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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
[ ] 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 0-20740
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PLATINUM SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0277592
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
195 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618-2402
(Address of principal executive offices, zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 453-4000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF CLASS
COMMON STOCK, PAR VALUE $.001 PER SHARE
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's voting Common Stock held
by non-affiliates of the registrant was approximately $151,517,860 (computed
using the closing sales price of $10.00 per share of Common Stock on September
10, 1996 as reported by the Nasdaq National Market). Shares of Common Stock held
by each officer and director and each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
affiliates. The determination of affiliate status is not necessarily a
conclusive determination for other purposes.
There were 18,157,286 shares of the registrant's Common Stock, par
value $.001 per share, outstanding on September 10, 1996.
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Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders scheduled to be held on October 24, 1996, which Proxy
Statement will be filed no later than 120 days after the close of the
registrant's fiscal year ended June 30, 1996, are incorporated by reference in
Part III of this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
Platinum Software Corporation ("Platinum" or the "Company") designs,
develops, markets and supports a broad range of integrated financial
applications software products targeted for use by businesses of all sizes
worldwide. The Company's software products have been designed and developed
primarily for use on client/server networked systems with a focus toward
financial applications software solutions. The Company has three product lines:
Platinum(R) for Windows a Windows-based powerful local area network
("LAN")-based integrated financial and management information software
application and Platinum(R) SQL, a client/server financial accounting software
application optimized for use with Microsoft Windows NT and the Microsoft SQL
Server relational database management system which is targeted at medium-sized
organizations. The Company continues to market the predecessor to the Platinum
for Windows product line, the Platinum-DOS software products which include the
Platinum Premier Financial Applications. The Company's products not only perform
sophisticated accounting and financial functions, but can be fully integrated
with an organization's information system to provide comprehensive, on-line
management information system solutions. The Company's software products
incorporate a significant number of internationalized features to address global
market opportunities for financial and management information, including support
for national languages, multiple currencies and accounting for value-added
taxation. The Company also offers consulting, training and support services to
supplement the use of its software products by its customers.
The Company was incorporated in Delaware in November 1984 under the
name "Platinum Holdings Corporation." In September 1992, the Company changed its
name to Platinum Software Corporation. The Company has five operating
subsidiaries: Platinum Software Canada, Ltd., Platinum Software (Aust.) Pty.
Limited, Platinum Software (N.Z.) Limited, Platinum Software (U.K.) Limited, and
Platinum Software (Ireland) Limited. Unless the context otherwise requires,
references to the "Company" herein includes Platinum Software Corporation and
its operating subsidiaries. The Company's headquarters and principal place of
business are located at 195 Technology Drive, Irvine, California 92618-2402, and
its telephone number is (714) 453-4000.
BACKGROUND
In recent years, organizations have increasingly focused on collecting,
analyzing and distributing mission-critical information as rapidly and
efficiently as possible to improve productivity and to secure a competitive
advantage. Historically, computing environments for large organizations were
dominated by mainframes and minicomputers, which were expensive to purchase,
install and maintain. Due to the centralized nature of these generally
proprietary systems, access to critical data was typically limited to an
organization's MIS department and was not readily available to other managers
and key employees.
In the 1980s, the advent of more powerful and less expensive personal
computers ("PCs"), coupled with improvements in networking technology, led to
the adoption of LANs in increasing numbers by businesses of all sizes. LANs
enabled organizations to have on-line access to real-time, mission-critical
data. Financial and management information software products were introduced
based on open database architectures. These systems were easier to implement and
modify and critical information could be accessed readily from a variety of
"off-the-shelf" general business productivity applications such as spreadsheet
and database programs.
The continuing advances in both microprocessor and network technology
resulted in corresponding increases in network performance, which caused LAN
systems to be adopted increasingly by many medium and small organizations and
departments of large organizations. For medium and small organizations,
LAN-based systems continue to be effective solutions. However, in heavy
processing environments with large numbers of users and tremendous amounts of
data being sent across the network, bottlenecks can result that significantly
reduce the performance of the LAN-based system. Consequently, the limited
client/server functionality of these LAN systems can create difficulties for
large organizations that combine heavy data flow requirements on an
enterprise-wide basis with a large number of users. Further, LAN-based systems
offer less control than centralized, host-based systems over the security and
integrity of information, despite increasing access to that information and,
therefore, many MIS departments have been somewhat reluctant to store sensitive,
mission-critical data on LAN systems.
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Many of the limitations of LAN technology have been overcome by the
development of client/server technology for storing, accessing and distributing
data. The client/server model consists of PC and workstation "clients" connected
on enterprise-wide networks to "servers," generally more powerful systems, such
as high-performance PCs or workstations, minicomputers, reduced instruction set
computer ("RISC")-based servers or mainframes. The client/server architecture is
designed to partition the processing of application software between the client
and the server to allow the clients to handle the user interface and local data
manipulation and to allow the server to perform computing-intensive functions.
This design minimizes network traffic and exploits the server's powerful
processing capability. Because of this partitioning, system throughput is
scaleable and can be increased by replacing the server computer with a more
powerful machine. Client/server systems also offer the degree of data integrity
and security that large MIS departments require, since all data access can be
controlled by server-based relational database management systems ("RDBMSs")
that couple the benefits of open database architectures with the benefits of
centralized control offered by host-based systems.
TECHNOLOGY STRATEGY
The Company's technology strategy is to develop leading financial
software using industry standard tools where possible, and to take advantage of
leading third-party, industry-standard technologies for database management
systems, operating systems, user interfaces and networks. The Company developed
its own proprietary application development tools to create its first generation
of client/server products, but is increasingly exploiting standard tools as they
become available. The Company's core product architecture incorporates many of
the foundation technologies of client/server computing. These elements include:
Open Relational Database Technology
The Company utilizes open relational database technology to provide
extremely flexible integrated financial and management information software.
This open database orientation is based on widely accepted database managers.
The Platinum for Windows product line, as well as the Platinum-DOS core set of
accounting and financial applications and Platinum Premier Financial
Applications, are optimized for the Pervasive, Inc. database (formerly named
Btrieve). The Company's Platinum SQL product line uses both the Microsoft and
Sybase SQL Server relational database management systems. The Company has
developed its Platinum SQL product line using industry standard SQL language as
the fundamental database access methodology. SQL provides transparent access to
data regardless of database structure and storage details.
Advanced Networking/Communications
The Company's products are designed to operate on both LANs and wide
area networks ("WANs"). The Company supports popular industry standard
networking protocols such as TCP/IP, Novell IPX/SPX and Microsoft NETBEUI/Named
Pipes. The Company's networking support offers advanced features such as: (i)
concurrent access to data and to critical functions for all network users; (ii)
a high degree of fault tolerance; (iii) high levels of security typically
associated with host-based systems; (iv) a wide range of options for configuring
different users on the network; and (v) remote processing.
Industry Standard User Interfaces
The Company has incorporated numerous features into its user interfaces
to simplify access to and operation of its products. The Company's products
generally conform to the Common User Access standard and include the ability to
mirror the form of printed output on the screen. The Company's Platinum SQL and
Platinum for Windows product lines incorporate the popular Microsoft Windows
graphical user interfaces ("GUIs"). The Company's GUI tools include industry
standard field controls, pull-down menus and tool bars that facilitate the use
of the software. In addition, the Company's Platinum SQL product incorporates
the latest and most advanced GUI features such as process wizards, cue cards,
advanced on-line help and documentation and the multiple document interface
("MDI") that results in an intuitive user interface. The Company's Platinum for
Windows product was designed using the Windows 95 user interface standards,
incorporating a document centric interface, the use of the single document
interface, tabs oriented forms and wizards for application set up and
configuration.
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Powerful Application Development Tools
The Company provides comprehensive application development and
customization tools for its Platinum for Windows and Platinum SQL product lines.
Platinum for Windows was developed using industry standard development tools
such as Visual Basic and utilizes the industry standard Btrieve database engine.
As a result, a series of reusable objects have been created. By exposing certain
aspects of the objects, users have the ability to modify and extend the system
without losing a consistent user interface. Platinum for Windows also includes
template definition for easier document entry and wizards which make it easier
for a user to set up the software or define users or groups. In a future version
of a software developers kit for Platinum for Windows, scheduled for release in
the fourth quarter of calendar 1996, the product will have additional
customization capabilities, such as the ability to add and remove fields, change
field attributes and add and change menus as well as add new screens.
The Company also has developed an extensive tool kit for its Platinum
SQL product line. The core tools for the Platinum SQL product line deliver a
complete client/server development environment, enabling a user to make changes
ranging from a simple field name change to building an integrated custom
application. The intuitive visual interface of the forms designer provides a
powerful tool to modify and extend the functionality of standard applications.
In addition, industry-standard Visual Basic macro language and Object Linking
and Embedding ("OLE") version 2.0 automation enable all Platinum SQL
applications to exchange data and integrate with external OLE applications. The
Platinum SQL tools also contain additional advanced capabilities such as imaging
integration and the ability to integrate with multi-dimensional databases. In
Version 3.3 of Platinum SQL, presently scheduled for release in the fourth
quarter of calendar 1996, the Company will introduce a software developers kit
for Platinum SQL which will enable customers and authorized resellers to build
comprehensive software solutions that augment the standard product. The software
developers kit will include technical reference guides and diagrams, an OLE
integration kit and certain report script source code.
Client/Server Technology
In order to fully exploit the capabilities of the client/server model
of computing, the Company has optimized its Platinum SQL product line for the
Microsoft SQL Server database. The Company also sells a version of Platinum SQL
that runs on the Sybase SQL Server database. All major data manipulation
functions are implemented in the native language of both of the database
servers, Transact SQL, and thereby are executed as "stored procedures" that are
processed solely on the server. This implementation results in a substantial
reduction in network traffic as compared to other client/server approaches,
provides scaleable high performance, and provides inherent portability of the
RDBMS to a large number of server, hardware and operating system platforms
without code change or conversion.
PRODUCTS
The Company designs, develops, markets and supports a broad range of
integrated financial applications software products that provide organizations
with technically advanced business solutions. The Company's two primary software
product lines are Platinum for Windows and Platinum SQL. In addition, the
Company sells and supports its Platinum-DOS software products which include its
Platinum Premier Financial Applications. During 1996, the Company discontinued
the marketing of its Platinum(R) SQL Enterprise product (formerly named SeQueL
to Platinum(R)). The Company, however, continues to provide support for the
installed base of this product line. The Company also develops and markets a
variety of related applications software products that enable users to customize
the Company's software products and to integrate these software products with
general productivity applications software.
Platinum for Windows and Platinum-DOS
Platinum for Windows is a Windows-based client/server financial
accounting software package for smaller businesses whose corporate computing
environment consists of LANs comprised of personal computers. Platinum for
Windows is the next generation of the Company's Platinum-DOS-based and Platinum
Premier Financial Applications accounting applications. First introduced in June
1995, Platinum for Windows includes a Windows-based client which was designed
around the interface standards of Microsoft Windows 95 to handle all user
interaction and data maintenance. The Windows-based client interacts with an
application server which runs postings, reports and utilities. Both the client
and the server communicate with the LAN-based Btrieve database.
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Since no database conversions are required to upgrade from the
Platinum-DOS-based product to Platinum for Windows, Platinum for Windows may be
implemented on a user-by-user basis as MS-DOS machines are upgraded by the
customer.
The following modules of Platinum for Windows are presently generally
available: Premier Ledger with Platinum FRx, Premier Consolidations, Premier
Currency Translation, Premier Inter-Company Processing, Foreign Currency
Manager, System Manager, General Ledger, Bank Book, Accounts Receivable,
Accounts Payable and Purchase Order. The Order Entry and Inventory modules are
scheduled for general release in December 1996. See "Certain Considerations -
Forward Looking Statements."
In addition, the Company continues to sell and support its
Platinum-DOS-based integrated financial software applications. First introduced
in June 1985, the core Platinum-DOS-based accounting modules include General
Ledger, Accounts Receivable, Accounts Payable, Inventory, Order Entry and
Consolidations. In addition, the Company offers Platinum Premier Financial
Applications, which are extensions of the core Platinum-DOS-based modules and
are designed to meet the sophisticated financial reporting requirements of a
larger customer. The Platinum Premier Financial Applications modules operate in
conjunction with other Platinum-DOS and Windows-based modules and provide
downsizing and rightsizing opportunities to larger organizations whose previous
barriers were not the performance or capacity of LAN-based systems but lack of
advanced feature sets available from a LAN-based program.
Revenues attributable to licenses of the DOS-based Platinum
applications, including the Platinum Premier Financial Applications, were
$15,188,000, $8,940,000 and $6,075,000, exclusive of revenues attributable to
its Platinum Advanced Manufacturing System software application (which was sold
effective October 31, 1994) and license fee revenues that were deferred as part
of the fiscal 1994 restatement, or 28%, 16% and 15% of the Company's total
revenues in fiscal years 1994, 1995 and 1996, respectively. Certain limited
modules of Platinum for Windows began shipping in June 1995 and generated
$203,000 of revenue in fiscal 1995 and $2,295,000 in fiscal 1996.
Platinum SQL
Platinum SQL (for Windows NT or for UNIX), a client/server financial
accounting software application is targeted at medium-sized companies desiring
the power and sophistication of high-end client/server applications but desiring
an easier and more standard product implementation. Although the product is
optimized for use with Microsoft Windows NT and Microsoft SQL Server, it also
runs on the Sybase SQL Server database. Platinum SQL minimizes the complexities
of client/server installation by providing the user with installation wizards
which actually configure the Microsoft SQL Server database based upon
information provided by the installer. As previously indicated, Platinum SQL was
designed for the Microsoft Windows NT server platform and runs on Windows 3.x,
Windows for Workgroups, Windows NT and Windows 95 client platforms. Platinum SQL
is integrated with the Microsoft Office Professional suite of software products
and supports Microsoft OLE, version 2.0, which enables customers to integrate
not only other Microsoft products but any OLE 2.0-compliant application. In
addition, Platinum SQL is a 32-bit server application that takes full advantage
of the Microsoft SQL server for Windows NT.
The following modules of Platinum SQL are currently generally
available: General Ledger with Platinum FRx and System Manager, Multi-Currency
Manager, Accounts Receivable, Accounts Payable, Tools, Inventory Control, Cash
Management, Order Entry, Publisher, Purchase Order and Asset Management. Version
3.3 of Platinum SQL is scheduled for general release in the fourth calendar
quarter of 1996. See "Certain Considerations Forward Looking Statements."
Version 3.3 will include significant enhancements to the Purchase Order, Order
Entry and Inventory modules, which are aimed at improving performance,
concurrency, streamlining the order entry and shipment process, and the purchase
order matching process. In addition, included in version 3.3 is a new
application, Advanced Allocations, which extends the capabilities of standard
reallocation processing, and a software developers kit, which enables customers
and resellers to build comprehensive software solutions that augment the
standard products.
License fees for Platinum SQL vary depending upon the number of
concurrent users and platform. Revenues attributable to licenses of Platinum
SQL, which first began shipping in December 1994 were $3,202,000 and $7,902,000,
or 6% and 19%, of the Company's total revenues in fiscal year 1995 and 1996,
respectively.
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Other Products
The Company also offers a line of integration kits and database
products that support its Platinum for Windows and Platinum-DOS-based line of
software products and licenses these products to its Authorized Dealers,
distributors, Authorized Consultants and end-users. The Company also serves as
an OEM vendor for certain third-party software applications and pays royalties
to various organizations in connection with the distribution of third-party
software and the sale of products that incorporate third-party technologies.
Platinum SQL Enterprise
Platinum SQL Enterprise, formerly named SeQueL to Platinum, an
integrated financial and management information software application based on
the Microsoft and Sybase SQL Server databases for use on client/server systems,
was discontinued during fiscal 1996, although the Company continues to provide
maintenance and support for the installed base for this product. Revenues
attributable to licenses of Platinum SQL Enterprise (excluding license fee
revenues that were deferred as part of the fiscal 1994 restatement and
subsequently recognized) were approximately $9,298,000, $11,116,000 and
$2,650,000, or 17%, 20% and 7% of total revenues, in fiscal years 1994, 1995 and
1996, respectively.
PROFESSIONAL SERVICES
The Company's professional services division, formed in July 1992,
provides consulting services to customers in the design and implementation of
the Company's software products, as well as education, training and other
services. In fiscal 1994, the division also provided custom modifications and
created applications which interfaced with the Company's software products. In
August 1994, the Company sold the assets related to its custom software
development operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Fiscal 1994 Restructuring Charge." The
professional services division functions in domestic and international markets
and primarily focuses on larger corporate accounts. Professional services are
generally provided on a time and materials basis. Excluding the revenues from
the custom software development division, revenues from professional services
were approximately $8,375,000, $10,736,000 and $9,949,000, or 16%, 19% and 25%
of total revenues, in fiscal years 1994, 1995 and 1996, respectively.
During the first nine months of fiscal 1996, the professional services
division was very involved in the training of Company's dealers and distributors
in selling and supporting the Platinum SQL product. Professional services staff
provided formal training to distributors and dealers and worked with them on the
job to transfer expertise gained in Platinum SQL Enterprise and Platinum SQL NT
implementations over the last three years. During fiscal 1997, the professional
services division will focus more of its efforts in providing consulting and
implementation services to customers. The Company believes that its provision of
professional services, in conjunction with its current and planned product
offerings, facilitates the licensing of technology to customers and stimulates
demand for the Company's products.
MARKETING, SALES AND DISTRIBUTION
The Company sells its products and services directly and through a
network of Value Added Resellers ("VARs"), dealers, systems integrators,
distributors and software consultants who generally market the Company's
products on a nonexclusive basis. The Company's products are sold to and used by
a broad customer base, including businesses, government bodies, educational
institutions and other users. The Company sells its Platinum for Windows,
Platinum DOS, and Platinum SQL products through third-party dealers or
distributors. In October 1995, the Company discontinued its direct sales force
for its Platinum SQL Enterprise product. Later in fiscal 1996, the Company hired
three new senior executives, and following an assessment of the Company's
business operations, the Company decided to start selling the Platinum SQL
product through a direct sales force as well as through a network of VARs. The
Company, in the fourth quarter of fiscal 1996, commenced development of this
direct sales force to supplement the efforts of the third party dealers and
distributors. The Company's field sales organization is divided into geographic
regions: United States, divided into Northeast, Southeast, Central and West,
Canada, United Kingdom/Europe/Middle East/Africa, Australia/New Zealand and
other international countries.
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The Company's network of Authorized Dealers and Authorized Consultants
are required to undergo training and certification procedures provided by the
Company on the use, installation and implementation of the Company's products
before being "authorized" by the Company to sell its products. The Company's
Authorized Dealers include consulting groups, VARs and system integrators, the
majority of whom provide computer installations, systems integration and
consulting services to organizations. The Company's Authorized Consultants
generally are not resellers of the Company's products but professional firms who
offer implementation services and product support to end-users. The Company
believes that its Authorized Consultants are product influencers and are a
valuable part of the Company's marketing, sales and distribution efforts. The
Company permits Authorized Dealers and distributors to return Platinum-DOS and
Platinum for Windows products that were returned by the end-user customers,
within 30 days of purchase, upon payment of a restocking fee, provided such
products remain in their original packages, excluding product upgrades and
demonstration software.
To support the Company's network of Authorized Dealers and Authorized
Consultants, the Company provides experienced personnel who are specifically
tasked with their growth and support. These individuals are responsible for
educating and training the distribution channel, disseminating information,
implementing marketing programs and developing regional markets.
In recognition of international opportunities for its software
products, the Company has committed resources to an international sales and
marketing effort. The Company has established or acquired subsidiaries in the
United Kingdom, Australia, New Zealand and Canada to further such sales and
marketing efforts. The Company sells its products in Europe, including Russia,
Latin and South America, Africa, Asia and the Middle East principally through
third-party distributors and dealers. The Company's international revenues were
approximately $15,062,000, $17,857,000 and $14,079,000, or 28%, 32% and 35% of
total revenues, in fiscal years 1994, 1995 and 1996, respectively. See "Note 10
of Notes to Consolidated Financial Statements."
The Company currently has sales offices located in the metropolitan
areas of Atlanta; Boston; Chicago; Dallas; Orange County, California; New York;
San Francisco; Toronto, Canada; Auckland, New Zealand; London, England; Sydney
and Melbourne, Australia and Hong Kong.
Products are generally shipped as orders are received or within 30 days
thereof and, accordingly, the Company has historically operated with little or
no backlog. Because of the generally short cycle between order and shipment, the
Company does not believe that its backlog as of any particular date is
meaningful.
PRODUCT DEVELOPMENT AND QUALITY ASSURANCE
Since inception, the Company has made substantial investments in
product development, which is evidenced by the following product releases: the
1985 release of a LAN-based client/server accounting package that offered a high
degree of multi-user concurrency; the 1988 release of an accounting package
written for OS/2; the 1990 release of a LAN-based software package that provided
comprehensive support for international accounting requirements; the 1991
release of a Windows graphical accounting system that offered Windows MDI
support; the 1992 release of a graphical, SQL server-based integrated financial
and management information software product line; the 1994 release of a
client/server accounting application designed to run on Windows NT and the
Microsoft SQL server RDBMS; and the 1995 release of a Windows and LAN-based
accounting software package. During fiscal years 1994, 1995 and 1996, software
development expenses before capitalization were approximately $24,205,000,
$17,916,000 and $13,774,000, respectively.
The Company plans to continue to address the needs of users of
integrated financial and management information software by continuing to
develop high quality software products that feature advanced technologies. The
Company's technology strategy is to develop leading business application
software using its own technologies combined with leading third-party,
industry-standard technologies in database management systems, operating
systems, user interfaces and networks. In particular, the Company believes that
it has been an industry leader in designing and developing products for
operation on LANs and has been a pioneer in the use of GUIs with integrated
financial and management information software. Since inception, the Company has
pursued object-oriented methodologies that simplify the development, maintenance
and third-party customization of its products. Accordingly, the Company's tools
offer a high degree of configurability for its products.
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The Company intends to continue to invest in product development. In
particular, the Company plans to continue to (i) develop additional modules of
its Platinum for Windows and Platinum SQL product lines, (ii) develop
enhancements, including additional functions and features, for its Platinum for
Windows and Platinum SQL product lines, and (iii) provide software products that
satisfy the Company's high standards of quality.
The computer software industry is characterized by rapid technological
advances and changes in customer requirements. The Company's future success will
depend upon its ability to enhance its current products and develop and
introduce new products that keep pace with technological developments, respond
to evolving customer requirements and continue to achieve market acceptance. In
particular, the Company believes it must continue to respond quickly to users'
needs for broad functionality and multi-platform support and to advances in
hardware and operating systems. 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 not experience significant
delays in the introduction of new products or product enhancements in the
future, which could have a material adverse effect on the Company's results of
operations.
The Company's future business is dependent in large part on the
development of additional modules for its Platinum for Windows product and
enhancements to its Platinum SQL product. Any significant delay in shipping new
modules or enhancements could have a material adverse effect on the Company's
results of operations. In addition, there can be no assurance that new modules
or product enhancements developed by the Company will adequately achieve market
acceptance.
TECHNICAL SUPPORT AND SOFTWARE MAINTENANCE
The Company is committed to providing timely, high-quality technical
support, which the Company believes is critical to maintaining customer
satisfaction. The Company provides technical support by offering telephone
support, e-mail support, facsimile support and communications through its World
Wide Web site. Telephone support is available five days a week during normal
business hours on a nearly worldwide basis, collectively from the Company's
three support centers in Dublin, Ireland, Sydney, Australia and Irvine,
California. The Company also believes that customer satisfaction should be
maintained by ensuring that its Authorized Dealers, Distributors and Authorized
Consultants are able to effectively provide front-line technical support and
assistance to end-users. The Company offers comprehensive training, telephone
consultation and product support for its Authorized Dealers, distributors and
Authorized Consultants. Training courses are held in major cities worldwide.
The Company offers its Platinum for Windows and Platinum-DOS customers
several software maintenance options, for varying annual fees. The Company's
software maintenance programs are the sole avenue for product updates and
technical support. The annual maintenance fee for the Platinum SQL product is
18% of the then current list price. Customers who subscribe for maintenance
receive telephone and technical support, timely information on product
enhancements and features and product updates and upgrades. Revenue from these
software maintenance agreements is recognized ratably over the maintenance
period.
The Company provides a three month performance warranty for its
Platinum SQL product. In addition, the Company provides a three month warranty
for the media on which its Platinum for Windows and Platinum-DOS are licensed.
COMPETITION
The financial accounting 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. 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.
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The Company believes that it competes in two different market segments
in the client/server financial accounting software market. These two segments
are the middle market segment and the LAN-based segment. Although the Company
does not target customers in the enterprise market segment, which it defines as
large organizations desiring enterprise wide solutions, and is characterized by
high transaction volumes and software flexibility to customize applications, it
encounters competitors from this market segment.
In the middle market, which the Company defines as being comprised of
customers ranging in revenue size from $50 million to $500 million, customers
desire proven client/server software solutions that are easy to install, manage
and use, yet are flexible enough to address the challenges of a specific
organization. In addition, customers in this market segment require strong
price-performance metrics. This market segment is relatively new, and as a
result, the competitive landscape is still forming. The Company believes its
principal competitors include Lawson Corporation, JD Edwards, Oracle
Corporation, Solomon Software, Great Plains Software, SQL Financials,
Peoplesoft, Inc., Dunn & Bradstreet Software Services, Inc., Baan and SAP. Some
of these companies are major participants in the enterprise market segment who
are presently selling an existing enterprise segment product in the middle
market segment, while others are in the process of developing a client/server
product to address the middle market requirements. The Company has addressed the
requirements of customers in this market with its Platinum SQL product, a
version of which has been optimized for use with Microsoft Windows NT and the
Microsoft SQL Server RDBMS. The Company believes that this product competes
favorably against its competitors with respect to the foregoing competitive
factors.
In the LAN-based market, the Company competes with Great Plains
Software, Macola, Inc., Solomon Software and State of The Art, Inc., in North
America, and Scala and Systems Union, Ltd. outside of North America. Products in
this market are principally sold through VARs and solution-oriented computer
retail stores with the purchasing decision often influenced by accounting
professionals providing consulting services. The Company believes that purchases
in this market are primarily influenced by functionality, performance,
availability of a Windows-based version, price and quality. The Company believes
it competes favorably with respect to all of these factors.
PRODUCTION
The principal materials and components used in the Company's software
products include computer media, including disks and CD-ROMs, and user manuals.
For each product, the Company prepares a master software disk or CD-ROM, user
manuals, which may be in printed form or distributed on a CD-ROM, and packaging.
Substantially all of the Company's disk and CD-ROM duplication is performed by
third-party vendors, using disks and blank CD-ROMs acquired from various
sources. Outside sources print the Company's packaging and related materials to
the Company's specifications. A portion of the completed packages are assembled
by third-party vendors. To date, the Company has not experienced any material
difficulties or delays in the manufacture and assembly of its products, or
material returns due to product defects.
INTELLECTUAL PROPERTY
The Company regards its software as proprietary, in that title to and
ownership of the software generally exclusively resides with the Company, and
the Company attempts to protect it with a combination of copyright, trademark
and trade secret laws, employee and third-party nondisclosure agreements and
other methods of protection. Despite these precautions, it may be possible for
unauthorized third-parties to copy certain portions of the Company's products or
reverse engineer or obtain and use information the Company regards as
proprietary. Like many software firms, the Company presently has no patents.
While the Company's competitive position may be affected by its ability to
protect its proprietary information, the Company believes that trademark and
copyright protections are less significant to the Company's success than other
factors such as the knowledge, ability and experience of the Company's
personnel, name recognition and ongoing product development and support.
The Company's software products are generally licensed to end-users on
a "right to use" basis pursuant to a perpetual, non-exclusive license that
generally restricts use of a software for the organization's internal business
purposes. The Company licenses its Platinum for Windows, Platinum-DOS and
Platinum SQL (those sold through dealers and distributors) product lines
pursuant to "shrink wrap" licenses that are not signed by licensees and
therefore may be unenforceable under the laws of certain jurisdictions. In
addition, the laws of some foreign
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countries do not protect the Company's proprietary rights to the same extent as
do the laws of the United States. Certain components of the Company's products
are licensed from third-parties.
As the number of software products in the industry increases and the
functionality of these products further overlap, the Company believes that
software programs will increasingly become subject to infringement claims. There
can be no assurance that third-parties will not assert infringement claims
against the Company in the future with respect to current or future products or
that any such assertion may not require the Company to enter into royalty
arrangements or will result in costly litigation. The Company is not aware of
any infringement actions or claims.
EMPLOYEES
As of June 30, 1996, the Company had 333 full-time employees, including
75 in product development, 59 in support services, 53 in professional services,
67 in sales, 26 in marketing and 53 in finance and administration. The Company's
employees are not represented by any collective bargaining organization, and the
Company has never experienced a work stoppage. The Company believes that its
relations with its employees are good.
RESTRUCTURINGS
In May 1994, the Company announced a restructuring of its business
operations and a new organizational structure. Also in May 1994, the Company
announced a new strategy for distributing its products outside of North America
and the United Kingdom. This strategy involved the creation of independent
organizations to market its products under the Platinum name, in which the
Company would maintain a minority ownership as well as the entering into of
distributorship arrangements with third parties. The Company also announced a
renewed emphasis on core financial software applications and an intention to
divest certain of its non-financial, non-core software applications.
Between May 1994 and March 1996, the Company divested certain areas of
its non-core financial software business. Effective June 30, 1994, the Company
sold the assets relating to its Latin American operations to a newly formed
company in which Platinum retained a minority ownership interest. As part of
this transaction, Platinum entered into an exclusive distribution agreement
regarding the sale of its software products in Latin America by the new company.
Also, effective June 30, 1994, the Company sold its EDI product line and its
SeQueL Cost Management product, and the assets related to such products, to
third-parties. The Company retained the right to distribute such products to its
customers. In addition, the Company sold the assets related to its business
forms division, operated through the Company's subsidiary, Altec Products, Inc.,
to a third-party. The Company entered into a marketing agreement with the
purchaser of Altec Products, Inc. under which the purchaser was granted
exclusive rights to distribute business forms for use with the Company's
software products. In July 1994, the Company transferred an interest in its FRx
financial report writer software product to a newly formed company, in which
Platinum retained a minority interest. The Company retained the right to develop
and market the FRx product as part of its product line. Effective August 31,
1994, Platinum sold the assets related to its custom software development
business to Perot Systems Corporation ("Perot"). In this transaction, Platinum
entered into a joint marketing and distribution agreement with Perot in which
Perot became the preferred provider of custom development services for the
Company's Platinum SQL Enterprise product line in the United States, Canada and
the United Kingdom. This arrangement with Perot subsequently has been
terminated. In November 1994, Platinum sold its Platinum Advanced Manufacturing
System software and related manufacturing software applications to a
third-party. Platinum retained limited distribution rights to the Platinum
Advanced Manufacturing System software. In March 1995, Platinum sold its Access
to Platinum product line to a third-party. Effective September 30, 1995, the
Company sold its treasury management software product to a third party. In
addition, effective February 29, 1996, the Company sold its SeQueL distribution
product to a third party.
In October 1994, the Company closed its operations related to its
client/server sales force and contact management software product. For
additional information see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Fiscal 1994 Restructuring Charge."
During the second quarter of fiscal 1996, the Company restructured its
business operations with the intent to reduce operating expenses and minimize
the usage of cash. As part of the restructuring, the Company discontinued the
marketing of the version of its Platinum SQL Enterprise product line that runs
on the Sybase/UNIX
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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 VARs. In the fourth
quarter of fiscal 1996, the Company commenced development of a direct sales
force for its Platinum SQL product and also commenced selling a version of its
Platinum SQL product that runs on the Sybase/UNIX platform. See "Marketing,
Sales and Distribution." 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 $3.3 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 underwent another reduction in force of
approximately 40 persons with the intent again to reduce operating expenses and
minimize the usage of cash. This reduction in force resulted in an additional
restructuring charge of $2.3 million, which was recorded in the third quarter of
fiscal 1996. The third quarter restructuring charge included expenses related to
work force reductions, severance payments, lease termination costs, property and
equipment write-downs and other costs.
CERTAIN CONSIDERATIONS
Liquidity. The Company's cash and cash equivalents decreased from $21.3
million at June 30, 1995 to $5.4 million at June 30, 1996, principally due to
the use of cash in operations and the purchase of short-term investments.
Although, the Company's fiscal 1994 restructuring is substantially complete,
there will be additional cash outlays in connection with discontinued products
and lease terminations, estimated to be approximately $173,000. In addition,
there will be further cash outlays estimated at approximately $1.2 million in
connection with the second quarter fiscal 1996 restructuring and approximately
$503,000 in connection with the third quarter fiscal 1996 restructuring. The
Company has taken steps to significantly reduce its operating expenses, through
the 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. The Company has experienced negative cash flow from operations for the
first nine months of fiscal 1996 and positive cash flow from operations during
the fourth quarter of fiscal 1996. The Company expects to be cash flow positive
from operations commencing the second quarter of fiscal 1997. See "Certain
Considerations -- Forward Looking Statements." If the Company is not successful
in achieving targeted revenues or positive cash flow, 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 additional 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, the securities class action
lawsuit discussed in "Part I, Item 3 -- Legal Proceedings," several reductions
in force, the closing of business units and poor financial performance, have
caused potential customers to curtail or delay 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, raised additional equity financing, and the SEC
investigation has concluded, 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
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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 VARs. 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 with or without cause.
Since the end of the second quarter, the Company hired three new senior
executives. See "Employees." Following an assessment of the Company's business
operations, the Company decided to reestablish a direct sales force for its
middle market client server financial software product, Platinum SQL. 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 product (formerly named Platinum SQL NT) was
first introduced on a limited basis to the network of Authorized Dealers during
the quarter ended December 31, 1994. Platinum SQL, a client/server financial
software application designed to run 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 dealers who
have completed training and is actively seeking additional skilled Authorized
Dealers to sell Platinum SQL. Delays in training Authorized Dealers or
recruiting additional skilled Authorized Dealers could adversely impact the
Company's ability to generate license revenues from its Platinum SQL product
line. The Company is emphasizing the enhancement and training of its dealer
channel with a particular focus on Platinum SQL dealers. In the fourth quarter
of fiscal 1996, the Company commenced rebuilding a direct sales force which is
intended to complement the Company's indirect distribution channels for the
Company's Platinum SQL products. There can be no assurance that the Company's
direct or indirect sales efforts will be successful.
Dependence on Platinum SQL Product Line. Platinum SQL, which is a
successor product to Platinum SQL Enterprise which was first introduced in June
1992, and to Platinum SQL NT, which was first introduced in December 1994, is a
relatively new integrated financial and management information software product
for use on client/server computing systems. It is common for complex programs
such as Platinum SQL 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 product 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, 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 on which Platinum SQL 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. In the second half of fiscal 1996, the Company appointed
three new senior officers, a new President and Chief Executive Officer, a new
Senior Vice President of Marketing and Business Development and a new Senior
Vice President of Worldwide Field Operations. 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, enhance its
current products on a timely basis and increase customer acceptance of its
existing products. The Company has two principal product lines, Platinum for
Windows (including Platinum-DOS) and Platinum SQL. The Company continues to
provide maintenance and support services for its
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Platinum SQL Enterprise product for existing customers. Platinum SQL was
released in the quarter ended December 31, 1994 and some of 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
new 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 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
financial condition and 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 could
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.
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Shares Eligible for Future Sale. As of September 10, 1996, the Company
had 18,157,286 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. 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 105,000 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.
Possible Volatility of Stock Prices. The market prices for securities
of technology companies, including the Company, have been volatile. Quarter to
quarter variations in operating results, changes in earnings estimates by
analysts, announcements of technological innovations or new products by the
Company or its competitors, announcements of major contract awards and other
events or factors may have a significant impact on the market price of the
Company's Common Stock. In addition, the securities of many technology companies
have experienced extreme price and volume fluctuations, which have often been
unrelated to the companies' operating performance. These conditions may
adversely affect the market price of the Company's Common Stock.
Forward Looking Statements. This annual 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, operating results and software delivery
schedules include, without limitation, the impact of competitive products,
pricing, the discovery of undetected errors or software bugs in the Company's
products, subsequent changes in business strategy or plan, the ability of the
Company to overcome recent negative events such as restructurings and reductions
in force, the ability of the Company to recruit and train dealers for the
Platinum SQL product and the ability of the Company to develop a direct sales
force for the Platinum SQL product.
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.
ITEM 2. PROPERTIES
The Company leases approximately 95,000 square feet of office space in
Irvine, California. The leases for the space expire in April 1999. The Company
leases additional facilities and offices, including locations in San Bruno,
California; Oakbrook, Illinois; Newton, Massachusetts; Teaneck, New Jersey;
Dallas, Texas; Atlanta, Georgia; Melbourne and Sydney, Australia; Mississauga,
Canada; Berkshire, England; Dublin, Ireland; Auckland, New Zealand; and Wan
Chai, Hong Kong. The Company believes that its present facilities are sufficient
to accommodate its near-term facilities requirements. The Company continues to
evaluate new sales opportunities on an ongoing basis which may result in the
leasing of additional facilities.
ITEM 3. 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
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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.
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 remained 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.
On June 10, 1996, the Company elected to repay the first $7.5 million
principal installment, plus accrued interest thereon by issuing shares of common
stock and also elected to voluntarily repay the remaining $7.5 million principal
amount of the debenture and accrued interest thereon, by issuing shares of
common stock. The date fixed for the redemption was June 10, 1996. In
satisfaction of the above, the Company issued a total of 1,528,988 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 ten of the twenty days preceding one day prior to
conversion, excluding the closing price on the five highest and five lowest
days.
In May 1994, the Company restated its previously issued financial
results for the quarter and fiscal year ended June 30, 1992, all of the quarters
of fiscal 1993 and the first two quarters of fiscal 1994. Beginning in April
1994, the Securities and Exchange Commission (the "SEC") conducted an
investigation relating to the circumstances underlying the restatement of the
Company's financial results and possibly other matters. On May 9, 1996, the SEC
commenced an administrative proceeding against the Company and certain former
officers of the Company under Section 21C of the Securities and Exchange Act of
1934 ("Exchange Act"). In the order instituting the public proceedings the SEC
found that the Company violated Section 13(a) of the Exchange Act and Rules 13a-
1, 13a-13 and 12b-20 thereunder by disseminating to the public and filing with
the SEC an Annual Report on Form 10-K for the year ended June 30, 1993 and
Quarterly Reports on Form 10-Q for the third quarter of fiscal 1993 and the
first and second quarter of fiscal 1994, that contained materially false and
misleading financial statements, including overstated revenue and net income.
Also, the SEC found that the Company violated Section 13 (b)(2)(B) of the
Exchange Act in that management of the Company did not devise a sufficient
system of internal accounting controls or adequately enforce the control
procedures that were in place. In addition, the SEC found that the former
officers caused violations of Section 10(b) of the Exchange Act and Rule 10b-5
thereunder as well as Section 13(b)(5) of the Exchange Act and Rule 13b2-1
thereunder. The Company, without admitting or denying the SEC's findings,
consented to the entry of an administrative order in which it agreed that it
would cease and desist from committing or causing any
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violation, and committing or causing any future violation of Sections 13(a),
13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and
13a-13 promulgated thereunder. Also, the former officers, without admitting or
denying the SEC's findings, consented to the entry of an administrative order in
which they agreed that they would cease and desist from committing or causing
any violation, and committing or causing any future violation of Sections 10(b)
and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 promulgated
thereunder.
The Company is subject to miscellaneous legal proceedings in the normal
course of business and other legal proceedings related to or arising out of the
fiscal 1994 restructuring, reductions 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, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the year ended June 30, 1996.
PART II
ITEM 5. MARKET VALUE OF THE REGISTRANT'S COMMON STOCK
The Company's Common Stock is traded on the over-the-counter market
(The Nasdaq National Market System) under the symbol PSQL. The following table
sets forth, for the periods indicated, the range of high and low closing sale
prices for the Company's Common Stock.
Fiscal 1995: High Low
1st Quarter $12.250 $5.750
2nd Quarter 14.750 10.375
3rd Quarter 13.000 7.375
4th Quarter 16.500 8.125
Fiscal 1996: High Low
1st Quarter $16.250 $11.125
2nd Quarter 11.250 4.813
3rd Quarter 7.125 3.500
4th Quarter 12.250 6.250
There were approximately 2,397 security holders of record as of
September 10, 1996. The Company has not paid dividends to date and intends to
retain any earnings for use in the business for the foreseeable future.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
included elsewhere herein. The statement of operations data set forth below with
respect to the fiscal years ended June 30, 1994, 1995 and 1996 and the balance
sheet data at June 30, 1995 and 1996 are derived from, and should be read in
conjunction with, the audited Consolidated Financial Statements included
elsewhere herein. The statement of operations data set forth below with respect
to the fiscal years ended June 30, 1992 and 1993, and the balance sheet data at
June 30, 1992, 1993 and 1994 are derived from audited financial statements not
included in this Form 10-K.
In fiscal 1994, the Company restated previously issued financial
results, including the quarter and fiscal year ended June 30, 1992, the
quarterly results throughout fiscal 1993, and the first two quarters of fiscal
1994. The restated financial results primarily reflected revisions in revenue
recognition regarding software licenses, changes in the accounting treatment for
several acquisitions made during the fourth quarter of fiscal 1993 and during
the second quarter of fiscal 1994, and other adjustments and accounting
corrections.
Fiscal Years Ended June 30,
------------------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(in thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees $ 7,022 $ 17,403 $ 30,001 $ 35,723 $ 19,018
Consulting and professional
services - 2,340 10,973 11,520 9,949
Support services 1,373 2,602 5,704 8,384 10,969
Business forms sales 4,757 5,705 6,720 - -
Royalty income 1,883 - - 526 619
-------- -------- -------- -------- --------
Total revenues 15,035 28,050 53,398 56,153 40,555
Cost of revenues 4,651 9,543 25,389 19,846 20,179
-------- -------- -------- -------- --------
Gross profit 10,384 18,507 28,009 36,307 20,376
-------- -------- -------- -------- --------
Operating expenses:
Sales and marketing 5,190 14,430 25,430 19,884 19,322
General and administrative 2,154 2,471 10,065 4,924 14,959
Software development 3,512 7,263 21,805 17,308 13,403
Charge for restructuring - - 6,741 - 5,568
Charge for purchased research
and development - 11,987 3,570 - -
-------- -------- -------- -------- --------
Total operating expenses 10,856 36,151 67,611 42,116 53,252
-------- -------- -------- -------- --------
Loss from operations (472) (17,644) (39,602) (5,809) (32,876)
Charge for settlement of class
action litigation and related
expenses - - (20,000) - -
Other income (expense), net 914(1) 464(2) 347(2) 122(3) (68)(4)
-------- -------- -------- -------- --------
Income (loss) before provision
(benefit) for income taxes 442 (17,180) (59,255) (5,687) (32,944)
Provision (benefit) for income
taxes 121 (9) 290 20 -
-------- -------- -------- -------- --------
Net income (loss) $ 321 $(17,171) $(59,545) $ (5,707) $(32,944)
======== ======== ======== ======== ========
Net income (loss) per share $ 0.04 $ (1.68) $ (4.80) $ (.44) $ (2.23)
======== ======== ======== ======== ========
Weighted average shares 8,373 10,195 12,409 12,835 14,766
======== ======== ======== ======== ========
(1) Amount includes approximately $966,000 of a non-recurring gain associated
with the termination of an agreement with IBM.
(2) Amount represents principally interest income.
(3) Amounts represents principally interest income net of interest expense
associated with the Company's $15,000,000 debenture.
(4) Amounts represents principally interest expense associated with the
Company's $15,000,000 debenture net of interest income.
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June 30,
----------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Working capital (deficit) $ (208) $ 42,262 $(10,231) $ 24,315 $ 3,531
Total assets 6,369 80,635 48,130 65,833 40,002
Current portion of long-term
obligations 1,588 - 6,000 - -
Long-term obligations, less current
portion 104 - 10,000 15,812 -
Stockholders' equity
(deficit) (233) 58,459 1,239 29,965 16,211
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Fiscal 1994 Restructuring Charge
In May 1994, the Company announced a restructuring of its business
operations, including plans to sell certain operations and non-core software
products, with the intent to significantly reduce operating expenses and
minimize the usage of cash. Between May 1994 and March 1996, the Company reduced
its work force through a reduction in force, attrition, as well as the sale and
closure of certain of its operations and products. See "Part I, Item 1 --
Business - Restructurings."
The Company's divestitures resulted in the reduction of annualized
revenues in fiscal 1995 of approximately $13.0 million, with a corresponding
reduction in gross profit of $4.0 million. In addition, annual operating
expenses were reduced by approximately $21.0 million. As part of the
divestitures and asset sales in the restructuring, the Company is entitled to
receive royalties on future sales of product from certain of the purchasers,
which are computed as a percentage of revenues. The Company received $526,000 in
royalty income from divested operations in fiscal 1995, and $619,000 in royalty
income from divested operations in fiscal 1996.
In the fourth quarter of fiscal 1994, the Company recorded a charge of
$6.7 million related to the Company's restructuring. Such amount included
approximately $2.4 million for severance and other extended benefit costs
related to the reduction in force, $2.3 million in lease termination and buyout
costs related to the closure of facilities, $2.1 million in asset write-downs
and other costs. The charge reflected the net effect of estimated proceeds of
operations and products to be divested. During fiscal 1995, the Company paid
approximately $2.3 million for severance, lease termination and other costs
related to the restructuring. Also during 1995, the Company wrote-down accounts
receivable, property and equipment, and other assets related to the
restructuring aggregating $2.4 million. In addition, $1.8 million of excess
proceeds from divestitures over the net book value of assets sold were credited
to the restructuring reserve. At June 30, 1996, the fiscal 1994 restructuring
was substantially complete. At June 30, 1996, the Company had a $173,000 cash
obligation, related to lease termination costs, which is expected to be paid by
June 30, 1997, and will be funded from existing cash resources and working
capital.
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
marketing of the version of its Platinum 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 at the time shifted the focus of its product distribution to third-party
dealers or VARs. The Company also expanded its channel 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 $3.3 million
charge for the restructuring. The restructuring charge included approximately
$1.2 million for severance and other extended benefit costs related to the
reduction in force, $1.2 million for lease termination and buyout costs
18
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related to the closure of facilities and $872,000 in asset write-downs and other
costs. 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 persons. This reduction in force resulted in an additional
restructuring charge of $2.3 million which was recorded in the third quarter of
fiscal 1996. The third quarter restructuring charge included approximately
$300,000 for severance and other extended benefits costs related to the
reduction in force, $625,000 in lease termination and buyout costs related to
the closure of facilities and $1.4 million in asset write-downs and other costs.
The Company estimates that expense savings from the third quarter 1996
restructuring on a quarterly basis, were $900,000. During fiscal 1996, the
Company paid approximately $2.7 million for severance, lease termination and
other costs relating to the fiscal 1994 and fiscal 1996 restructurings. At June
30, 1996, the Company had a $1.7 million cash obligation related to lease
termination and other costs of the fiscal 1996 restructurings and will be funded
from existing cash revenues and working capital.
Fiscal 1994 Restatement
In fiscal 1994, the Company restated previously issued financial
results, including the quarter and fiscal year ended June 30, 1992, the
quarterly results throughout fiscal 1993, and the first two quarters of fiscal
1994. The restated financial results primarily reflected revisions in revenue
recognition regarding software licenses, changes in the accounting treatment for
several acquisitions made during the fourth quarter of fiscal 1993 and during
the second quarter of fiscal 1994, and other adjustments and accounting
corrections.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as
a percentage of total revenues for the periods indicated:
Fiscal Year Ended June 30,
------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Revenues:
License fees ....................... 47% 62% 56% 64% 47%
Consulting and professional services - 8 20 21 25
Support services ................... 9 10 11 14 27
Business forms sales ............... 32 20 13 - -
Royalty income ..................... 12 - - 1 1
---- ---- ---- ---- ----
Total revenues .................... 100 100 100 100 100
Cost of revenues ...................... 31 34 48 35 50
---- ---- ---- ---- ----
Gross profit ...................... 69 66 52 65 50
---- ---- ---- ---- ----
Operating expenses:
Sales and marketing ................ 35 52 48 35 47
General and administrative ......... 14 8 19 9 37
Software development ............... 23 26 41 31 33
Charge for restructuring ........... - - 13 - 14
Charge for purchased research and
development ....................... - 43 6 - -
---- ---- ---- ---- ----
Total operating expenses .......... 72 129 127 75 131
---- ---- ---- ---- ----
Income (loss) from operations ..... (3) (63) (75) (10) (81)
Charge for settlement of class action
litigation and related expenses .... - - (37) - -
Other income, net ..................... 6 2 - - -
---- ---- ---- ---- ----
Income (loss) before provision
(benefit) for income taxes ....... 3 (61) (112) (10) (81)
Provision (benefit) for income taxes .. 1 - - - -
---- ---- ---- ---- ----
Net income (loss) ................. 2% (61)% (112)% (10)% (81)%
==== ==== ==== ==== ====
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COMPARISON OF FISCAL YEAR 1995 TO FISCAL YEAR 1996
Revenues
Revenues were approximately $56,153,000 and $40,555,000 in fiscal years
1995 and 1996, respectively, representing a decrease of approximately 28% in
fiscal 1996.
License fee revenues were $35,723,000 and $19,018,000 for the years
ended June 30, 1995 and 1996, respectively. Included in revenues for the years
ended June 30, 1995 and June 30, 1996, were $8,529,000 and $253,000,
respectively of license fee revenues that were previously deferred as part of
the fiscal 1994 restatement. See "Fiscal 1994 Restatement." Excluding license
fee revenues that were deferred as part of the restatement, license fee revenues
for the Company's Platinum SQL Enterprise product line approximated $11,116,000
for the year ended June 30, 1995 as compared to $2,650,000 for the year ended
June 30, 1996. In October 1995, the Company discontinued the marketing of the
version of its Platinum SQL Enterprise product line that runs on the Sybase/UNIX
server platform because of lack of recent license revenue. The Company generated
license fee revenues of $3,202,000 for the year ended June 30, 1995 as compared
to $7,902,000 for the year ended June 30, 1996 from its Platinum SQL (formerly
named Platinum SQL NT) product line which was first released in the quarter
ended December 31, 1994. Excluding license fee revenues that were deferred as
part of the restatement, revenues for fiscal 1995 and 1996 included license fee
revenues from the Platinum-DOS and Platinum for Windows (first released in the
quarter ended June 30, 1995) products of $9,143,000 and $6,075,000,
respectively. The decrease in revenues was the result of the unavailability of a
complete Windows-based product suite for the entire fiscal 1996 period. The
Company expects to achieve increased Platinum for Windows license fee revenues
subsequent to the roll out of the remaining Windows-based core modules. See
"Business - Certain Considerations - Forward Looking Statements." The Company is
scheduled to release the remaining modules of Platinum for Windows (Purchase
Order, Order Entry and Inventory) during calendar year 1996. See "Business -
Certain Considerations - Forward Looking Statements."
International license fee revenues decreased from $10,984,000 in fiscal
year 1995 to $7,100,000 in fiscal year 1996. The decrease resulted principally
from the discontinuance of the marketing of the version of the Company's
Platinum SQL Enterprise product line, that runs on the Sybase/UNIX platform in
international markets and the elimination of the direct sales force for this
product, both of which occurred in October 1995.
Excluding the revenues from the custom software development division
which was divested in August 1994, consulting and professional services revenues
decreased 7% from $10,736,000 in fiscal year 1995 to $9,949,000 in fiscal year
1996. The decrease was primarily attributable to the involvement of the
consulting and professional services division in providing formal training to
distributors and dealers, and assisting them in transferring expertise gained in
the Platinum SQL Enterprise and Platinum SQL NT implementations over the last
three years. During fiscal 1997, the consulting and professional services
division will focus more of its effort in providing consulting and
implementation services to customers and the Company expects professional
services revenues to increase. See "Business - Certain Considerations - Forward
Looking Statements."
Support services revenue increased 31% from revenues of $8,384,000 in
fiscal year 1995 to $10,969,000 in fiscal year 1996. The increase was primarily
attributable to an overall rise in the installed base of end-users of Platinum
SQL and the increased effort to renew customers on maintenance contracts.
The number of days sales outstanding was 76 days at June 30, 1996 as
compared to 84 at June 30, 1995. The improvement in days sales outstanding was
primarily attributable to the termination of 90 day credit terms given to
Platinum SQL dealers and to additional receivable reserves provided.
Gross Profit
Gross profit decreased 44% from $36,307,000 in fiscal year 1995 to
$20,376,000 in fiscal year 1996 and decreased as a percentage of revenues from
65% to 50%, respectively. The decreases in gross profit and the gross profit
percentage are due to lower license revenues as a percentage of total revenues,
which have higher margins than consulting and professional services and support
services revenues.
20
21
Operating Expenses
Total operating expenses increased from $42,116,000 for fiscal year
1995 to $47,684,000 for fiscal year 1996, excluding the one time charges for the
restructurings. The increase was due to the provision of additional reserves for
accounts receivable arising from Platinum SQL sales to third party dealers,
relocation costs associated with the hiring of new senior management executives,
write-down of property and equipment and reserves provided for notes receivable
from divestitures. 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 were 75% and 118% for the years
ended June 30, 1995 and 1996, respectively (excluding the one time charges for
the restructurings).
Sales and marketing expenses were approximately $19,884,000 and
$19,322,000 in fiscal years 1995 and 1996, respectively, or approximately 35%
and 47% of total revenues. The decrease in the dollar amount of sales and
marketing expenses was due to cost savings achieved from the termination of the
direct sales force in October 1995. In the fourth quarter of fiscal 1996, the
Company re-established a smaller direct sales force for its Platinum SQL product
and expects sales and marketing expenditures to increase in fiscal 1997. See
"Business - Certain Considerations - Forward Looking Statements."
General and administrative expenses were approximately $4,924,000 and
$14,959,000 in fiscal years 1995 and 1996, respectively, or approximately 9% and
37% of total revenues. The increase was primarily the result of the provision of
additional reserves of approximately $1,636,000 for accounts receivable arising
from Platinum SQL sales to third party dealers, the provision of additional
reserves of approximately $1,292,000 relating to accounts receivable from
Platinum SQL Enterprise customers, relocation costs of approximately $1,590,000
associated with the hiring of new senior management executives, write-down of
approximately $500,000 of property and equipment and reserves of approximately
$2,941,000 provided for notes receivable from divestitures.
Software development expenses were approximately $17,916,000 and
$13,774,000 in fiscal years 1995 and 1996, respectively, before capitalization
of software costs of approximately $608,000 and $371,000. The decrease in the
amount of software development expenses was due to personnel reductions. 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
remained constant at 3% in fiscal years 1995 and 1996 because of a lower
development level related to products that have reached technological
feasibility but have not been released for general availability. The Company
expects that gross development expenditures for fiscal 1997 will decrease. See
"Business - Certain Considerations - 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 marketing 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 restructuring
resulted in a charge of $3.3 million which was recorded in the second quarter of
fiscal 1996. 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 people. This
reduction in force resulted in an additional restructuring charge of $2.3
million which was recorded in the third quarter of fiscal 1996. The Company
estimates that expense savings from the third quarter 1996 restructuring, on a
quarterly basis, to be approximately $900,000. Such charges include expenses
related to work force reductions, severance costs, lease termination costs,
property and equipment write-downs, and other costs.
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22
Other Income (Expense)
Other income (expense) was approximately $122,000 and $(68,000) in
fiscal years 1995 and 1996, respectively. Other income (expense) primarily
represented interest earned on proceeds from the Company's cash net of interest
expense of $812,000 in fiscal 1995 and $1,236,000 in fiscal 1996 on the
Company's $15,000,000 debenture.
Provision for Income Taxes
The provision for income taxes was approximately $20,000 and $0 in
fiscal years 1995 and 1996, respectively. The effective tax rates during these
periods were 0% for each year. The effective tax rates were lower than the
statutory federal income tax rate of 34%, primarily due to the inability to
record benefits from current net operating losses. As of June 30, 1996, the
Company had provided a valuation allowance of approximately $38,620,000 because
realization of the Company's net deferred tax asset is not assured due to the
historical losses incurred by the Company, and the uncertainty as to profits in
the future. Any realization of the Company's net deferred tax asset will reduce
the Company's effective tax rate in future periods.
COMPARISON OF FISCAL YEAR 1994 TO FISCAL YEAR 1995
Revenues
Revenues were approximately $53,398,000 and $56,153,000 in fiscal years
1994 and 1995, respectively, representing an increase of approximately 5% in
fiscal 1995. Effective June 30, 1994 the Company sold its business forms
division. As a result, during the year ended June 30, 1995, the Company realized
no revenues from sales of business forms, as compared to revenues of $6,720,000
for the year ended June 30, 1994. Effective August 31, 1994, the Company sold
its custom software development division. As a result, the Company realized
revenues of $784,000 from custom software development for the year ended June
30, 1995 as compared to revenues of $2,598,000 for the year ended June 30, 1994.
Also, effective October 31, 1994, the Company sold the rights to its Platinum
Advanced Manufacturing System software application. As a result, the Company
realized revenues of $184,000 for the license of such software for the year
ended June 30, 1995, as compared to revenues of $1,257,000 for the year ended
June 30, 1994. See "Overview." Excluding the revenues of the business forms and
custom software development divisions and from the licenses of the Platinum
Advanced Manufacturing System software application, revenues for the year ended
June 30, 1995 increased $12,362,000 or 29% from the year ended June 30, 1994.
License fee revenues were $30,001,000 and $35,723,000 for the years
ended June 30, 1994 and 1995, respectively. Included in revenues for the year
ended June 30, 1995, were $8,529,000 of license fee revenues that were
previously deferred as part of the fiscal 1994 restatement. See "Fiscal 1994
Restatement." Excluding license fee revenues that were deferred as part of the
restatement, license fee revenues for the Company's Platinum SQL Enterprise
product line approximated $9,298,000 for the year ended June 30, 1994 as
compared to $11,116,000 for the year ended June 30, 1995. The increase primarily
resulted from an increased number of generally available modules of Platinum SQL
Enterprise which, in turn, resulted in a greater number of licenses for which
revenue was currently recognized. For fiscal 1995, the Company generated license
fee revenue of $3,202,000 from its Platinum SQL NT product line (which has been
renamed Platinum SQL) which was first released in the quarter ended December 31,
1994. The Company attributes the growth in revenue from the Platinum SQL NT
product, in part, to the 90 day payment terms offered to Platinum SQL NT dealers
as part of an effort to recruit new dealers and encourage them to invest in the
start-up cost of a new product. Excluding license fee revenues that were
deferred as part of the restatement, revenues for fiscal 1994 and 1995 included
license fee revenue from the Platinum-DOS and Platinum for Windows (first
released in the quarter ended June 30, 1995) products of $15,188,000 and
$9,143,000, respectively. The decrease in revenues was the result of the
unavailability of a complete Windows based product suite for all of fiscal 1995.
International license fee revenue increased from $9,670,000 in fiscal
year 1994 to $10,984,000 in fiscal year 1995. This increase resulted from the
increases in international sales of Platinum SQL Enterprise as well as the
increases in sales of the Platinum-DOS based product in Asia-Pacific markets.
22
23
Excluding the revenues from the custom software development division,
consulting and professional services income increased 28% from $8,375,000 in
fiscal year 1994 to $10,736,000 in fiscal year 1995. The increase was primarily
attributable to an increase in software implementation services provided by the
Company in connection with licenses of Platinum SQL Enterprise.
Support services revenue increased 47% from revenues of $5,704,000 in
fiscal year 1994 to $8,384,000 in fiscal year 1995. The increase was primarily
attributable to an overall rise in the installed base of end-users of Platinum
SQL Enterprise.
Gross Profit
Gross profit increased 30% from $28,009,000 in fiscal year 1994 to
$36,307,000 in fiscal year 1995 and gross profit increased as a percentage of
revenues from 52% to 65%, respectively. The increases in gross profit and the
gross profit percentage are due to higher license revenues as a percentage of
total revenues, which have higher margins than consulting and professional
services and support services revenues, as well as due to the sale of the
business forms and custom software development divisions, which had lower gross
profit margins.
Operating Expenses
Total operating expenses decreased from $57,300,000 for fiscal year
1994 to $42,116,000 for fiscal year 1995, excluding the one time charges for the
restructuring and purchased research and development. The decrease primarily
occurred because of cost savings from the restructuring, which resulted from
personnel reductions, divested operations and the consolidation of the Company's
development function in Irvine, California. The decrease was offset in part due
to additional resources hired for Platinum SQL Enterprise and Platinum SQL NT
development projects and $1,792,000 in lower capitalized development costs.
Total operating expenses as a percentage of revenues were 108% and 75% for the
years ended June 30, 1994 and 1995, respectively (excluding the one time charges
for the restructuring and the purchased research and development).
Sales and marketing expenses were approximately $25,430,000 and
$19,884,000 in fiscal years 1994 and 1995, respectively or approximately 48% and
35% of total revenues. The decrease resulted from the elimination of the
indirect sales force for the Platinum-DOS product line and the reduction in the
sales force achieved through the sale of the business forms division, Latin
America operations and Platinum Advanced Manufacturing System product line and
the closing of certain other operations.
General and administrative expenses were approximately $10,065,000 and
$4,924,000 in fiscal years 1994 and 1995, respectively or approximately 19% and
9% of total revenues. The decrease was primarily the result of the Company
reducing personnel, lease and other costs in the restructuring.
Software development expenses were approximately $24,205,000 and
$17,916,000 in fiscal years 1994 and 1995, respectively, before capitalization
of software costs of approximately $2,400,000 and $608,000. The decrease in the
amount of software development expenses was due to personnel cuts, reduction in
lease and other costs, and other cost savings in the restructuring, offset in
part by additional resources hired for Platinum SQL Enterprise and Platinum SQL
NT development projects. 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 decreased from 10% in fiscal 1994 to 3% in fiscal
1995 as a result of a lower development level related to products that have
reached technological feasibility but have not been released for general
availability.
Other Income (Expense)
Other income was approximately $347,000 and $122,000 in fiscal years
1994 and 1995, respectively. Other income primarily represented interest earned
on proceeds from the Company's cash net of interest expense of $812,000 in
fiscal 1995 on the Company's $15,000,000 debenture.
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24
Provision for Income Taxes
The provision for income taxes was approximately $290,000 and $20,000
in fiscal years 1994 and 1995, respectively. The effective tax rates during
these periods were approximately 0% for each year. The effective tax rates were
lower than the statutory federal income tax rate of 34%, primarily due to the
inability to record benefits from current net operating losses. As of June 30,
1995, the Company had provided a valuation allowance of approximately
$27,785,000 because realization of the Company's net deferred tax asset is not
assured due to the historical losses incurred by the Company, and the
uncertainty as to profits in the future. Any realization of the Company's net
deferred tax asset will reduce the Company's effective tax rate in future
periods.
INFLATION AND FOREIGN CURRENCY EXCHANGE
Inflation has not had a significant impact on the Company's operating
results to date, nor does the Company expect it to have a significant impact in
fiscal year 1997. See "Business - Certain Considerations - Forward Looking
Statements." The Company's foreign revenues are substantially all denominated in
the country's respective local currency. The Company's results of operations of
its international subsidiaries are impacted by foreign currency fluctuations.
Significant fluctuation in currency values could have an adverse effect on the
Company's consolidated net revenues, gross margin and profitability.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company's principal sources of liquidity
included cash and cash equivalents of approximately $5,402,000. Cash and cash
equivalents decreased by approximately $15,869,000 over the June 30, 1995
balance primarily due to cash used in operations and the purchase of short-term
investments. The Company had working capital of $24,315,000 at June 30, 1995
versus working capital of $3,531,000 at June 30, 1996. The decrease is primarily
attributable to cash used in operations as well as additional reserves provided
for accounts receivable.
The Company's operations used approximately $9,942,000 of cash and cash
equivalents in the year ended June 30, 1996. Included in the use of cash and
cash equivalents from operations was the investment of approximately $13,774,000
in software development.
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 $1,016,000 during the year ended June 30,
1996. The Company also paid approximately $2,683,000 in severance, lease and
other costs related to the fiscal 1994 and fiscal 1996 restructurings during the
year ended June 30, 1996.
The Company has taken steps to significantly reduce its operating
expenses, through the reduction in work force, as well as the disposition of
several business units that were not within the Company's core financial
software application business. 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 additional business units.
The Company experienced negative cash flow from operations for the
first nine months of fiscal 1996 and positive cash flow from operations during
the fourth quarter of fiscal 1996. The Company expects to be cash flow positive
from operations commencing the second quarter of fiscal 1997. See "Business -
Certain Considerations - Forward Looking Statements." 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data of the Company required
by this Item are set forth at the pages indicated at Item 14(a)(1).
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes or disagreements with respect to the Company's
independent accountants during fiscal 1996.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required hereunder is incorporated by reference from
the sections of the Company's Proxy Statement filed in connection with its
October 24, 1996 Annual Meeting of Stockholders entitled "Nominees", "Series B
Preferred Directors" and "Other Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required hereunder is incorporated by reference from
the sections of the Company's Proxy Statement filed in connection with its
October 24, 1996 Annual Meeting of Stockholders entitled "Executive
Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required hereunder is incorporated by reference from
the sections of the Company's Proxy Statement filed in connection with its
October 24, 1996 Annual Meeting of Stockholders entitled "Principal
Stockholders."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required hereunder is incorporated by reference from
the sections of the Company's Proxy Statement filed in connection with its
October 24, 1996 Annual Meeting of Stockholders entitled "Executive
Compensation" and "Compensation Committee Interlocks and Insider Participation."
25
26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
Index to Financial Statements
Page
----
Report of Independent Auditors........................................................................ 32
Consolidated Balance Sheets as of June 30, 1995 and 1996.............................................. 33
Consolidated Statements of Operations for the years ended June 30, 1994, 1995 and 1996. .............. 34
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1994, 1995 and 1996. .... 35
Consolidated Statements of Cash Flows for the years ended June 30, 1994, 1995 and 1996. .............. 36
Notes to Consolidated Financial Statements............................................................ 37
(2) Financial Statement Schedules
Index to Financial Statement Schedules
Report of Independent Auditors........................................................................ 50
Schedule II - Valuation and Qualifying Accounts....................................................... 51
All other schedules are omitted because they are not required or the
required information is included in the consolidated financial statements or
notes thereto.
26
27
(3) Exhibits
Index to Exhibits
Exhibit No. Description Location
3.1 Second Restated Certificate of Incorporation of the Company. (1)
3.2 Certificate of Amendment to Second Restated Certificate of Incorporation of the Company (6)
3.3 Amended and Restated Bylaws of the Company, as currently in effect.
3.6 Specimen Certificate of Common Stock. (2)
4.1 Certificate of Designation of Rights, Preferences and Privileges of Series A Junior (4)
Participating Preferred Stock
4.2 Certificate of Designation of Preferences of Series B Preferred Stock (5)
4.3 Certificate of Designation of Preferences of Series C Preferred Stock (6)
4.4 Amended and Restated 8% Convertible, Exchangeable Subordinated Security in the
Principal Amount of $15,000,000 dated May 8, 1996
10.1 Platinum Software Corporation Incentive Stock Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan - 1990 (the "1990 Plan"). (2)
10.2 Form of Incentive Option Agreement pertaining to the 1990 Plan. (2)
10.3 Form of Nonqualified Stock Option Agreement pertaining to the 1990 Plan. (2)
10.4 Form of Restricted Share Agreement pertaining to the Plan. (2)
10.5 Form of Indemnification Agreement for Officers and Directors of the Company. (2)
10.6 Platinum Software Corporation Employee Stock Purchase Plan, as amended. (2)
10.7 Employment Agreement, dated September 30, 1988, between the Company and Timothy
J. McMullen, together with an amendment dated August 26, 1992 thereto. (2)
10.8 Employment Agreement, dated September 30, 1988, between the Company and Kevin P.
Riegelsberger, together with an amendment dated August 26, 1992 thereto. (2)
10.10 1993 Nonqualified Stock Option Plan (3)
10.11 Form of Nonqualified Stock Option Agreement pertaining to the 1993 Nonqualified Stock (3)
Option Plan.
10.12 1994 Incentive Stock Option, Non-qualified Stock Option and Restricted Stock Purchase (5)
Plan.
10.13 Form of Non-qualified Stock Option Agreement pertaining to the 1994 Plan. (5)
10.15 Agreement of Purchase and Sale of Assets dated as of June 30, 1994, between the
Company and Altec Forms, Inc. (excluding disclosure schedules) (5)
10.16 Agreement of Purchase and Sale of Assets dated as of June 30, 1994, between the
Company and MLDV Acquisition Co. (excluding disclosure schedules) (5)
10.17 Agreement of Purchase and Sale of Assets dated as of June 30, 1994, between the
Company and FRC Consulting, Inc. (excluding disclosure schedules) (5)
10.18 Agreement of Purchase and Sale of Assets dated as of June 30, 1994, between the
Company and Platinum Latin America-Caribbean, Inc. (excluding disclosure schedules) (5)
10.24 Agreement of Purchase and Sale of Assets dated October 31, 1994 between the Company
and Westwood & Best Software Corporation (excluding disclosure schedules) (6)
10.25 Agreement of Purchase and Sale of Assets dated August 31, 1994 between the Company
and Perot Systems Corporation (excluding disclosure schedules) (6)
10.26 Agreement of Purchase and Sale of Assets dated March 22, 1995 between the Company
and Baker Software Products Corporation (excluding disclosure schedules) (6)
10.27 Agreement for Transfer of Software and Mutual Release dated July 22, 1994 between the
Company, Michael Rohan and Financial Reporting Technology, Inc. (6)
10.28 Stock Purchase Agreement dated September 22, 1994 between the Company and the
Series B Preferred Stock Investors (6)
10.29 Registration Rights Agreement dated September 22, 1994 between the Company and the
Series B Preferred Stock Investors (6)
10.30 Amendment to Stock Purchase Agreement dated May 26, 1995 between the Company and
the Series C Preferred Stock Investors (6)
10.31 Amendment to Registration Rights Agreement dated May 26, 1995 between the Company
and the Series C Preferred Stock Investors (6)
10.32 Stipulation for Partial Settlement of In Re Platinum Securities Litigation, dated July 14,
1994 (6)
10.33 Employment Offer letter with L. George Klaus dated February 7, 1996. (7)
27
28
10.34 Restricted Stock Purchase Agreement between the Company and L. George Klaus dated as
of February 7, 1996. (7)
10.35 Employment Offer letter with William L. Pieser dated February 7, 1996. (7)
10.36 Restricted Stock Purchase Agreement between the Company and William L. Pieser dated
as of February 7, 1996. (7)
10.37 Agreement between the Company and Michael J. Simmons dated February 8, 1996. (7)
10.38 Agreement between the Company and Carmelo J. Santoro dated February 8, 1996. (7)
10.39 Agreement between the Company and Bruce C. Edwards dated February 8, 1996. (7)
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). (7)
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). (7)
10.42 Employment Offer letter with Ken Lally dated as of April 1, 1996 (7)
10.43 Restricted Stock Purchase Agreement between the Company and Ken Lally dated as of
April 10, 1996. (7)
22.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney (included on the signature page of this Annual Report on Form 10-K)
27 Financial Data Schedule
Executive Compensation Plans and Arrangements
Exhibit No. Description Location
10.1 1990 Plan (2)
10.2 Form of Incentive Option Agreement pertaining to the 1990 Plan. (2)
10.3 Form of Nonqualified Stock Option Agreement pertaining to the 1990 Plan. (2)
10.4 Form of Restricted Share Agreement pertaining to the 1990 Plan. (2)
10.7 Employment Agreement dated September 30, 1988 between the Company and Timothy J.
McMullen, together with an amendment dated August 26, 1992 thereto. (2)
10.8 Employment Agreement dated September 30, 1988 between the Company and Kevin P.
Riegelsberger, together with an amendment dated August 26, 1992 thereto. (2)
10.10 1993 Nonqualified Stock Option Plan (3)
10.11 Form of Nonqualified Stock Option Agreement pertaining to the 1993 Nonqualified Stock
Option Plan. (3)
10.12 1994 Incentive Stock Option, Non-qualified Stock Option and Restricted Stock Purchase
Plan. (5)
10.13 Form of Non-qualified Stock Option Agreement pertaining to the 1994 Plan. (5)
10.33 Employment Offer letter with L. George Klaus dated February 7, 1996. (7)
10.34 Restricted Stock Purchase Agreement between the Company and L. George Klaus dated as
of February 7, 1996. (7)
10.35 Employment Offer letter with William L. Pieser dated February 7, 1996. (7)
10.36 Restricted Stock Purchase Agreement between the Company and William L. Pieser dated
as of February 7, 1996. (7)
10.37 Agreement between the Company and Michael J. Simmons dated February 8, 1996. (7)
10.38 Agreement between the Company and Carmelo J. Santoro dated February 8, 1996. (7)
10.39 Agreement between the Company and Bruce C. Edwards dated February 8, 1996. (7)
10.42 Employment offer letter with Ken Lally dated as of April 1, 1996 (7)
10.43 Restricted Stock Purchase Agreement between the Company and Ken Lally dated as of (7)
April 10, 1996.
(1) Incorporated by reference to the referenced exhibit number to the Company's
Registration Statement on Form S-1, Reg. No. 33-57294.
(2) Incorporated by reference to the referenced exhibit number to the Company's
Registration Statement on Form S-1, Reg. No. 33-51566.
28
29
(3) Incorporated by reference to the referenced exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1993.
(4) Incorporated by reference to the referenced exhibit to the Company's
Registration Statement on Form 8-A, dated April 14, 1994.
(5) Incorporated by reference to the referenced exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994.
(6) Incorporated by reference to the referenced exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995.
(7) Incorporated by reference to the referenced exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
(b) Reports on Form 8-K.
The Company filed a current report on Form 8-K dated April 29, 1996 to
report under Item 5, Other Events, the Company's results for the
quarter ended March 31, 1996. In addition, the Company filed a current
report on Form 8-K, dated June 10, 1996, to report under Item 5, Other
Events, the election to repay the $15,000,000 principal amount
debenture issued in settlement of the class action securities
litigation.
The following trademarks may be mentioned in the foregoing Annual Report on Form
10-K: Platinum, and SeQueL to Platinum. Platinum and SeQueL to Platinum are
registered trademarks of the Company. All other product names are trademarks or
registered trademarks of their respective companies.
29
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the
City of Irvine, State of California, on September 20, 1996.
PLATINUM SOFTWARE CORPORATION
By: /s/ L. George Klaus
------------------------------------------
L. George Klaus
President, Chief Executive Officer and
Chairman of the Board
POWER OF ATTORNEY
We, the undersigned directors and officers of Platinum Software
Corporation, do hereby constitute and appoint L. George Klaus our true and
lawful attorney and agent, with full power of substitution to do any and all
acts and things in our name and behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorney and agent may deem necessary or
advisable to enable said corporation to comply with the Securities Exchange Act
of 1934, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Annual Report on
Form 10-K, including specifically but without limitation, power and authority to
sign for us or any of us in our names in the capacities indicated below, any and
all amendments (including post-effective amendments) hereto; and we do hereby
ratify and confirm all that said attorney and agent, shall do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ L. George Klaus President, Chief Executive Officer
- ---------------------------------- and Chairman of the Board
L. George Klaus (Principal Executive Officer) September 20, 1996
/s/ Michael J. Simmons
- ---------------------------------- Chief Financial Officer
Michael J. Simmons (Principal Financial Officer) September 20, 1996
/s/ Paul G. Mazzarella
- ---------------------------------- Corporate Controller
Paul G. Mazzarella (Principal Accounting Officer) September 20, 1996
Director
- ----------------------------------
Carmelo J. Santoro
/s/ W. Douglas Hajjar Director September 20, 1996
- ----------------------------------
W. Douglas Hajjar
/s/ Richard J. Goeglein Director September 20, 1996
- ----------------------------------
Richard J. Goeglein
Director
- ----------------------------------
Charles V. Prothro
Director
- ----------------------------------
Waldo (Jay) J. Richards
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31
SIGNATURE Title Date
Director
- ----------------------------------
L. John Doerr
/s/ Arthur J. Marks Director September 20, 1996
- ----------------------------------
Arthur J. Marks
/s/ Robert Finzi Director September 20, 1996
- ----------------------------------
Robert Finzi
/s/ Donald R. Dixon Director September 20, 1996
- ----------------------------------
Donald R. Dixon
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32
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Platinum Software Corporation
We have audited the accompanying consolidated balance sheets of Platinum
Software Corporation as of June 30, 1995 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Platinum Software
Corporation as of June 30, 1995 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Orange County, California
July 29, 1996
32
33
PLATINUM SOFTWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
June 30,
1995 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 21,272 $ 5,402
Short-term investments 5,004 10,098
Restricted cash 476 1,006
Accounts receivable, net of allowance for doubtful accounts
of $4,860 and $9,123 at June 30, 1995 and 1996, respectively 14,205 7,893
Notes receivable from divestitures, net 957 825
Inventories 672 460
Prepaid expenses and other 1,785 1,638
--------- ---------
Total current assets 44,371 27,322
Property and equipment, net 11,961 8,896
Notes receivable from divestitures, net 3,534 --
Software development costs, net of accumulated amortization
of $1,602 and $2,544 at June 30, 1995 and 1996, respectively 3,000 2,250
Acquired source code, net of accumulated amortization of
of $1,849 and $2,740 at June 30, 1995 and 1996, respectively 2,403 1,088
Non-competition agreements, net of accumulated amortization of
of $23 and $28 at June 30, 1995 and 1996, respectively 27 --
Other assets 537 446
--------- ---------
$ 65,833 $ 40,002
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,920 $ 3,436
Other accrued expenses 5,964 6,019
Accrued restructuring costs 1,192 1,921
Accrued relocation costs -- 1,503
Deferred revenue 8,980 10,912
--------- ---------
Total current liabilities 20,056 23,791
--------- ---------
Long-term portion of class action settlement 15,812 --
--------- ---------
Commitments and Contingencies (Notes 4 and 5)
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares authorized:
Series A preferred stock, none issued and outstanding at
June 30, 1995 and 1996 -- --
Series B preferred stock, none and 2,490,000 shares issued and
outstanding at June 30, 1995 and 1996, respectively 13,770 13,770
Series C preferred stock, none and 231,598 shares issued and
outstanding at June 30, 1995 and 1996, respectively 18,226 18,226
Common stock, $.001 par value: 60,000,000 shares authorized,
13,176,255 and 18,109,442 shares issued and outstanding
at June 30, 1995 and 1996, respectively 13 18
Additional paid-in capital 80,391 111,194
Less: notes receivable from officers for issuance of restricted stock -- (11,563)
Accumulated foreign currency translation adjustments 304 249
Accumulated deficit (82,739) (115,683)
--------- ---------
Total stockholders' equity 29,965 16,211
--------- ---------
$ 65,833 $ 40,002
========= =========
The accompanying notes are an integral part of these consolidated balance
sheets.
33
34
PLATINUM SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Years Ended June 30,
1994 1995 1996
-------- -------- --------
Revenues:
License fees $ 30,001 $ 35,723 $ 19,018
Consulting and professional services 10,973 11,520 9,949
Support services 5,704 8,384 10,969
Business forms sales 6,720 -- --
Royalty income -- 526 619
-------- -------- --------
53,398 56,153 40,555
-------- -------- --------
Cost of revenues:
Cost of license fees 4,843 4,250 3,697
Cost of consulting and professional services 12,967 10,964 10,742
Cost of support services 3,775 4,632 5,740
Cost of business forms sales 3,804 -- --
-------- -------- --------
25,389 19,846 20,179
-------- -------- --------
Gross profit 28,009 36,307 20,376
-------- -------- --------
Operating expenses:
Sales and marketing 25,430 19,884 19,322
General and administrative 10,065 4,924 14,959
Software development 21,805 17,308 13,403
Charge for restructuring 6,741 -- 5,568
Charge for purchased research and development 3,570 -- --
-------- -------- --------
67,611 42,116 53,252
-------- -------- --------
Loss from operations (39,602) (5,809) (32,876)
-------- -------- --------
Other income (expense):
Charge for settlement of class action litigation and related expenses (20,000) -- --
Interest income 650 1,027 949
Interest expense (31) (711) (1,281)
Other income (expense), net (272) (194) 264
-------- -------- --------
(19,653) 122 (68)
-------- -------- --------
Loss before provision for income taxes (59,255) (5,687) (32,944)
Provision for income taxes 290 20 --
-------- -------- --------
Net loss $(59,545) $ (5,707) $(32,944)
======== ======== ========
Net loss per share $ (4.80) $ (0.44) $ (2.23)
======== ======== ========
Shares used in computing net loss per share 12,409 12,835 14,766
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
34
35
PLATINUM SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Stock Common Stock
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ---------- ------
Balance, June 30, 1993 - $ - - $ - - $ - 12,239,342 $12
Net loss - - - - - - - -
Foreign currency translation
adjustments - - - - - - - -
Exercise of warrants - - - - - - 137,361 -
Employee stock purchases - - - - - - 62,325 -
Exercise of stock options - - - - - - 45,223 -
------ ------ ----------- ------ ------- ---------- ---------- ------
Balance, June 30, 1994 - - - - - - 12,484,251 12
Net loss - - - - - - - -
Foreign currency translation
adjustments - - - - - - - -
Issuance of preferred stock - - 2,490,000 13,770 231,598 $18,226.00 - -
Exercise of warrants - - - - - - 173,000 -
Employee stock purchases - - - - - - 62,774 -
Exercise of stock options - - - - - - 456,230 1
------ ------ ----------- ------ ------- ---------- ---------- ------
Balance, June 30, 1995 - - 2,490,000 13,770 231,598 $18,226.00 13,176,255 13
Net loss - - - - - - - -
Foreign currency translation
adjustments - - - - - - - -
Issuance of restricted stock - - - - - - 2,950,000 3
Conversion of debenture - - - - - - 1,528,988 2
Exercise of warrants - - - - - - 60,750 -
Employee stock purchases - - - - - - 47,711 -
Exercise of stock options - - - - - - 345,738 -
------ ------ ----------- ------- ------ ---------- ---------- ------
Balance, June 30, 1996 - $ - 2,490,000 $13,770 231,598 $18,226.00 18,109,442 $18
====== ====== =========== ======= ======= ========== ========== ======
PLATINUM SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Accumulated
Notes Foreign
Additional Receivable Currency Total
Paid-in from Translation Accumulated Stockholders'
Capital Officers Adjustments Deficit Equity (Deficit)
--------- -------- ----------- ----------- ---------------
Balance, June 30, 1993 $ 76,000 $ - $(66) $ (17,487) $ 58,459
Net loss - - - (59,545) (59,545)
Foreign currency translation -
adjustments - - 419 - 419
Exercise of warrants 1,336 - - - 1,336
Employee stock purchases 454 - - - 454
Exercise of stock options 116 - - - 116
------- -------- ----- ---------- ---------
Balance, June 30, 1994 77,906 - 353 (77,032) 1,239
Net loss - - (5,707) (5,707)
Foreign currency translation
adjustments - (49) - (49)
Issuance of preferred stock - - - 31,996
Exercise of warrants 721 - - 721
Employee stock purchases 316 - - 316
Exercise of stock options 1,448 - - 1,449
------- -------- ----- ---------- ---------
Balance, June 30, 1995 80,391 304 (82,739) 29,965
Net loss - - - (32,944) (32,944)
Foreign currency translation
adjustments - - (55) - (55)
Issuance of restricted stock 11,560 (11,563) - - -
Conversion of debenture 17,046 - - - 17,048
Exercise of warrants 244 - - - 244
Employee stock purchases 269 - - - 269
Exercise of stock options 1,684 - - - 1,684
------- -------- ----- ---------- ---------
Balance, June 30, 1996 $111,194 $(11,563) $249 $(115,683) $ 16,211
======== ======== ==== ========= =========
The accompanying notes are an integral part of these consolidated statements.
35
36
PLATINUM SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Years Ended June 30,
1994 1995 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(59,545) $ (5,707) $(32,944)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 5,503 5,488 6,218
Provision for doubtful accounts receivable 2,428 2,621 6,606
Provision for doubtful notes receivable from divestitures -- -- 2,940
Interest income on notes receivable from divestitures -- (508) --
Interest expense on debenture issued in connection with
class action settlement -- 812 1,236
Charge for settlement of class action litigation and related expenses 20,000 -- --
Charge for restructuring 6,741 -- 5,568
Charge for purchased research and development 3,570 -- --
Change in operating assets and liabilities:
Increase in accounts receivable (1,478) (6,636) (920)
Decrease in inventories 145 314 212
(Increase) decrease in prepaid expenses and other (1,107) (57) 79
(Increase) decrease in other assets (56) (228) 91
Increase (decrease) in accounts payable 499 10 (484)
Increase (decrease) in other accrued expenses 662 (3,485) 205
Increase in accrued relocation costs -- -- 1,503
Increase (decrease) in deferred revenue 3,437 (4,592) 2,431
Decrease in accrued restructuring costs -- (2,330) (2,683)
-------- -------- --------
Cash used in operating activities (19,201) (14,298) (9,942)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10,441) (3,275) (2,519)
Capitalized software development costs (2,400) (608) (371)
Purchase of short-term investments -- (5,004) (13,192)
Sale of short-term investments -- -- 8,099
Payments received on notes receivable from divestitures -- 2,763 1,016
Increase in notes receivable from divestitures -- -- (209)
Acquisition of businesses, net of cash acquired (8,683) -- --
-------- -------- --------
Cash used in investing activities (21,524) (6,124) (7,176)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of preferred stock -- 31,996 --
Exercise of stock options 116 1,392 1,378
Exercise of warrants 1,336 721 186
Employee stock purchases 454 316 269
Payment on class action litigation (1,000) (1,000) --
(Increase) decrease in restricted cash 583 (21) (530)
-------- -------- --------
Cash provided by financing activities 1,489 33,404 1,303
-------- -------- --------
EFFECT OF EXCHANGE RATES ON CASH 376 (56) (55)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (38,860) 12,926 (15,870)
CASH AND CASH EQUIVALENTS, beginning of the year 47,206 8,346 21,272
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of the year $ 8,346 $ 21,272 $ 5,402
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
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37
PLATINUM SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Company Operations and Basis of Presentation
Platinum Software Corporation, a Delaware corporation, and its
subsidiaries design, develop, market and support a broad range of integrated
financial applications software products for use by businesses of all sizes
worldwide. The consolidated financial statements include the accounts of
Platinum Software Corporation and all of its subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
The term "Company" used herein means Platinum Software Corporation and its
subsidiaries, unless otherwise indicated by the context.
b. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual amounts could differ from these estimates.
c. Short-term Investments
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," ("Statement 115") for investments held as of or acquired
after January 1, 1994. In accordance with Statement 115, prior period financial
statements have not been restated to reflect the change in accounting principle.
There was no cumulative effect of adopting Statement 115.
Under Statement 115, management determines the appropriate
classification of debt securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Debt securities that the Company has
both the positive intent and ability to hold to maturity are carried at
amortized cost. Debt securities that the Company does not have the positive
intent and ability to hold to maturity are classified as available-for-sale and
carried at fair value. Realized and unrealized holding gains and losses on
securities classified as available-for-sale are not material.
The Company classifies its short-term investments as
available-for-sale securities and carries them at their fair market value. In
1996, short-term investments consisted of debt securities with interest rates
ranging from 5.70% to 10.25%. At June 30, 1995 and 1996, short-term investments
are as follows:
Cost Gross Unrealized Losses Estimated Fair Value
(in thousands)
June 30, 1995:
Corporate debt securities $5,009 $5 $5,004
------ -- ------
June 30, 1996:
Corporate debt securities $10,175 $77 $10,098
------- --- -------
d. 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
37
38
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 recognized 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.
e. Product Returns
The Company permits dealers and other software distributors to
return certain products which were returned by the end-user customers. The
Company establishes reserves for such estimated product returns. Such product
return reserve is included within the allowance for doubtful accounts and was
$160,000 and $640,000 at June 30, 1995 and 1996, respectively.
f. Inventories
The Company's inventories consist of software modules in diskette
and CD-ROM form ready for shipment, and manuals, and are stated at the lower of
cost (first-in, first-out) or market.
g. Property and Equipment
The following summarizes the components of property and equipment,
at cost, as of June 30, 1995 and 1996:
1995 1996
------- -------
(in thousands)
Computer equipment $16,610 $16,823
Furniture and fixtures 3,072 3,091
Leasehold improvements 970 1,009
------- --------
20,652 20,923
Accumulated depreciation and amortization (8,691) (12,027)
-------- --------
$11,961 $ 8,896
======== ========
Depreciation is computed under the straight-line method over the
estimated useful lives of the assets ranging from three to five years.
Maintenance and repairs are charged to expense as incurred and the costs of
additions and betterments that increase the useful lives of the assets are
capitalized.
h. Software Development Costs
Software development costs incurred subsequent to the determination
of technological feasibility and marketability of a software product are
capitalized. Amortization of capitalized software development costs commences
when the products are available for general release to customers over the
expected useful life of the respective products, which is generally five years.
Amortization of software development costs is included in cost of license fees
and totaled $658,000, $820,000 and $942,000 for the years ended June 30, 1994,
1995 and 1996, respectively.
i. Acquired Source Code
Acquired source code is amortized over the shorter of the estimated
economic life of the asset or five years. Amortization of acquired source code
is included in cost of license fees and totaled $1,094,000, $855,000 and
$891,000 for the years ended June 30, 1994, 1995 and 1996, respectively.
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j. Non-Competition Agreements
Non-competition agreements are amortized over the term of the
respective non-competition agreement. Amortization of the non-competition
agreements is included in software development costs and totaled $409,000,
$10,000 and $5,000 for the years ended June 30, 1994, 1995 and 1996,
respectively.
k. Advertising Costs
The Company expenses production costs of advertising upon the first
showing. Other advertising costs are expensed as incurred. Advertising expense
totaled $390,000, $542,000 and $510,000 for the years ended June 30, 1994, 1995
and 1996, respectively.
l. Income Taxes
The Company uses the liability method of accounting for income taxes
as set forth in Statement of Financial Accounting Standards (SFAS) No. 109.
Under the liability method, deferred taxes are determined based on the
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates.
m. Statements of Cash Flows
The Company considers investments with an initial maturity of three
months or less when purchased to be cash equivalents. The following summarizes
the supplemental disclosures related to the statements of cash flows:
1994 1995 1996
------- ----- ----
(in thousands)
CASH PAID DURING THE YEAR FOR:
Interest $ 31 $ - $-
======= ===
Income taxes $ 1,305 $23 $-
======= === ==
NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisitions of businesses
Fair value of assets acquired $10,708 $ - $-
Less liabilities assumed 2,025 - -
------- --- --
Cash paid in connection with acquisitions of
businesses, net of cash acquired $ 8,683 $ - $-
======= === ==
n. Foreign Currency Translation
The functional currency of the Company's foreign operations is the
respective local country's currency. Assets and liabilities of the foreign
operations are translated into U.S. dollars at the exchange rate at the balance
sheet date, whereas revenues and expenses are translated into U.S. dollars at
average exchange rates. Translation adjustments are shown as a separate
component of stockholders' equity.
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o. Stock Based Compensation
In October 1995, the Financial Accounting Standards Board issued
FASB Statement No. 123 (FAS 123), "Accounting for Stock-Based Compensation." The
Company will be required to adopt FAS 123 in fiscal 1997. The Company grants
stock options for a fixed number of shares to employees with an exercise price
equal to the fair value of the shares at the date of grant. The Company accounts
for stock option grants in accordance with APB Option No. 25, "Accounting For
Stock Issued to Employees" and, accordingly, recognizes no compensation expense
for the stock option grants. The Company intends to continue to account for
stock option grants in accordance with APB Opinion No. 25, and to adopt the
"disclosure only" alternative available under FAS 123.
p. Concentration of Credit Risks and Major Customer Data
The Company sells its products to dealers and other software
distributors generally under credit terms ranging from 30 to 60 days. Beginning
in fiscal 1993 the Company commenced the development of a direct sales
organization and had a direct sales force for fiscal 1994, 1995 and portions of
fiscal 1996. The Company presently sells its products directly to end-users
generally under credit terms ranging from 30 to 90 days. The Company believes no
significant concentrations of credit risk existed at June 30, 1995 and 1996. The
Company maintains adequate reserves for potential credit losses and such losses
have been within management's estimates. Receivables from customers are
generally unsecured.
q. 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. The shares of common stock issuable in connection
with the July 26, 1995 election to redeem the debenture 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 subsequent reinstatement of the debenture, 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 June 30, 1996. However, common stock
equivalents were antidilutive for the years ended June 30, 1995 and 1996, and
therefore excluded from the calculation of net loss per share for such periods.
In August 1993, the Board of Directors approved a three-for-two
stock split, effected as a 50 percent stock dividend effective September 2,
1993. The stock split has been retroactively reflected in the accompanying
consolidated financial statements and footnotes.
The following supplementary net loss per share for fiscal 1996 is
computed by dividing net loss, excluding interest expense related to the
redeemable convertible subordinated debenture (See Note 4) by the weighted
average number of shares of common stock outstanding during fiscal year 1996,
assuming the June 10, 1996, conversion of the debenture into common stock had
occurred on July 1, 1995.
Net loss excluding interest expense related to the redeemable
convertible subordinated debenture ($31,708,000)
Supplementary net loss per share ($1.96)
Shares used in computing supplementary net loss per share 16,211,205
----------
r. Reclassifications
Certain reclassifications have been made to fiscal 1994 and 1995
amounts to conform with the current year presentation.
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2. RESTATEMENT OF PRIOR PERIOD RESULTS
In fiscal 1994, the Company restated previously issued financial results,
including the quarter and fiscal year ended June 30, 1992, the quarterly results
throughout fiscal 1993, and the first two quarters of fiscal 1994. The restated
financial results primarily reflected revisions in revenue recognition regarding
software licenses, shipping cutoff errors and changes in the accounting
treatment for several acquisitions made during the fourth quarter of fiscal
1993, and during the second quarter of fiscal 1994.
3. ACQUISITIONS AND RESTRUCTURINGS
a. Acquisitions
In October 1993, the Company purchased substantially all of the
assets of Lotzof & Associates, Inc. ("Lotzof") and entered into a five year
non-competition agreement with three key employees of Lotzof, in exchange for
$2,580,000. In addition, the Company agreed to pay an amount equal to 5 percent
of net license fee revenues from Lotzof's cost management product through
October 2000, not to exceed $3,500,000. Furthermore, two of the three key
employees received warrants to purchase an aggregate of 74,722 shares of the
Company's stock at $24.625 per share, and a bonus payable to these employees
upon the delivery of certain products equal to $2,080,000. Effective June 30,
1994, the Company sold the cost management software product acquired from Lotzof
to a third party.
The above business combination was accounted for as a purchase and
the purchase price has been allocated to the fair value of the assets acquired,
including $3,570,000 of purchased research and development in fiscal 1994.
Purchased research and development was expensed as incurred since it had not
reached technological feasibility and in management's judgment, there was no
probable alternative future use. Management believes that the Company's
methodology for the allocation of the purchase price of all business
combinations has been consistently applied. The results of operations of the
acquired operation is included in the consolidated financial statements
subsequent to the date of acquisition.
b. Restructurings
In May 1994, the Company announced a restructuring of its business
operations, including plans to sell certain operations and non-core software
products, with the intent to significantly reduce operating expenses. Between
May 1994 and April 1996, the Company reduced its workforce through a reduction
in force, attrition, as well as the sale and closure of certain of its
operations and products.
In the fourth quarter of fiscal 1994, the Company recorded a charge
of $6,741,000 related to the Company's restructuring. Such amount included
approximately $2,365,000 for severance and other extended benefit costs related
to the reduction in force, $2,312,000 in lease termination and buyout costs
related to the closure of facilities, $2,064,000 in asset write-downs and other
costs. The charge reflected the net effect of estimated proceeds of operations
and products to be divested. During fiscal 1995, the Company paid approximately
$2,330,000 for severance, lease termination and other costs related to the
restructuring. Also during fiscal 1995, the Company wrote-down accounts
receivable, property and equipment, and other assets related to the
restructuring aggregating $2,384,000. In addition, $1,791,000 of excess proceeds
from divestitures over the net book value of assets sold were credited to the
restructuring reserve. At June 30, 1996, the restructuring was substantially
complete. At June 30, 1996, the Company had a $173,000 cash obligation, related
to lease termination costs, which will be funded from existing cash resources
and working capital.
The Company is entitled to receive royalties on future sales of
product from certain of the purchasers, which are computed as a percentage of
certain revenues. The Company received $526,000 in royalty income from divested
operations in fiscal 1995 and $619,000 in royalty income from divested
operations in fiscal 1996.
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During the second quarter of fiscal 1996, the Company restructured
its business operations. The restructuring included the cessation of the
marketing 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
restructuring resulted in a charge of $3,271,000 which was recorded in the
second quarter of fiscal 1996. Such amount included approximately $1,160,000 for
severance and other extended benefit costs related to the reduction in force,
$1,239,000 for lease termination and buyout cost related to the closure of
facilities and $872,000 in asset write-downs and other costs. The Company
estimates that expense savings from the second quarter 1996 restructuring, on a
quarterly basis, were $2,800,000 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 $2,297,000 which was
recorded in the third quarter of fiscal 1996. Such amount included approximately
$300,000 for severance and other extended benefit costs related to the reduction
in force, $625,000 in lease termination and buyout costs related to the closure
of facilities and $1,372,000 in asset write-downs and other costs. The Company
estimates that expense savings from the third quarter 1996 restructuring, on a
quarterly basis, were $900,000. During fiscal 1996, the Company paid
approximately $2,683,000 for severance, lease termination and other costs
relating to the restructurings. At June 30, 1996, the Company had a $1,748,000
cash obligation related to lease termination and other costs of the fiscal 1996
restructurings and will be funded from existing cash reserves and working
capital.
4. SETTLEMENT OF CLASS ACTION LITIGATION
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.
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 remained 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.
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On June 10, 1996, the Company elected to repay the first $7.5 million
principal installment, plus accrued interest thereon by issuing shares of common
stock and also elected to voluntarily repay the remaining $7.5 million principal
amount of the debenture and accrued interest thereon, by issuing shares of
common stock. The date fixed for the redemption was June 10, 1996. In
satisfaction of the above, the Company issued a total of 1,528,988 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 ten of the twenty days preceding one day prior to
conversion, excluding the closing price on the five highest and five lowest
days.
In May 1994 the Company restated its previously issued financial results
for the quarter and fiscal year ended June 30, 1992, all of the quarters of
fiscal 1993 and the first two quarters of fiscal 1994. Beginning in April 1994,
the Securities and Exchange Commission (the "SEC") conducted an investigation
relating to the circumstances underlying the restatement of the Company's
financial results and possibly other matters. On May 9, 1996, the SEC commenced
an administrative proceeding against the Company and certain former officers of
the Company under Section 21C of the Securities and Exchange Act of 1934
("Exchange Act"). In the order instituting the public proceedings the SEC found
that the Company violated Section 13(a) of the Exchange Act and Rules 13a-1,
13a-13 and 12b-20 thereunder by disseminating to the public and filing with the
SEC an Annual Report on Form 10-K for the year ended June 30, 1993 and Quarterly
Reports on Form 10-Q for the third quarter of fiscal 1993 and the first and
second quarter of fiscal 1994, that contained materially false and misleading
financial statements, including overstated revenue and net income. Also, the SEC
found that the Company violated Section 13 (b)(2)(B) of the Exchange Act in that
management of the Company did not devise a sufficient system of internal
accounting controls or adequately enforce the control procedures that were in
place. In addition, the SEC found that the former officers caused violations of
Section 10(b) of the Exchange Act and Rule 10b-5 thereunder as well as Section
13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder. The Company, without
admitting or denying the SEC's findings, consented to the entry of an
administrative order in which it agreed that it would cease and desist from
committing or causing any violation, and committing or causing any future
violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and
Rules 12b-20, 13a-1 and 13a-13 promulgated thereunder. Also, the former
officers, without admitting or denying the SEC's findings, consented to the
entry of an administrative order in which they agreed that they would cease and
desist from committing or causing any violation, and committing or causing any
future violation of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules
10b-5 and 13b2-1 promulgated thereunder.
The Company is subject to miscellaneous legal proceedings in the normal
course of business and other legal proceedings related to or arising out of the
fiscal 1994 restructuring, reductions 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, results of operations or cash flows.
5. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its operating facilities and equipment under
operating leases with terms ranging up to six years. The following is a schedule
by years of future minimum lease payments under operating leases:
Year ending June 30 (in thousands):
1997 $1,756
1998 1,770
1999 1,370
2000 503
2001 335
Thereafter 146
------
Total $5,880
======
Rental expense under operating leases, net of sublease income, for the
years ended June 30, 1994, 1995 and 1996, was $2,874,000, $2,314,000 and
$1,689,000, respectively. The total future minimum lease payments above includes
approximately $1,203,000 in sublease payments to be received.
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The Company is a party to employment agreements with two of the Company's
former executive officers which expire on September 30, 1997 and provide that
the Company shall be required to pay severance compensation to each officer
equal to twice the aggregate salary and bonus paid to these officers during the
preceding twelve months for any reason other than cause, death, disability or
nonperformance of duties, as defined in such agreements.
The Company is party to an employment agreement with the President, Chief
Executive Officer and Chairman of the Board, which provides that the Company
shall be required to pay severance compensation to him equal to the aggregate
annual salary and bonus in the event his employment is terminated without cause
or in the event that he is constructively terminated. In the event of
termination without cause or constructive termination, the Company's repurchase
right lapses with respect to the restricted shares that would have vested during
the twelve month period following terminations. (See Note 8.) Finally, the
Company agreed to provide a relocation package to assist him in relocation. Such
costs are included in accrued relocation costs in the accompanying consolidated
balance sheets.
The Company is party to employment agreements with two of the Company's
senior executive officers, which provides that the Company shall be required to
pay severance compensation equal to the aggregate six months salary and bonus in
the event their employment is terminated without cause or in the event that they
are constructively terminated. In the event of termination without cause or
constructive termination, the Company's repurchase right lapses with respect to
the shares that would have vested during the six month period following
termination. (See Note 8.) Finally, the Company agreed to provide a relocation
package to assist them in relocation. Such costs paid during fiscal 1996 was
$22,000. Such additional costs are included in accrued relocation costs in the
accompanying consolidated balance sheets.
The Company is party to an agreement with an executive officer which
provides that in the event his employment is involuntarily terminated or
constructively terminated, all stock options held by this executive officer
shall vest and become immediately exercisable and the Company shall be required
to pay severance benefits equal to his total compensation for the prior twelve
months.
The Company is party to a consulting agreement with the former Chairman of
the Board of Directors, and current Board member, which provides that if he is
involuntarily removed from the Board of Directors, or not included in
Management's slate of directors at any annual meeting, then all options to
purchase common stock held by him shall accelerate and become exercisable.
6. INCOME TAXES
The provision for income taxes for the years ended June 30, 1994, 1995 and
1996 is comprised of the following:
1994 1995 1996
------ ---- ----
(in thousands)
Federal:
Current $(295) $ - $ -
Deferred - - -
------ --- ----
(295) - -
------ --- ----
State:
Current 35 20 -
Deferred - - -
------ --- ----
35 20 -
------ ---- ----
Foreign:
Current 550 - -
------ --- ----
$ 290 $20 $ -
====== === ====
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The reported provision (benefit) for income taxes for the years ended June
30, 1994, 1995 and 1996 differ from the amount computed by applying the
statutory federal income tax rate of 34 percent to the consolidated income
before income taxes as follows:
1994 1995 1996
--------- -------- ---------
(in thousands)
Benefit computed at statutory rates $(20,147) $(1,934) $(11,201)
Increase (reduction) resulting from:
State taxes, net of federal benefit (1,820) (180) (1,354)
Research and development credits (1,010) - -
Foreign Sales Corporation - - -
Nontaxable interest income (327) - -
Valuation allowance 23,537 2,051 12,795
Other 57 83 (240)
--------- -------- ---------
$ 290 $ 20 $ -
========= ======== =========
The components of the Company's net deferred income tax asset (liability)
as of June 30, 1995 and 1996 are as follows:
1995 1996
--------- ---------
(in thousands)
Net operating loss carryforwards $ 16,715 $ 28,975
Allowance for doubtful accounts 1,425 3,045
Acquisition costs, net 2,830 2,980
Research and development credits 2,450 2,450
Other (25) 1,245
Accrued restructuring costs 170 770
Accrued relocation costs - 600
Charge for settlement of class action litigation 6,000 -
Depreciation (650) (545)
Software capitalization, net (1,130) (900)
Valuation allowance (27,785) (38,620)
--------- ---------
$ - $ -
========= =========
As of June 30, 1996, the Company had provided a valuation allowance of
approximately $38,620,000 because realization of the Company's net deferred tax
asset is not assured due to the historical losses incurred by the Company and
the uncertainty as to profits in the future. Any realization of the Company's
net deferred tax asset would reduce the Company's effective tax rate in future
periods.
The Company has federal, state and foreign net operating loss
carryforwards as of June 30, 1996 of approximately $75,000,000, $58,000,000 and
$20,000,000, respectively. The federal and state losses expire in the years 1997
through 2011. The foreign losses have no expiration date. In addition, the
Company has approximately $2,000,000 of federal research and development credit
carryforwards which expire in the years 2000 through 2011.
Utilization of the federal and state net operating loss and research and
development credit carryforwards could be limited in future years if the Company
were to experience a greater than 50% change in ownership within a 3 year period
as defined in section 382 of the United States Internal Revenue Code of 1986.
7. STOCK OPTION PLAN AND OTHER EMPLOYEE BENEFITS
The Company adopted a stock option plan effective May 31, 1990, whereby
incentive and nonqualified options and purchase rights may be granted to
officers and other key employees. The total number of shares which may be
granted under this plan is 1,650,000. As of June 30, 1996, 860,356 options are
outstanding with exercise prices ranging from $0.67 to $22.25 per share.
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The Company adopted an additional nonqualified stock option plan effective
July 21, 1993, whereby nonqualified options may be granted to officers and other
key employees. The total number of shares which may be granted under this plan
is 1,275,000. As of June 30, 1996, 688,719 options are outstanding with exercise
prices ranging from $4.25 to $11.13 per share.
The Company adopted an additional stock option plan effective April 20,
1994, whereby incentive and nonqualified stock options, as well as purchase
rights, may be granted to officers, directors and other key employees. The total
number of shares which may be granted under this plan is 2,200,000. As of June
30, 1996, 1,695,116 options are outstanding with exercise prices ranging from
$4.25 to $13.00 per share.
The Company adopted a fourth stock option plan effective January 4, 1996,
whereby nonqualified stock options may be granted to non-executive officers and
other key employees. The total number of shares which may be granted under this
plan is 500,000. As of June 30, 1996, 305,600 options are outstanding with
exercise prices of $5.00 per share.
The following is a summary of common stock option transactions as of and
for the years ended June 30, 1994, 1995 and 1996:
1994 1995 1996
------------- --------------- ---------------
Outstanding, beginning of year 1,080,018 3,219,097 3,562,994
Granted 3,393,120 1,598,048 1,726,100
Exercised (45,223) (456,230) (345,738)
Expired or canceled (1,208,818) (797,921) (1,393,565)
------------- --------------- ---------------
Outstanding, end of year 3,219,097 3,562,994 3,549,791
============= =============== ===============
Options exercisable 893,876 1,536,208 1,846,150
============= =============== ===============
Exercisable options price per share $0.67-$22.25 $0.67 - $22.25 $0.67 - $22.25
============= =============== ===============
In 1993, in connection with two of the Company's acquisitions, the Company
granted stock purchase warrants for 393,750 shares with exercise prices ranging
from $1.67 to $4.17. Since these exercise prices were below the fair value of
the Company's common stock on the date of grant, the Company recorded a charge
of $4,719,000 which was included as a component of the purchase price of the
acquisitions. In 1994, in connection with the acquisition of Lotzof, the Company
granted stock purchase warrants for 74,722 shares. (See Note 3.) During fiscal
1994, 1995 and 1996, 137,361, 173,000 and 40,750 stock purchase warrants were
exercised, respectively. During fiscal 1994, 1995 and 1996, 37,361, 75,000 and 0
stock purchase warrants were canceled, respectively. Such outstanding stock
purchase warrants expire in 2003.
In May 1995, the Company issued a former customer a warrant to purchase
50,000 shares of common stock at an exercise price of $7.5625 per share which
represented the fair market value of the common stock on the date an initial
agreement to settle was reached. The warrant was issued as part of the
consideration paid to settle litigation relating to the Company's client/server
distribution software product. Such warrant expires in May 1997.
In May 1995, the Company agreed to issue to certain former officers and
directors or their designates stock purchase warrants to purchase an aggregate
of 50,000 shares of common stock, at an exercise price of $10.00 per share which
represented the fair market value of the common stock, in settlement of the
Company's obligations to indemnify and defend such individuals under
indemnification agreements regarding the facts giving rise to the class action
litigation brought against the Company in January 1994. Such warrants will
expire two years from the date of issuance.
In January 1996, the Company issued a former customer a warrant to
purchase 20,000 shares of common stock at an exercise price of $4.75 per share,
which represented the fair market value of the common stock at the date of
settlement. The warrant was issued as part of the consideration paid to settle
litigation relating to the Company's client/server distribution product. Such
warrant was exercised in fiscal year 1996.
Effective July 1990, the Company adopted a profit sharing plan pursuant to
Section 401 of the Internal Revenue Code. The Company has not made any
contributions to the profit sharing plan as of June 30, 1996. In
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addition, the Company adopted an Employee Stock Purchase Plan in August 1992
authorizing the issuance of up to an aggregate of 450,000 shares of common stock
to participating employees. During fiscal 1994 and fiscal 1995 and fiscal 1996,
the Company issued 62,325, 62,774 and 47,711 shares, respectively to
participating employees.
As of June 30, 1996, the total number of shares of common stock reserved
for future issuance under existing stock option plans, warrants, and the Series
B and Series C Preferred Stock (see Note 9), is approximately 8,460,771.
On March 9, 1994, the Board of Directors adopted a Shareholder Rights Plan
(the Plan), which is intended to protect stockholders from unfair takeover
practices. Under the Plan, each share of common stock carries a right to obtain
additional stock according to terms provided in the Plan. The rights will not be
exercisable or separable from the common stock until a third-party acquires at
least 20% of the Company's then outstanding common stock or commences a tender
offer for at least 20% of the Company's then outstanding common stock. In the
event the Company is acquired in a merger or other business combination
transaction in which the Company is not the surviving corporation or 50% or more
of its consolidated assets or earning power are sold or transferred, each right
will entitle its holder to receive, at the then current exercise price, common
stock of the acquiring company, having a market value equal to two times the
exercise price of the right. If a person or entity were to acquire 20% or more
of the outstanding shares of the Company's common stock, or if the Company is
the surviving corporation in a merger and its common stock is not changed or
exchanged each right will entitle the holder to receive at the then current
exercise price common stock having a market value equal to two times the
exercise price of the right. Until a right is exercised, the holder of a right,
as such, will have no rights as a stockholder of the Company, including, without
limitation, the rights to vote as a stockholder or receive dividends. The
rights, which expire on March 9, 2004, may be redeemed by the Company at a price
of $0.01 per right.
8. RESTRICTED STOCK
In February 1996, the President, Chief Executive Officer and Chairman of
the Board purchased 2,000,000 shares of restricted stock at a purchase price of
$3.50, the then fair market value of the Company's common stock. In payment of
one-half of the purchase price, the Company executed a secured five-year
promissory note in the principal amount of $3,500,000. The note bears simple
interest at 6% per annum and is a recourse promissory note. The Company retained
a repurchase right with respect to the restricted stock. The repurchase right
lapsed with respect to 350,000 shares on the date of the restricted stock grant,
and lapses with respect to 29,167 shares each month for 36 months so that after
three years the repurchase right shall not apply to 1,400,000 shares. The
repurchase right with respect to the remaining 600,000 shares lapses based on
fulfillment of certain performance criteria with respect to the Company's
operating revenues and profit after taxes for fiscal 1997, fiscal 1998 and
fiscal 1999 years, or in any event after ten years. The Company also has loaned
to the President, Chief Executive Officer and Chairman of the Board $3,500,000
pursuant to an unsecured five-year recourse promissory note, which bears
interest at the rate of 6% per annum. This loan was used to fund the restricted
stock purchase along with the secured note referenced above.
In February 1996, one of the Company's senior executive officers purchased
500,000 shares of restricted stock at a purchase price of $3.50, the then fair
market value of the Company's common stock. In payment of one half of the
purchase price, the Company executed a secured five-year promissory note in the
principal amount of $875,000. The note bears simple interest at 6% per annum and
is a recourse promissory note. The Company retained a repurchase right with
respect to the restricted stock. The repurchase right lapsed with respect to
50,000 shares on the date of the restricted stock grant, and lapses with respect
to 8,334 shares each month for 36 months, so that after three years the
repurchase right shall not apply to 350,000 shares. The repurchase right with
respect to the remaining 150,000 shares lapses based on fulfillment of certain
performance criteria with respect to the Company's operating revenues and profit
after taxes for fiscal 1997, fiscal 1998 and fiscal 1999 years, or in any event
after ten years. The Company also has loaned to this senior executive officer
$875,000 pursuant to an unsecured five-year recourse promissory note, which
bears interest at the rate of 6% per annum. This loan was used to fund the
restricted stock purchase along with the secured note referenced above.
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48
In April 1996, one of the Company's senior executive officers purchased
450,000 shares of restricted stock at a purchase price of $6.25, the then fair
market value of the Company's common stock. In payment of one half of the
purchase price, the Company executed a secured five-year promissory note in the
principal amount of $1,406,250. The note bears simple interest at 6% per annum
and is a recourse promissory note. The Company retained a purchase right with
respect to the restricted stock. The repurchase right lapsed with respect to
49,980 shares on the date of the restricted stock grant, and lapses with respect
to 6,945 shares each month thereafter for 36 months, so that after three years
the repurchase right shall not apply to 300,000 shares. The repurchase right
with respect to the remaining 150,000 shares lapses based on fulfillment of
certain performance criteria with respect to the Company's operating revenues
and profit after taxes for fiscal 1997, fiscal 1998 and fiscal 1999 years, or in
any event after ten years. The Company also has loaned to this senior executive
officer $1,406,250 pursuant to an unsecured five-year promissory note, which
bears interest at 6% per annum. This loan was used to fund the restricted stock
purchase along with the secured note referenced above.
9. PREFERRED STOCK
On September 22, 1994, the Company completed a private placement. The
Company issued 2,490,000 shares of its newly created Series B Preferred Stock in
exchange for cash totaling $13,769,700 to a group of venture capital investors.
The preferred shares were issued at a price of $5.53 per share. The price per
share was determined on September 9, 1994, at the completion of a term sheet
satisfactory to the Company and the investors, and reflects a 20% discount from
the average trading price for the Company's common stock for twenty of the
thirty preceding days. Such preferred shares are convertible into common shares
of the Company on a one-for-one basis at any time at the option of the holders.
Such shares automatically convert into common stock of the Company ten days
after formal notification by the Company that the average consecutive 20-
trading day closing stock price of the common stock has exceeded $22.12 per
share. The holder of preferred stock shall be entitled to vote with the holders
of common stock on an as converted basis. The holders of a majority of the
outstanding Series B Preferred Stock, voting together as a class, have the right
to designate two members of the Board of Directors.
On May 26, 1995, the Company completed a second private placement. The
Company issued 231,598 shares of its newly created Series C Preferred Stock in
exchange for cash totaling $18,226,700 to a group of venture capital investors.
The preferred shares were issued at a price of $78.70 per share. The price per
share reflects a 20% discount from the average trading price for the Company's
common stock for twenty of the thirty preceding days. Such preferred shares are
convertible into common shares of the Company on a ten-for-one basis at any time
at the option of the holders. Such shares automatically convert into common
stock of the Company ten days after formal notification by the Company that the
average consecutive 20-trading day closing stock price of the common stock has
exceeded $25.00 per share. The holder of preferred stock shall be entitled to
vote with holders of common stock on an as converted basis.
The holders of the Series B and Series C Preferred Stock have the right to
cause the Company to register the sale of shares of common stock issuable upon
conversion of the Series B and Series C Preferred Stock.
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10. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment: the design, development,
marketing and support of financial applications software products.
A summary of the Company's operations by geographic area is as follows:
United Latin
States Australasia Europe Canada America Consolidated
------- ----------- ------ ------ ------- ------------
(in thousands)
Year Ended June 30, 1994:
Net revenues $38,336 $6,808 $4,140 $2,682 $1,432 $ 53,398
======== ======== ======= ======= ====== =========
Operating income (loss) (33,199) (225) (6,825) 26 621 (39,602)
======== ======== ======= ======= ====== =========
Identifiable assets 37,996 2,875 4,970 1,956 333 48,130
======== ======== ======= ======= ====== =========
Year Ended June 30, 1995:
Net revenues $38,296 $8,813 $5,156 $3,418 $ 470 $ 56,153
======== ======== ======= ======= ====== =========
Operating income (loss) (1,397) (1,634) (3,162) (86) 470 (5,809)
======== ======== ======= ======= ====== =========
Identifiable assets 55,331 3,048 4,489 2,965 - 65,833
======== ======== ======= ======= ====== =========
Year Ended June 30, 1996:
Net revenues $26,476 $8,294 $2,134 $3,042 $ 609 $ 40,555
======== ======== ======= ======= ====== =========
Operating income (loss) (27,715) (1,823) (3,471) (476) 609 (32,876)
======== ======== ======= ======= ====== =========
Identifiable assets 31,732 3,164 2,857 2,249 - 40,002
======== ======== ======= ======= ====== =========
Operating income (loss) of certain geographic areas for the year ended
June 30, 1994 reflect reclassifications among geographic areas pursuant to
certain intercompany agreements.
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Platinum Software Corporation
We have audited the consolidated financial statements of Platinum Software
Corporation as of June 30, 1995 and 1996, and for each of the three years in the
period ended June 30, 1996, and have issued our report thereon dated July 29,
1996. Our audits also included the financial statement schedule listed in Item
14 (a) of this Annual Report on Form 10-K. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Orange County, California
July 29, 1996
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PLATINUM SOFTWARE CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at
Beginning Provision for Amounts Balance at End
Description of Year Bad Debt Written Off Other of Year
----------- ------- -------- ----------- ----- -------
FOR THE YEAR ENDED JUNE 30, 1994:
Allowance for doubtful accounts $ 822 $2,428 $ - $ - $3,250
======= ====== ========= ========= =======
FOR THE YEAR ENDED JUNE 30, 1995:
Allowance for doubtful accounts $3,250 $2,621 $(2,462) $1,451(1) $4,860
======= ====== ========= ========= =======
FOR THE YEAR ENDED JUNE 30, 1996:
Allowance for doubtful accounts $4,860 $6,606 $(2,343) $ - $9,123
======= ====== ========= ========= =======
(1) Amount represents a reclassification from accrued restructuring costs
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Index to Exhibits
Exhibit No. Description Location
3.1 Second Restated Certificate of Incorporation of the Company. (1)
3.2 Certificate of Amendment to Second Restated Certificate of Incorporation of the Company (6)
3.3 Amended and Restated Bylaws of the Company, as currently in effect.
3.6 Specimen Certificate of Common Stock. (2)
4.1 Certificate of Designation of Rights, Preferences and Privileges of Series A Junior (4)
Participating Preferred Stock
4.2 Certificate of Designation of Preferences of Series B Preferred Stock (5)
4.3 Certificate of Designation of Preferences of Series C Preferred Stock (6)
4.4 Amended and Restated 8% Convertible, Exchangeable Subordinated Security in the
Principal Amount of $15,000,000 dated May 8, 1996
10.1 Platinum Software Corporation Incentive Stock Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan - 1990 (the "1990 Plan"). (2)
10.2 Form of Incentive Option Agreement pertaining to the 1990 Plan. (2)
10.3 Form of Nonqualified Stock Option Agreement pertaining to the 1990 Plan. (2)
10.4 Form of Restricted Share Agreement pertaining to the Plan. (2)
10.5 Form of Indemnification Agreement for Officers and Directors of the Company. (2)
10.6 Platinum Software Corporation Employee Stock Purchase Plan, as amended. (2)
10.7 Employment Agreement, dated September 30, 1988, between the Company and Timothy
J. McMullen, together with an amendment dated August 26, 1992 thereto. (2)
10.8 Employment Agreement, dated September 30, 1988, between the Company and Kevin P.
Riegelsberger, together with an amendment dated August 26, 1992 thereto. (2)
10.10 1993 Nonqualified Stock Option Plan (3)
10.11 Form of Nonqualified Stock Option Agreement pertaining to the 1993 Nonqualified Stock (3)
Option Plan.
10.12 1994 Incentive Stock Option, Non-qualified Stock Option and Restricted Stock Purchase (5)
Plan.
10.13 Form of Non-qualified Stock Option Agreement pertaining to the 1994 Plan. (5)
10.15 Agreement of Purchase and Sale of Assets dated as of June 30, 1994, between the
Company and Altec Forms, Inc. (excluding disclosure schedules) (5)
10.16 Agreement of Purchase and Sale of Assets dated as of June 30, 1994, between the
Company and MLDV Acquisition Co. (excluding disclosure schedules) (5)
10.17 Agreement of Purchase and Sale of Assets dated as of June 30, 1994, between the
Company and FRC Consulting, Inc. (excluding disclosure schedules) (5)
10.18 Agreement of Purchase and Sale of Assets dated as of June 30, 1994, between the
Company and Platinum Latin America-Caribbean, Inc. (excluding disclosure schedules) (5)
10.24 Agreement of Purchase and Sale of Assets dated October 31, 1994 between the Company
and Westwood & Best Software Corporation (excluding disclosure schedules) (6)
10.25 Agreement of Purchase and Sale of Assets dated August 31, 1994 between the Company
and Perot Systems Corporation (excluding disclosure schedules) (6)
10.26 Agreement of Purchase and Sale of Assets dated March 22, 1995 between the Company
and Baker Software Products Corporation (excluding disclosure schedules) (6)
10.27 Agreement for Transfer of Software and Mutual Release dated July 22, 1994 between the
Company, Michael Rohan and Financial Reporting Technology, Inc. (6)
10.28 Stock Purchase Agreement dated September 22, 1994 between the Company and the
Series B Preferred Stock Investors (6)
10.29 Registration Rights Agreement dated September 22, 1994 between the Company and the
Series B Preferred Stock Investors (6)
10.30 Amendment to Stock Purchase Agreement dated May 26, 1995 between the Company and
the Series C Preferred Stock Investors (6)
10.31 Amendment to Registration Rights Agreement dated May 26, 1995 between the Company
and the Series C Preferred Stock Investors (6)
10.32 Stipulation for Partial Settlement of In Re Platinum Securities Litigation, dated July 14,
1994 (6)
10.33 Employment Offer letter with L. George Klaus dated February 7, 1996. (7)
10.34 Restricted Stock Purchase Agreement between the Company and L. George Klaus dated as
of February 7, 1996. (7)
10.35 Employment Offer letter with William L. Pieser dated February 7, 1996. (7)
10.36 Restricted Stock Purchase Agreement between the Company and William L. Pieser dated
as of February 7, 1996. (7)
10.37 Agreement between the Company and Michael J. Simmons dated February 8, 1996. (7)
10.38 Agreement between the Company and Carmelo J. Santoro dated February 8, 1996. (7)
10.39 Agreement between the Company and Bruce C. Edwards dated February 8, 1996. (7)
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). (7)
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). (7)
10.42 Employment Offer letter with Ken Lally dated as of April 1, 1996 (7)
10.43 Restricted Stock Purchase Agreement between the Company and Ken Lally dated as of
April 10, 1996. (7)
22.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney (included on the signature page of this Annual Report on Form 10-K)
27 Financial Data Schedule
Executive Compensation Plans and Arrangements
Exhibit No. Description Location
10.1 1990 Plan (2)
10.2 Form of Incentive Option Agreement pertaining to the 1990 Plan. (2)
10.3 Form of Nonqualified Stock Option Agreement pertaining to the 1990 Plan. (2)
10.4 Form of Restricted Share Agreement pertaining to the 1990 Plan. (2)
10.7 Employment Agreement dated September 30, 1988 between the Company and Timothy J.
McMullen, together with an amendment dated August 26, 1992 thereto. (2)
10.8 Employment Agreement dated September 30, 1988 between the Company and Kevin P.
Riegelsberger, together with an amendment dated August 26, 1992 thereto. (2)
10.10 1993 Nonqualified Stock Option Plan (3)
10.11 Form of Nonqualified Stock Option Agreement pertaining to the 1993 Nonqualified Stock
Option Plan. (3)
10.12 1994 Incentive Stock Option, Non-qualified Stock Option and Restricted Stock Purchase
Plan. (5)
10.13 Form of Non-qualified Stock Option Agreement pertaining to the 1994 Plan. (5)
10.33 Employment Offer letter with L. George Klaus dated February 7, 1996. (7)
10.34 Restricted Stock Purchase Agreement between the Company and L. George Klaus dated as
of February 7, 1996. (7)
10.35 Employment Offer letter with William L. Pieser dated February 7, 1996. (7)
10.36 Restricted Stock Purchase Agreement between the Company and William L. Pieser dated
as of February 7, 1996. (7)
10.37 Agreement between the Company and Michael J. Simmons dated February 8, 1996. (7)
10.38 Agreement between the Company and Carmelo J. Santoro dated February 8, 1996. (7)
10.39 Agreement between the Company and Bruce C. Edwards dated February 8, 1996. (7)
10.42 Employment offer letter with Ken Lally dated as of April 1, 1996 (7)
10.43 Restricted Stock Purchase Agreement between the Company and Ken Lally dated as of (7)
April 10, 1996.
(1) Incorporated by reference to the referenced exhibit number to the Company's
Registration Statement on Form S-1, Reg. No. 33-57294.
(2) Incorporated by reference to the referenced exhibit number to the Company's
Registration Statement on Form S-1, Reg. No. 33-51566.
(3) Incorporated by reference to the referenced exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1993.
(4) Incorporated by reference to the referenced exhibit to the Company's
Registration Statement on Form 8-A, dated April 14, 1994.
(5) Incorporated by reference to the referenced exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994.
(6) Incorporated by reference to the referenced exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995.
(7) Incorporated by reference to the referenced exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.