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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NO. 0-20740
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PLATINUM SOFTWARE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0277592
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
195 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618-2402
(Address of principal executive offices, zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 453-4000
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of April 30, 1997, there were 18,890,577 shares of common stock outstanding.
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INDEX
Page
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PART I - FINANCIAL INFORMATION.......................................................................... 3
Item I - Financial Statements.................................................................... 3
Unaudited Condensed Consolidated Balance Sheets......................................... 3
Unaudited Condensed Consolidated Statements of Operations............................... 4
Unaudited Condensed Consolidated Statements of Cash Flows............................... 5
Notes to Unaudited Condensed Consolidated Financial Statements.......................... 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations... 7
PART II - OTHER INFORMATION............................................................................. 14
Item 1 - Legal Proceedings....................................................................... 14
Item 6 - Exhibits and Reports on Form 8-K........................................................ 14
SIGNATURE............................................................................................... 15
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PART I
FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS:
PLATINUM SOFTWARE CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, June 30,
1997 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 6,124 $ 5,402
Short-term investments 9,548 10,098
Restricted cash -- 1,006
Accounts receivable, net 8,407 7,893
Notes receivable from divestitures, net -- 825
Inventories 367 460
Prepaid expenses and other 1,653 1,638
--------- ---------
Total current assets 26,099 27,322
Property and equipment, net 8,090 8,896
Software development costs, net 2,480 2,250
Acquired software, net 709 1,088
Other assets 359 446
--------- ---------
$ 37,737 $ 40,002
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,315 $ 3,436
Other accrued liabilities 5,836 7,522
Accrued restructuring costs 1,415 1,921
Deferred revenue 9,780 10,912
--------- ---------
Total current liabilities 20,346 23,791
--------- ---------
Stockholders' equity:
Preferred stock 31,692 31,996
Common stock 19 18
Additional paid-in capital 114,477 111,194
Less: notes receivable from officers for issuance of restricted stock (11,563) (11,563)
Accumulated foreign currency translation adjustments 398 249
Accumulated deficit (117,632) (115,683)
--------- ---------
Total stockholders' equity 17,391 16,211
--------- ---------
$ 37,737 $ 40,002
========= =========
The accompanying notes are an integral part of these unaudited condensed
consolidated balance sheets.
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PLATINUM SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ----------------------
1997 1996 1997 1996
-------- -------- --------- --------
Revenues:
License fees $ 6,555 $ 3,619 $ 18,160 $ 14,596
Consulting and professional services 2,685 2,153 7,168 8,254
Support services 3,897 2,590 11,078 7,801
Royalty income 869 -- 1,142 505
-------- -------- -------- --------
14,006 8,362 37,548 31,156
Cost of revenues 5,403 5,107 14,308 15,657
-------- -------- -------- --------
Gross profit 8,603 3,255 23,240 15,499
-------- -------- -------- --------
Operating expenses:
Sales and marketing 5,812 4,659 16,285 15,353
General and administrative 240 5,673 2,966 8,960
Software development 2,259 3,047 6,668 11,192
Charge for restructuring -- 4,200 -- 9,800
-------- -------- -------- --------
8,311 17,579 25,919 45,305
-------- -------- -------- --------
Income (loss) from operations 292 (14,324) (2,679) (29,806)
Other income (expense), net 346 (186) 730 (146)
-------- -------- -------- --------
Income (loss) before provision for income taxes 638 (14,510) (1,949) (29,952)
Provision for income taxes -- -- -- --
-------- -------- -------- --------
Net income (loss) $ 638 $(14,510) $ (1,949) $(29,952)
======== ======== ======== ========
Net income (loss) per share $ 0.03 $ (0.97) $ (0.11) $ (2.13)
======== ======== ======== ========
Shares used in computing net income
(loss) per share 25,222 14,897 18,413 14,087
======== ======== ======== ========
The accompanying notes are an integral part of these unaudited
condensed consolidated statements.
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PLATINUM SOFTWARE CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
March 31,
----------------------
1997 1996
-------- --------
Cash flows from operating activities:
Net loss $ (1,949) $(29,952)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 4,020 4,794
Interest accretion on class action settlement -- 905
Charge for restructuring -- 9,800
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable, net (788) 3,609
Decrease in inventories 93 215
(Increase) decrease in prepaid expenses and other (15) 8
Decrease in other assets 87 59
(Decrease) in accounts payable (121) (937)
Increase (decrease) in other accrued liabilities (1,615) 1,992
(Decrease) in accrued restructuring costs (467) (2,187)
Increase (decrease) in deferred revenue (1,132) 530
-------- --------
Cash used in operating activities (1,887) (11,164)
-------- --------
Cash flows from investing activities:
Payments received on notes receivable from divestitures 825 378
Increase in notes receivable from divestitures -- (411)
Capital expenditures, net (1,790) (2,151)
Capitalized software development costs (1,001) (306)
Purchase of short-term investments (9,500) --
Sale of short-term investments 10,050 --
-------- --------
Cash used in investing activities (1,416) (2,490)
-------- --------
Cash flows from financing activities:
Exercise of common stock options 2,633 1,033
Issuance of common stock under the Employee Stock Purchase Plan 237 269
Decrease in restricted cash 1,006 476
-------- --------
Cash provided by financing activities 3,876 1,778
Effect of exchange rates on cash 149 (64)
-------- --------
Net increase (decrease) in cash and cash equivalents 722 (11,940)
Cash and cash equivalents, beginning of period 5,402 26,276
-------- --------
Cash and cash equivalents, end of period $ 6,124 $ 14,336
======== ========
The accompanying notes are an integral part of these unaudited
condensed consolidated statements.
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PLATINUM SOFTWARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements present
the financial position of Platinum Software Corporation (the "Company") as of
March 31, 1997 and June 30, 1996, the results of its operations for the three
and nine months ended March 31, 1997 and 1996, and its cash flows for the nine
months ended March 31, 1997 and 1996, and have been prepared by the Company in
accordance with generally accepted accounting principles and pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC").
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures in these financial statements are
adequate to make the information presented not misleading. The unaudited
condensed consolidated financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended June 30, 1996.
In the opinion of management, the unaudited condensed consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) and the reduction of certain reserves no longer needed (See Item 2
- - Management's Discussions and Analysis of Financial Condition and Results of
Operations) necessary for a fair presentation of the Company's financial
position, results of operations and cash flows.
The results of operations for the three and nine months ended March 31, 1997,
are not necessarily indicative of the results of operations to be expected for
the entire fiscal year ending June 30, 1997.
REVENUE RECOGNITION
Revenue is recognized from licenses of software upon contract execution,
shipment of products and when the Company has performed all of its significant
contractual obligations. When a software license agreement obligates the Company
to provide more than one software module, all license revenue under the
agreement is deferred until all modules achieve general availability and are
delivered, except when the license agreement contains a specific financial
remedy in the event the unavailable module is not delivered. In such instance,
revenue is deferred in the amount attributable to the specific financial remedy.
The Company generally does not provide any post-contract customer service or
support as part of the software license fee; however, when such services are
provided for in the license agreement, an appropriate portion of the license fee
is deferred and amortized over the service or support period. The Company's
customers may enter into maintenance agreements with the Company and such
revenue is recognized ratably over the term of the agreement. Revenue from
consulting services is recognized as services are provided.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing net income (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 income
(loss) per share purposes of the shares of common stock issuable in connection
with the repayment of the debenture have been changed from being outstanding to
common stock equivalents from October 1, 1995 to March 31, 1996. Common stock
equivalents were antidilutive for the three months ended March 31, 1996 and the
nine months ended March 31, 1997 and 1996, and therefore, have been excluded
from the calculation of net income (loss) per share for such periods.
FISCAL 1996 RESTRUCTURING
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 this product
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line. The restructuring resulted in a charge of $5.6 million which was recorded
in the second quarter of fiscal 1996. Such amount included charges for severance
and other extended benefit costs related to the reduction in force, lease
termination and buyout costs related to the closure of facilities and asset
write-downs and other costs. The Company estimates that expense savings from the
second quarter 1996 restructuring, on a quarterly basis, are $2.8 million. See
"Certain Factors That May Affect Future Results - Forward Looking Statements."
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 $4.2 million which was recorded in the third quarter of fiscal 1996. Such
amount included charges for severance and other extended benefit costs related
to the reduction in force, lease termination and buyout costs related to the
closure of facilities and asset write-downs and other costs. The Company
estimates that expense savings from the third quarter 1996 restructuring, on a
quarterly basis, are $900,000. See "Certain Factors That May Affect Future
Results - Forward Looking Statements." The savings from the two fiscal 1996
restructurings have been offset in part by the costs associated with the
re-establishment of the direct sales force. See "Item 2 - Management's
Discussion and Analysis of Financial Condition and Results of Operations."
During the nine months ended March 31, 1997, the Company paid approximately
$467,000 for severance, lease termination and other costs relating to these two
restructurings and the fiscal 1994 restructuring.
CONTINGENCIES
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 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
RESULTS OF OPERATIONS
Net income for the third quarter of fiscal 1997 was $638,000, or $0.03 per
share, as compared to a net loss of $14.5 million, or $0.97 per share, for the
comparable quarter of fiscal 1996. Net loss for the first nine months of fiscal
1997 was $1.9 million or $0.11 per share, as compared to a net loss of $30.0
million, or $2.13 per share, for the comparable period of fiscal 1996. The
following summarizes the significant aspects related to the Company's results of
operations.
Revenues
Revenues were approximately $14.0 million and $8.4 million for the three months
ended March 31, 1997 and 1996, respectively, representing an increase of 67%.
Revenues were approximately $37.5 million and $31.2 million for the nine months
ended March 31, 1997 and 1996, respectively, representing an increase of 21%.
The increases for the three months and nine months ended March 31, 1997 resulted
primarily from increases in revenues in the areas as detailed below.
Total license fee revenues were approximately $6.6 million and $3.6 million for
the three months ended March 31, 1997 and 1996, respectively, representing an
increase of 81% and approximately $18.2 million and $14.6 million for the nine
months ended March 31, 1997 and 1996, respectively, representing an increase of
24%.
License fee revenues for the Company's Platinum SQL product (formerly named
Platinum SQL NT) were approximately $4.6 million and $1.4 million for the three
months ended March 31, 1997 and 1996, respectively, and $12.2 million and $3.1
million for the nine months ended March 31, 1997 and 1996, respectively. The
increases resulted primarily from the re-establishment of the Company's direct
sales force in the fourth quarter of fiscal 1996.
License fee revenues for the Platinum for DOS and Platinum for Windows products
were approximately $1.7 million and $1.5 million for the three months ended
March 31, 1997 and 1996, respectively, and $5.2 million and $4.4 million for the
nine months ended March 31, 1997 and 1996. The increases resulted primarily from
the commercial availability of a complete suite of Platinum for Windows core
modules during the quarter ended March 31, 1997, as well as a change in sales
strategy to have the primary sales responsibility for this product reside at the
Company's corporate headquarters instead of in the field.
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International license fee revenues were $2.6 million and $1.6 million for the
three months ended March 31, 1997 and 1996, respectively, and $6.5 million and
$4.7 million for the nine months ended March 31, 1997 and 1996, respectively.
These increases were due to the increases in international license fee revenues
for the Company's Platinum SQL and Platinum for DOS and Platinum for Windows
products.
Consulting and professional services revenue increased 25% from revenues of $2.2
million in the three months ended March 31, 1996 to $2.7 million in the three
months ended March 31, 1997 and decreased 13% from revenues of $8.3 million in
the nine months ended March 31, 1996 to $7.2 million in the nine months ended
March 31, 1997. The increase in the three months ended March 31, 1997 was
primarily attributable to the Company's increased focus in fiscal 1997 on
providing consulting and implementation services to customers. The decrease in
the nine months ended March 31, 1997 was primarily attributable to the
involvement of the consulting and professional services division during late
fiscal 1996 and early fiscal 1997 in providing non-revenue generating formal
training to the Company's distributors and dealers, and the transferring of
expertise gained in Platinum SQL Enterprise and Platinum SQL NT implementations.
Support services revenue increased 50% from revenues of $2.6 million in the
three months ended March 31, 1996 to $3.9 million in the three months ended
March 31, 1997 and increased 42% from revenues of $7.8 million in the nine
months ended March 31, 1996 to $11.1 million in the nine months ended March 31,
1997. The increase was primarily attributable to an overall rise in the
installed base of end-users of Platinum SQL and an increased effort to renew
customers on maintenance contracts which effort the Company commenced in early
fiscal 1997.
Royalty income revenue increased from revenues of $0 in the three months ended
March 31, 1996 to $869,000 in the three months ended March 31, 1997 and
increased from revenues of $505,000 in the nine months ended March 31, 1996 to
$1.1 million in the nine months ended March 31, 1997. These increases were
principally due to the receipt of the final royalty obligation related to a
divested business in the amount of approximately $312,000, and from the receipt
of the final payment of amounts owed of approximately $412,000 on a royalty note
receivable from a divestiture in excess of the carrying value of the note
receivable.
Gross Profit
Gross profit increased as a percentage of revenues from 39% for the three months
ended March 31, 1996 to 61% for the three months ended March 31, 1997. Gross
profit increased as a percentage of revenues from 50% for the nine months ended
March 31, 1996 to 62% for the nine months ended March 31, 1997. The increases in
gross profit percentage were primarily due to higher license fee revenues and
royalty income revenues as a percentage of total revenues, which have higher
margins than consulting and professional services revenues.
Operating Expenses
Excluding the restructuring charge of $4.2 million in the three months ended
March 31, 1996, total operating expenses decreased from $13.4 million for the
three months ended March 31, 1996 to $8.3 million for the three months ended
March 31, 1997. Excluding the restructuring charge of $9.8 million in the nine
months ended March 31, 1996, total operating expenses decreased from $35.6
million for the nine months ended March 31, 1996 to $25.9 million for the nine
months ended March 31, 1997. The decreases were primarily attributable to cost
savings achieved from the fiscal 1996 restructurings as well as reductions of
certain relocation, legal and tax reserves no longer needed totaling
approximately $1.0 million, offset in part by the re-establishment of the direct
sales force. Excluding the restructuring charge of $4.2 million in the three
months ended March 31, 1996, total operating expenses as a percentage of
revenues were 59% and 160% for the three months ended March 31, 1997 and 1996,
respectively. Excluding the restructuring charge of $9.8 million in the nine
months ended March 31, 1996, total operating expenses as a percentage of
revenues were 69% and 114% for the nine months ended March 31, 1997 and 1996,
respectively.
Sales and marketing expenses were approximately $5.8 million and $4.7 million
for the three months ended March 31, 1997 and 1996, respectively, or
approximately 41% and 56% of total revenues. Sales and marketing expenses were
approximately $16.3 million and $15.4 million for the nine months ended March
31, 1997 and 1996, respectively, or approximately 43% and 49% of total revenues.
These dollar amount increases were a result of the re-establishment of a direct
sales force for the Company's Platinum SQL product.
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General and administrative expenses were approximately $240,000 and $5.7 million
for the three months ended March 31, 1997 and 1996, respectively, or
approximately 2% and 68% of total revenues. General and administrative expenses
were approximately $3.0 million and $9.0 million for the nine months ended March
31, 1997 and 1996, respectively, or approximately 8% and 29% of total revenues.
For the three months and nine months ended March 31, 1996, the Company provided
additional reserves of approximately $1.6 million for accounts receivable from
Platinum SQL sales to third party dealers, relocation costs of approximately
$1.6 million associated with the hiring of new senior management executives, a
write-down of property and equipment in the amount of approximately $500,000,
and additional legal reserves in the amount of $500,000. During the quarter
ended March 31, 1997, the Company relieved certain relocation, legal and tax
reserves that were no longer needed totaling approximately $1.0 million. This
was due to the completion of the relocation of the executive officers,
confirmation of insurance coverage on certain legal claims previously believed
to be self-insured and closure of certain tax audits. The Company expects that
in the fourth quarter of fiscal 1997, general and administrative expenses will
return to levels approximating those reported in the second quarter of fiscal
1997. See "Certain Factors That May Affect Future Results - Forward Looking
Statements."
Software development expenditures were approximately $2.5 million and $3.0
million for the three months ended March 31, 1997 and 1996, respectively, before
capitalization of software costs of approximately $232,000 and $0, respectively.
Software development expenditures were approximately $7.7 million and $11.5
million for the nine months ended March 31, 1997 and 1996, respectively, before
capitalization of software costs of approximately $1.0 million and $306,000,
respectively. The decreases in the amount of software development expenses were
due to a lesser number of development employees as a result of personnel cuts in
the fiscal 1996 restructurings and other cost savings in the fiscal 1996
restructurings. Upon the release for general availability of the Company's
software products, the Company amortizes capitalized software development costs
over a five year period. Such amortization is included in cost of revenues. The
percentage of capitalized software development costs to total software
development costs was 9% for the three months ended March 31, 1997 and 0% for
the three months ended March 31, 1996. The percentage of capitalized software
development costs to total software development costs was 13% for the nine
months ended March 31, 1997 and 3% for the nine months ended March 31, 1996.
During the three and nine months ended March 31, 1997, costs were capitalized
for the Platinum for Windows purchase order, inventory and order entry modules
and the multi-currency functionality for Platinum SQL. The Company expects that
gross development expenditures should remain constant for the remainder of
fiscal 1997. See "Certain Factors That May Affect Future Results - Forward
Looking Statements."
Other Income (Expense)
Other income (expense) for the three months ended March 31, 1997 and 1996, was
approximately $346,000 and $(186,000), respectively. Other income (expense) for
the nine months ended March 31, 1997 and 1996, was approximately $730,000 and
$(146,000), respectively. For the three and nine months ended March 31, 1997,
other income primarily represented interest earned on the Company's cash and
cash equivalents and short-term investments. For the three and nine months ended
March 31, 1996, other income (expense) primarily represented interest earned on
the Company's cash and cash equivalents and short-term investments, offset by
interest expense on the Company's debenture.
FINANCIAL CONDITION
Liquidity and Capital Resources
As of March 31, 1997, the Company's principal sources of liquidity included cash
and cash equivalents of approximately $6.1 million. Cash and cash equivalents
increased by approximately $722,000 over the June 30, 1996 balance. The increase
is primarily attributable to the net sale of short term investments, payments
received on notes receivable from divestitures, proceeds received from the
exercise of stock options and the decrease in restricted cash, offset by cash
used in operations, capital expenditures and capitalized software costs. The
Company had working capital of $3.5 million at June 30, 1996 as compared to
working capital of $5.8 million at March 31, 1997.
The Company's operations used approximately $1.9 million of cash and cash
equivalents in the nine months ended March 31, 1997. This was primarily due to
the net loss from operations and investments in operating assets partially
offset by non-cash items, principally depreciation and amortization, and to the
reduction of current liabilities.
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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 $825,000 during the nine months ended March 31,
1997. The Company also paid approximately $467,000 in severance, lease and other
costs related to the fiscal 1994 and fiscal 1996 restructurings during the nine
months ended March 31, 1997. At March 31, 1997, the Company had a $1.4 million
cash obligation related to lease termination and other costs of the fiscal 1994
and fiscal 1996 restructurings and this obligation will be funded from existing
cash reserves and working capital.
The Company has taken steps to significantly reduce its operating expenses,
through several reductions in work force over the past two years, as well as the
disposition of several business units. 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.
The Company experienced positive cash flow from operations for the third quarter
of fiscal 1997. 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. The
Company believes that its current cash reserves, together with existing sources
of liquidity, will satisfy the Company's projected short-term liquidity and
other cash requirements for the next 12 months.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Forward Looking Statements. This quarterly report contains certain forward
looking statements within the meaning of Section 27A of the Securities and
Exchange Act of 1933, as amended, and Section 21E of the Securities and Exchange
Act of 1934, as amended, that involve risks and uncertainties. In addition, the
Company may from time to time make oral forward looking statements. Actual
results are uncertain and may be impacted by the following factors, among
others, which may cause the actual results to differ materially from those
projected in the forward looking statement. Because of these and other factors
that may affect the Company's operating results, past performance should not be
considered an indicator of future performance and investors should not use
historical results to anticipate results or trends in future periods.
Liquidity. The Company's cash and cash equivalents increased from $5.4 million
at June 30, 1996 to $6.1 million at March 31, 1997, principally due to the net
sale of short term investments, payments received on notes receivable from
divestitures, proceeds received from the exercise of stock options and the
decrease in restricted cash, offset in part by cash used in operations, capital
expenditures and capitalized software costs. Although, the Company's fiscal 1994
restructuring is substantially complete, there will be additional cash outlays
in connection with lease terminations, estimated to be approximately $377,000.
In addition, there will be further cash outlays estimated at approximately
$110,000 in connection with the second quarter fiscal 1996 restructuring and
approximately $928,000 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 experienced positive cash flow from
operations during the third quarter of fiscal 1997. If the Company is not
successful in achieving targeted revenues or continued 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.
Fluctuations in Quarterly Operating Results. The Company's operating results can
vary substantially from period-to-period. The Company's quarterly operating
results fluctuate in part due to the number and timing of new product
introductions and enhancements, discontinuance of product lines, the timing of
product orders and shipments, recognition of deferred revenue upon the Company's
completion of its contractual obligations, marketing and product development
expenditures and promotional programs. A significant portion of the Company's
quarterly revenues are recorded in the final month of the quarter, with a
concentration of such revenues in the final 10 business days of that month.
Also, the timing of the closing of direct sales in the latter part of each
quarter increases the risk of quarter-to-quarter fluctuations. Accordingly, the
Company believes that period-to-period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as an indication of
future performance. If revenues do not meet the Company's expectations in any
given quarter, operating results may be adversely affected. There can be no
assurance that the Company will be profitable in any quarter or at all.
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Horizontal Product Strategy. As part of its business strategy, the Company
intends to expand its product offerings to include application software products
that are complementary to financial accounting applications, such as sales force
automation, help desk, enterprise resource planning or human resources. This
strategy may involve acquisitions, investments in other businesses that offer
complementary products, joint development agreements or licensing of technology
agreements. Any future acquisitions or investments would be accompanied by the
risks commonly encountered in the acquisitions of businesses. Some of these
risks include, among other things, the integration of previously distinct
businesses into one business unit, the substantial management time devoted to
such activities, the potential disruption of the Company's ongoing business,
undisclosed liabilities, the failure to realize anticipated benefits (such as
synergies and cost savings), and issues related to product transition (such as
development, distribution and customer support). The Company expects that the
consideration paid in future acquisitions, if any, would be in the form of
stock, rights to purchase stock, cash or a combination thereof. Dilution to
existing stockholders and earnings per share may result to the extent that
shares of stock or other rights to purchase stock are issued in connection with
any such future acquisitions. Some of the risks associated with joint
development agreements or technology licenses include development delays,
product bugs or errors, issues related to the integration or transition of the
new products, such as providing adequate customer support, effectively selling
and marketing the new product and coordinating development efforts.
Dependence on Distribution Channels. The Company distributes its Platinum for
DOS and Platinum for Windows products exclusively through third-party dealers
and VARs, and distributes its Platinum SQL software product through a direct
sales force as well as through VARs and distributors. 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.
In the fourth quarter of fiscal 1996, the Company reestablished 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 revenues 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 for DOS and requires additional skill and training to be implemented
successfully. The Company presently has over 70 authorized Platinum SQL dealers
who have completed training from which approximately 30 dealers generate greater
than 90% of the indirect sales of Platinum SQL 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. 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 an
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 operates 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.
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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 for DOS) and Platinum SQL. The Company continues to provide
maintenance and support services for its Platinum SQL Enterprise product for
existing customers. Platinum SQL was released in the quarter ended December 31,
1994 and all of the core accounting modules of Platinum for Windows were
released during the quarter ended June 30, 1995 and calendar 1996. Version 4.1
of Platinum SQL, which includes multi-currency functionality for the core
accounting modules, is scheduled for release during the fourth quarter of fiscal
1997. See "Forward Looking Statements." 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
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delay or alter their purchasing decisions in anticipation of such products,
which could have a material adverse effect on the Company's business, operating
results and financial condition.
Shares Eligible for Future Sale. As of April 30, 1997, the Company had
18,890,577 shares of common stock outstanding. There are presently 2,435,000
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 2,435,000 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.
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PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS:
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 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLATINUM SOFTWARE CORPORATION
(Registrant)
Date: May 14, 1997 /s/ MICHAEL J. SIMMONS
----------------------------
Michael J. Simmons
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)
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