. The percentage of capitalized software
development costs to total software development costs was 3% for the nine
months ended March 31, 1996 and 1% for the nine months ended March 31, 1995.
During the nine months ended March 31, 1996, costs were capitalized for the
Platinum for Windows Accounts Payable and Accounts Receivable modules and the
Fixed Asset module for Platinum SQL NT, whereas for the nine months ended March
31, 1995, costs were capitalized for the Platinum for Windows General Ledger
module and the Purchase Order module of Platinum SQL NT. The Company expects
that gross development expenditures should decline for the fourth quarter of
fiscal 1996 as compared to the prior quarter. See "Certain Factors That May
Affect Future Results - Forward Looking Statements."
Fiscal 1996 Restructuring Charges
During the second quarter of fiscal 1996 the Company restructured its business
operations. The restructuring included the cessation of licensing of the
version of the Company's Platinum SQL Enterprise product that runs on the
Sybase/UNIX server platform as well as the elimination of the Company's direct
sales force for its Platinum SQL Enterprise product line. The Company
estimates that expense savings from the second quarter 1996 restructuring, on a
quarterly basis, were $2.8 million. In February 1996, the Company had another
reduction in force of approximately 40 positions. This reduction in force
resulted in an additional restructuring charge of $4.2 million which was
recorded in the third quarter of fiscal 1996. Such charge includes expenses
related to work force reductions, severance costs, lease termination costs,
property and equipment write-downs, reserves related to notes receivable from
divestitures and other costs. The Company estimates that expense savings from
the third quarter 1996 restructuring, on a quarterly basis, to be approximately
$900,000.
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Other Income (Expense)
Other income (expense) for the three months ended March 31, 1996 and 1995, was
approximately ($186,000) and $31,000, respectively. For the nine months ended
March 31, 1996 and 1995, other income (expense) was approximately ($146,000)
and $159,000, respectively. The increases in other expense was principally due
the reduced interest income earned on the Company's investments due to lower
cash levels.
Provision for Income Taxes
The provision for income taxes was approximately $0 and $8,000 for the three
months ended March 31, 1996 and 1995, respectively, and $0 and $20,000 for the
nine months ended March 31, 1996 and 1995, respectively. The effective tax
rates during these periods was approximately 0% for each period presented. The
effective tax rate was lower than the statutory federal income tax rate of 34%,
primarily due to the inability to record benefits from current net operating
losses. The Company's federal net operating loss carry forward was
approximately $40,000,000 at June 30, 1995.
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FINANCIAL CONDITION
Liquidity and Capital Resources
As of March 31, 1996, the Company's principal sources of liquidity included
cash and cash equivalents of approximately $14.3 million. Cash and cash
equivalents decreased by approximately $11.9 million over the June 30, 1995
balance primarily due to the cash used in operations. Working capital was
$24.3 million at June 30, 1995 versus a deficit of $12.2 million at March 31,
1996. This decrease is primarily due to the cash used in operations and the
reinstatement on the balance sheet of the debenture issued in settlement of
certain class action litigation, $16.7 million of which is classified as a
current liability. See "Notes to Unaudited Condensed Consolidated Financial
Statements - Contingencies."
The Company's operations used approximately $11.2 million of cash and cash
equivalents in the nine months ended March 31, 1996. Included in the use of
cash and cash equivalents for operations was the investment of approximately
$11.5 million in software development expenditures.
As part of the sale of certain Company product lines and divisions in the
fiscal 1994 restructuring, the Company received payments on notes receivable
from divestitures of approximately $378,000 during the nine months ended March
31, 1996. The Company also paid approximately $975,000 in severance, lease and
other costs related to the fiscal 1994 restructuring, $1,034,000 in severance,
lease and other costs related to the second quarter fiscal 1996 restructuring
and $178,000 in severance, lease and other costs related to the third quarter
fiscal 1996 restructuring.
On July 26, 1995, the Company elected to repay the $15.0 million redeemable
convertible subordinated debenture issued in connection with the settlement of
class action securities litigation, including all accrued interest thereon, by
issuing 1,061,251 shares of common stock. Subsequent to July 26, 1995, the
Company became engaged in discussions with the attorneys for the plaintiff
class regarding rescinding the July 26, 1995 election to repay the debenture
and reinstating the debenture. Effective February 28, 1996, the Company
entered into an agreement in which the election to repay the debenture by
issuing shares of common stock was rescinded and the debenture was reinstated.
See "Notes to Unaudited Condensed Consolidated Financials Statements -
Contingencies."
On May 26, 1995 and September 22, 1994, the Company completed private
placements of Preferred Stock totaling $18.2 million and $13.8 million,
respectively. Such proceeds have been utilized to fund operations,
restructuring and software development requirements and capital expenditure
commitments.
Since May 1994, the Company has taken steps to significantly reduce its
operating expenses, through several reductions in work force, as well as the
disposition of several business units that were not within the Company's core
financial software application business. From May 1994 through November 1994,
the Company reduced its force by approximately 300 people, and in October 1995,
the Company again reduced its force by approximately 100 people in the sales,
international, development and administrative areas. In February 1996, the
Company reduced its work force by approximately 40 positions. See "Notes to
Unaudited Condensed Consolidated Financial Statements - Fiscal 1996
Restructuring Charges." If the Company is not successful in achieving targeted
revenues, the Company may be required to take additional actions to align its
operating expenses with its reduced revenues, such as further reductions in
work force or closing or sale of business units.
The Company has continued to experience negative operating cash flows. The
Company expects to incur additional cash expenditures related to the fiscal
1994 restructuring and the second and third quarter fiscal 1996 restructurings.
Accordingly, the Company is dependent upon its ability to generate cash flow
from license fees and other operating revenues, as well as the collection of
its outstanding accounts receivable to maintain current liquidity levels.
However, the Company believes that its current cash reserves, together with
existing sources of liquidity, will satisfy the Company's projected short-term
liquidity and other cash requirements for the next 12 months.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Liquidity. The Company's cash and cash equivalents decreased from $26.3
million at June 30, 1995 to $14.3 million at March 31, 1996, principally due to
the use of cash in operations. Although, the Company's fiscal 1994
restructuring is substantially complete, there will be additional cash outlays
in connection with discontinued products
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and lease terminations, estimated to be approximately $344,000. In addition,
there will be further cash outlays estimated at approximately $1.4 million in
connection with the second quarter fiscal 1996 restructuring and approximately
$671,000 in connection with the third quarter fiscal 1996 restructuring. The
Company has taken steps to significantly reduce its operating expenses, through
several reductions in work force, as well as the disposition of several
business units that are not within the Company's core financial software
application business. However, the Company has continued to experience
negative cash flow from operations. If the Company is not successful in
achieving targeted revenues, the Company may be required to take further
actions to align its operating expenses with its reduced revenues, such as
further reductions in work force or the closing or sale of business units.
Disruption of Revenues. The negative events that have occurred at the Company
since April 1994, including the fiscal 1994 restatement of the Company's
financial statements for prior periods, an investigation by the SEC relating to
the circumstances underlying the restatement and the securities class action
lawsuit discussed in "Part II, Item 1 -- Legal Proceedings," several reductions
in force, the closing of business units and poor financial performance, all
have caused potential customers to curtail purchasing decisions or make
purchases from other software vendors and have, accordingly, adversely impacted
the Company's ability to generate revenue. Although, the Company has settled
the securities class action, and raised additional equity financing, the
negative effects on revenue from the negative events at the Company have
continued. There can be no assurance that the difficulty in closing software
licenses will not continue in the future or that authorized dealers or
authorized consultants will continue to represent the Company's products and,
accordingly, revenues may be significantly impacted in the future.
Fluctuations in Quarterly Operating Results. The Company's operating results
can vary substantially from period-to-period. The Company's quarterly
operating results fluctuate in part due to the number and timing of new product
introductions and enhancements, discontinuance of product lines, the timing of
product orders and shipments, recognition of deferred revenue upon the
Company's completion of its contractual obligations, marketing and product
development expenditures and promotional programs. A significant portion of
the Company's quarterly revenues are recorded in the final month of the
quarter, with a concentration of such revenues in the final 10 business days of
that month. Also, the timing of the closing of direct sales in the latter part
of each quarter increases the risk of quarter-to-quarter fluctuations.
Accordingly, the Company believes that period-to-period comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as an indication of future performance. If revenues do not meet the
Company's expectations in any given quarter, operating results may be adversely
affected. There can be no assurance that the Company will be profitable in any
quarter or at all.
Dependence on Distribution Channels. As part of the second quarter fiscal 1996
restructuring, the Company terminated its direct sales force for its Platinum
SQL Enterprise product line and decided to distribute all of its products
exclusively through third-party dealers and value added resellers. The
Company's distribution channel includes distributors, resellers, software
consultants and systems integrators, and Authorized Consultants, which consist
primarily of professional firms. Although no one of these distribution channel
members is responsible for any material amount of the Company's license fees,
the Company's results of operations could be adversely affected if significant
numbers of its Authorized Dealers or Authorized Consultants were to cease
distributing or recommending the Company's products or were to choose to
emphasize competing products. Generally, the Company's agreements with its
Authorized Dealers and Authorized Consultants do not require them to
exclusively offer or recommend the Company's products and may be terminated by
either party without cause.
Since the end of the second quarter, the Company hired three new senior
executives. See "Certain Factors That May Affect Future Results - Employees."
Following an assessment of the Company's business operations, the Company has
decided to reestablish a direct sales force for its client server financial
software, Platinum SQL NT. There can be no assurance that the direct sales
force will be successful in generating revenue or that it will not lead to
conflicts with the Company's dealer channel.
The Company's Platinum SQL NT product was first introduced on a limited basis
to the network of Authorized Dealers during the quarter ended December 31,
1994. Platinum SQL NT, a client/server financial software application designed
to run exclusively on Microsoft Windows NT and Microsoft SQL server, is a more
technically complex product than Platinum for Windows and Platinum-DOS and
requires additional skill and training to successfully implement. The Company
presently has over 70 authorized Platinum SQL NT dealers who have completed
training and is actively seeking additional skilled Authorized Dealers to sell
Platinum SQL NT. Delays in training Authorized Dealers or in recruiting
additional skilled Authorized Dealers could adversely impact the
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Company's ability to generate license revenues from its Platinum SQL NT product
line. The Company is emphasizing the enhancement and training of its dealer
channel with a particular focus on Platinum SQL NT dealers by using its
professional services personnel to work closely with such dealers. While
recruiting new Platinum SQL NT dealers, the Company has generally provided 90
day payment terms, which has resulted in the dealers placing orders of Platinum
SQL NT for stock in addition to orders for immediate resale to customers. The
Company ceased the policy of granting 90 day terms in the quarter ended
December 31, 1995. The Company has commenced rebuilding a direct sales force
which is intended to complement the Company's indirect distribution channels
for the Company's Platinum SQL NT product. There can be no assurance that the
Company's direct or indirect sales efforts will be successful.
Dependence on Platinum SQL Enterprise and Platinum SQL NT Product Lines.
Platinum SQL Enterprise, introduced in June 1992, and Platinum SQL NT,
introduced in December 1994, are relatively new integrated financial and
management information software products for use on client/server computing
systems. It is common for complex programs such as Platinum SQL Enterprise and
Platinum SQL NT to contain undetected errors when first released, which are
discovered only after the product has been used with many different computer
systems and in varying applications. The Company has been informed by
customers of certain errors with respect to its Platinum SQL Enterprise and
Platinum SQL NT products which the Company is addressing. The inability of the
Company to correct the errors, or any significant delay in correcting the
errors in Platinum SQL Enterprise and Platinum SQL NT will have a material
adverse effect on the Company's results of operations. In addition, there can
be no assurance that significant technical problems will not be discovered, or
if discovered, corrected in a timely manner. Technical problems with the
current release of the database platforms which Platinum SQL Enterprise and
Platinum SQL NT operate could impact sales of these Company products and any
significant technical problems could have a material adverse effect on the
Company's results of operations.
Employees. The Company recently appointed a new President and Chief Executive
Officer, a new Senior Vice President of Marketing and Business Development, a
new Senior Vice President of Worldwide Field Operations, a new Vice President
of Sales, a new Vice President of Development and a new Vice President of
Marketing. In addition, the Company reduced staff by approximately 100 in
October 1995, and reduced staff by approximately 40 in February 1996. The
Company's future operating results will depend on its ability to assimilate the
changes in senior management and reductions in staff, and its ability to retain
skilled employees.
New Product Introductions. The Company's future success will depend upon its
ability to develop and successfully introduce new products and to enhance its
current products on a timely basis as well as increasing customer acceptance of
its existing products. The Company has two principal product lines, Platinum
for Windows (including Platinum-DOS) and Platinum SQL NT. The Company
continues to provide maintenance and support services for its Platinum SQL
Enterprise product for existing customers. Platinum SQL NT was released in the
quarter ended December 31, 1994 and the core accounting modules of Platinum for
Windows were released during the quarters ended June 30, 1995 and December 31,
1995. Additional modules of Platinum for Windows are scheduled for release in
calendar 1996. In the past, the Company has occasionally experienced delays in
the introduction of new products and product enhancements. There can be no
assurance that the Company will be successful in developing and marketing these
new products or product enhancements on a timely basis or that the Company will
not experience significant delays in introducing the products in the future,
which could have a material adverse effect on the Company's results of
operations. In addition, there can be no assurance that new products or
product enhancements developed by the Company will achieve market acceptance.
Dependence on Client/Server Environment. The Company's development tools,
application products and consulting and education services are intended to help
organizations build, customize or deploy solutions that operate in a
client/server computing environment. The client/server market is relatively
new and there can be no assurance that organizations will continue to adopt
client/server environments or that customers of the Company that have begun the
migration to a client/server environment will broadly implement this model of
computing. The Company's future financial performance will depend in large
part on continued growth in the market for client/server software applications
and related services, which in turn will depend in part on the growth in the
number of organizations implementing client/server computing environments and
the number of applications developed for use in those environments. There can
be no assurance that these markets will continue to grow or that the Company
will be able to respond effectively to the evolving requirements of these
markets. If the market for client/server application products and services
does not grow in the future, or grows more slowly than the Company anticipates,
or if the
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Company fails to respond effectively to evolving requirements of this market,
the Company's business, financial condition and results of operations would be
materially adversely affected.
Competition. The financial computer software industry is intensely competitive
and rapidly changing. A number of companies offer products similar to the
Company's products that target the same markets. Some of the Company's
existing competitors, as well as a number of new potential competitors, have
larger technical staffs, more established and larger marketing and sales
organizations and significantly greater financial resources than the Company.
There can be no assurance that competitors will not develop products that are
superior to the Company's products or that achieve greater market acceptance.
The Company's future success will depend significantly upon its ability to
increase its share of its target markets and to license additional products and
product enhancements to existing customers. The adverse publicity relating to
the restatement of previously issued financial results has resulted in
increased competitive challenges, which the Company expects will continue. In
addition, adverse publicity relative to the Company's restructuring efforts,
downsizing and poor financial results has resulted in further competitive
challenges. There can be no assurance that the Company will be able to compete
successfully or that competition will not have a material adverse effect on the
Company's results of operations.
Exposure to Rapid Technological Change. The market for the Company's financial
accounting software products is characterized by rapid technological advances,
changes in end-user requirements, frequent new product introductions and
enhancements, and evolving industry standards. The introduction of products
embodying new technologies and the emergence of new industry standards can
render the Company's existing products and products under development obsolete
and unmarketable. The Company's future success will depend upon its ability to
address the increasingly sophisticated needs of its customers by enhancing its
current products and by developing and introducing on a timely basis new
products that keep pace with technological developments and emerging industry
standards, respond to evolving end user requirements and achieve market
acceptance. Any failure by the Company to anticipate or adequately respond to
technological developments or end-user requirements, or any significant delays
in product development or introduction, could result in a loss of
competitiveness or reduced revenues. If the Company is unable, for
technological or any other reason, to develop, introduce and sell its products
in a timely manner, the Company's business, operating results and financial
condition would be materially adversely affected. From time to time, the
Company or its present or future competitors may announce new products,
capabilities or technologies that have the potential to replace or shorten the
life cycles of the Company's existing products. There can be no assurance that
announcements of currently planned or other new products will not cause
customers to delay or alter their purchasing decisions in anticipation of such
products, which could have a material adverse effect on the Company's business,
operating results and financial condition.
Shares Eligible for Future Sale. As of April 30, 1996, the Company had
16,479,261 shares of common stock outstanding. There are presently 2,490,000
shares of Series B Preferred Stock and 231,598 shares of Series C Preferred
Stock outstanding. Each share of Series B Preferred Stock is convertible into
one share of common stock, as adjusted for stock dividends, combinations or
splits at the option of the holder. Each share of Series C Preferred Stock is
convertible into ten shares of common stock, as adjusted for stock dividends,
combinations or splits at the option of the holder. As a result, the Series B
and Series C Preferred Stock are convertible into 2,490,000 and 2,315,980
shares of common stock, respectively. The holders of the Series B and Series C
Preferred Stock have the right to cause the Company to register the sale of the
shares of common stock issuable upon conversion of the Series B and Series C
Preferred Stock. In addition, the Company, at its option, may issue shares of
common stock in repayment of the debenture it issued as part of the settlement
of certain class action securities litigation filed against the Company. See
"Part II, Item 1 -- Legal Proceedings." These shares will be freely tradable.
Also, the Company has a substantial number of options or shares issuable to
employees under employee option plans. In addition, certain third parties hold
warrants to purchase an aggregate of 120,000 shares of common stock. The
holders of these warrants have the right to require the Company to register the
sale of the shares of common stock issuable upon exercise of the warrants. As
a result, a substantial number of shares of common stock will be eligible for
sale in the public market at various times in the future. Sales of substantial
amounts of such shares could adversely affect the market price of the Company's
common stock.
Forward Looking Statements. This quarterly report contains certain forward
looking statements that involve risks and uncertainties. Certain risks and
uncertainties which may impact the accuracy of the forward looking statements
with respect to revenues, expenses and operating results include, without
limitation, the impact of competitive products, pricing, the discovery of
undetected errors or software bugs in the Company's products, subsequent
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changes in business strategy or plan, the ability of the Company to overcome
recent negative events such as restructurings and reductions in force, and the
ability of the Company to recruit and train dealers for the Platinum SQL NT
product. Certain other risks and uncertainties are described under "Certain
Factors That May Affect Future Results."
Because of these and other factors affecting the Company's operating results,
past financial performance should not be considered an indicator of future
performance, and investors should not use historical trends to anticipate
results or trends in future periods.
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PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS:
On January 19, 1994, a complaint was filed against the Company and certain of
its officers and directors requesting certification of a class action, alleging
various violations of the Federal Securities Laws and claiming unspecified
compensatory damages and related fees and costs. A first amended class action
complaint was filed on April 18, 1994. On April 18, 1994, a derivative
complaint was filed against the Company and certain of its officers and
directors for violations of the Federal Securities Laws and breach of fiduciary
duties requesting unspecified compensatory and punitive damages from the
individual defendants on behalf of the Company. The Company was named as a
nominal defendant in the derivative action. A second class action suit was
filed on April 21, 1994, against the Company and certain of its officers. On
May 23, 1994, the District Court consolidated the class action complaints and
the derivative complaint into one action under the case name In Re Platinum
Software Corporation Securities Litigation, Case No. SACV-94-70-AHS, in the
U.S. District Court for the Central District of California. This consolidated
action includes three separate actions, Tauber v. Platinum Software
Corporation, Wolf v. Platinum Software Corporation, and Neomonitus v. Blackie,
et al.
In June 1994, the Company agreed to settle the litigation for $17.0 million,
$2.0 million in cash, of which $1.0 million was paid immediately, $1.0 million
was paid in December 1994, and $15.0 million was paid by issuing a redeemable,
convertible subordinated debenture in the principal amount of $15.0 million.
The debenture bore interest at eight percent and was subject to mandatory
redemption over a period of twenty-seven months following final court approval
of the settlement as follows: $5.0 million after nine months, $5.0 million
after eighteen months and $5.0 million after twenty-seven months. In lieu of
redeeming the debenture at a scheduled redemption date by making a cash
payment, the Company, at its option, could elect to repay the principal amount
of the debenture, plus interest accrued to date, by issuing common stock, or a
combination of stock and cash with the value of common stock determined at the
date of conversion. On September 26, 1994, the U.S. District Court approved
the settlement which became final thirty days thereafter.
On July 26, 1995, the Company elected to repay the first $5.0 million principal
installment, plus accrued interest thereon by issuing shares of common stock
and also elected to voluntarily repay the remaining $10.0 million principal
amount of the debenture and accrued interest thereon, by issuing shares of
common stock. The date fixed for the redemption was July 26, 1995. In
satisfaction of the above, the Company agreed to issue a total of 1,061,251
common shares in repayment of the debenture. In determining the number of
shares to be issued, the Company's common stock was valued at its average
closing price as quoted on the Nasdaq National Market for twenty of thirty days
preceding the tenth day prior to conversion, excluding the five highest and
five lowest days.
Subsequent to July 26, 1995, the Company became engaged in discussions with the
attorneys for the plaintiff class regarding rescinding the July 26, 1995
election to repay the debenture and reinstating the debenture. Effective
February 28, 1996, the Company and Milberg, Weiss, Bershad, Hynes & Lerach, as
escrow agent ("the Escrow Agent") entered into an agreement in which the
election to repay the debenture by issuing shares of common stock was rescinded
and the debenture was reinstated. The terms of the debenture remain the same
except that the repayment terms were changed as follows: (i) the principal
amount of $7.5 million plus accrued interest is due on or before September 20,
1996 and (ii) the remaining principal amount of $7.5 million plus all accrued
interest is due on or before February 28, 1997. The Company and the Escrow
Agent also agreed that the Company may not elect to accelerate a mandatory
payment date on the debenture and exchange any principal amount of the
debenture by issuing shares of common stock if the election to exchange or the
computation period for the calculation of the number of shares to be issued in
the exchange falls within the period commencing fifteen (15) days prior to the
end of a fiscal quarter and ending forty-eight (48) hours following the
announcement of earnings for such quarter. In addition, the method for valuing
the Company's common stock for purposes of determining the number of shares to
be issued in an exchange was amended so that the determination of market value
shall be computed based on the average closing price during ten (10) of the
twenty (20) trading days preceding the redemption, excluding the closing price
on the five (5) highest and five (5) lowest days.
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Since approximately April 1994, the Securities and Exchange Commission (the
"SEC") has been conducting an investigation relating to the circumstances
underlying the fiscal 1994 restatement of the Company's financial results and
possibly other matters. On May 9, 1996, the SEC announced that the Company,
without admitting or denying the SEC's findings, consented to the entry of an
administrative order that it cease and desist from future violations of the
books and records and internal control provisions of the Securities Exchange
Act of 1934.
The Company is subject to miscellaneous legal proceedings and other threatened
legal proceedings related to or arising out of the fiscal 1994 restructuring,
reduction in force and the discontinuance of certain client/server
applications. The Company is currently defending these proceedings and claims,
and anticipates that it will be able to resolve these matters in a manner that
will not have a material adverse effect on the Company's financial position or
results of operations.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
10.33 Employment Offer letter with L. George Klaus dated
February 7, 1996.
10.34 Restricted Stock Purchase Agreement between the
Company and L. George Klaus dated as of February 7,
1996.
10.35 Employment Offer letter with William L. Pieser dated
February 7, 1996.
10.36 Restricted Stock Purchase Agreement between the
Company and William L. Pieser dated as of February 7,
1996.
10.37 Agreement between the Company and Michael J. Simmons
dated February 8, 1996.
10.38 Agreement between the Company and Carmelo J. Santoro
dated February 8, 1996.
10.39 Agreement between the Company and Bruce C. Edwards
dated February 8, 1996.
10.40 Agreement of Purchase and Sale of Assets dated as of
February 29, 1996 between Strategic Advantage
Software Corporation, the Company, Cypher Business
Systems, Ltd. and Slatershelfco 173, Ltd. (excluding
disclosure schedules).
10.41 Agreement of Purchase and Sale of Assets dated as of
September 30, 1995 between Platinum Treasury Systems,
plc and the Company (excluding disclosure schedules).
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated February 6,
1996 to report under Item 5, Other Information, its results for
the second fiscal quarter ending December 31, 1995. The Company
also filed a Current Report on Form 8-K dated February 12, 1996 to
report under Item 5, Other Information, the appointment of L.
George Klaus as President and Chief Executive Officer. In
addition, the Company filed a Current Report on Form 8-K dated
March 15, 1996 to report under Item 5, Other Information, its
agreement to reinstate the $15.0 million principal amount of the
debenture issued in settlement of certain class action securities
litigation.
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SIGNATURE
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.
PLATINUM SOFTWARE CORPORATION
-----------------------------
(Registrant)
Date: May 16, 1996 /s/ Michael J. Simmons
-----------------------------
Michael J. Simmons
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)
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