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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, 1999
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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EPICOR SOFTWARE CORPORATION
(FORMERLY NAMED PLATINUM SOFTWARE CORPORATION)
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(Exact name of registrant as specified in its charter)
DELAWARE 33-0277592
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
195 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618-2402
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(Address of principal executive offices, zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 585-4000
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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
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As of May 1, 1999, there were 40,440,869 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................................................... 9
PART II - OTHER INFORMATION............................................................ 19
Item 1 - Legal Proceedings....................................................... 19
Item 6 - Exhibits and Reports on Form 8-K........................................ 19
SIGNATURE .......................................................................... 20
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PART I
FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS:
EPICOR SOFTWARE CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, December 31,
1999 1998
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ASSETS
Current assets:
Cash and cash equivalents $ 17,432 $ 22,175
Short-term investments 29,872 30,511
Accounts receivable, net 79,063 84,789
Inventories 1,213 971
Prepaid expenses and other 12,118 13,826
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Total current assets 139,698 152,272
Property and equipment, net 13,575 13,388
Software development costs, net 6,955 5,572
Intangible assets, net 30,320 32,056
Other assets 9,187 8,989
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$ 199,735 $ 212,277
==============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,041 $ 16,490
Accrued expenses 20,377 24,741
Accrued merger and restructuring costs 9,914 15,090
Deferred revenue 33,322 36,845
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Total current liabilities 76,654 93,166
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Long-term liabilities 885 1,116
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Stockholders' equity:
Preferred stock 7,501 7,501
Common stock 40 40
Additional paid-in capital 233,745 232,042
Less: notes receivable from officers for issuance of
restricted stock (11,563) (11,563)
Accumulated other comprehensive income (loss) 178 (245)
Accumulated deficit (107,705) (109,780)
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Total stockholders' equity 122,196 117,995
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$ 199,735 $ 212,277
==============================================================================================
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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EPICOR SOFTWARE CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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Three Months Ended
March 31,
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1999 1998
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Revenues:
License fees $25,638 $15,410
Services 38,702 10,828
Other revenue 1,765 135
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Total revenue 66,105 26,373
Cost of revenues 28,004 7,726
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Gross profit 38,101 18,647
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Operating expenses:
Sales and marketing 20,645 10,292
Software development 5,559 2,943
General and administrative 10,539 1,219
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Total operating expenses 36,743 14,454
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Income from operations 1,358 4,193
Other income, net 1,083 150
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Income before provision for income taxes 2,441 4,343
Provision for income taxes 366 --
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Net income $ 2,075 $ 4,343
==============================================================================================
Basic net income per share $ 0.05 $ 0.18
==============================================================================================
Shares used in computing basic net income per share 40,433 24,713
==============================================================================================
Diluted net income per share $ 0.05 $ 0.15
==============================================================================================
Shares used in computing diluted net income per share 41,935 29,945
==============================================================================================
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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EPICOR SOFTWARE CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
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Three Months Ended
March 31,
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1999 1998
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Cash flows from operating activities:
Net income $ 2,075 $ 4,343
Adjustments to reconcile net income to net
cash used in operating activities
Depreciation and amortization 4,072 1,162
Changes in operating assets and liabilities:
Accounts receivable, net 5,726 (6,023)
Inventories (242) (18)
Prepaid expenses and other 1,708 (413)
Other assets (198) (177)
Accounts payable (3,449) 77
Accrued expenses (4,364) 751
Accrued restructuring costs (5,176) (240)
Deferred revenue (3,523) 2,562
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Cash (used in) provided by operating activities (3,371) 2,024
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Cash flows from investing activities:
Capital expenditures, net (2,444) (621)
Capitalized software development costs (1,598) (192)
Purchase of short-term investments (15,000) (6,000)
Proceeds from sale and maturity of short-term investments 15,639 7,062
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Cash (used in) provided by investing activities (3,403) 249
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Cash flows from financing activities:
Exercise of common stock options 1,280 2,736
Issuance of common stock under the Employee Stock
Purchase Plan 423 --
Payments of long-term liabilities (231) (14)
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Cash provided by financing activities 1,472 2,722
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Effect of exchange rates on cash 559 (414)
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Net (decrease) increase in cash and cash equivalents (4,743) 4,581
Cash and cash equivalents, beginning of period 22,175 4,466
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Cash and cash equivalents, end of period $ 17,432 $ 9,047
==============================================================================================
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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EPICOR SOFTWARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements present
the financial position of Epicor Software Corporation (the "Company") as of
March 31, 1999 and December 31, 1998 and the results of its operations and its
cash flows for the three months ended March 31, 1999 and 1998. These financial
statements 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 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 consolidated financial
statements and notes thereto included in the Company's Transitional Report on
Form 10-K for the transition period July 1, 1998 to December 31, 1998.
In the opinion of management, the unaudited condensed consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Company's financial
position, results of operations and cash flows.
Current and future financial statements may not be directly comparable to the
Company's historical financial statements. The results of operations for the
three months ended March 31, 1999, are not necessarily indicative of the results
of operations to be expected for the entire year ending December 31, 1999.
COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, Reporting Comprehensive Income as of December
31, 1998. SFAS No. 130 requires disclosure of the total non-stockholder changes
in equity resulting from revenue, expenses, and gains and losses, including
those which do not affect retained earnings. The following table sets forth the
components of comprehensive income (amounts in thousands):
Three Months Ended
March 31,
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1999 1998
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Net income $ 2,075 $ 4,343
Foreign currency translation adjustment 423 (414)
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Comprehensive income $ 2,498 $ 3,929
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BASIC AND DILUTED NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period. Diluted
income per share is computed by dividing net income by the weighted average
number of shares of common stock and common stock equivalents outstanding during
the period.
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EPICOR SOFTWARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
The following table sets forth the computation of basic and diluted net income
per share (in thousands, except per share amounts):
Three Months Ended
March 31,
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1999 1998
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Numerator:
Net income - numerator for basic $ 2,075 $ 4,343
and diluted net income per share
Denominator:
Denominator for basic net income 40,433 24,713
per share - weighted average shares
Effect of dilutive securities:
Employee stock options 549 2,162
Preferred stock 953 3,070
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Dilutive potential common shares 1,502 5,232
Denominator for diluted net income per share 41,935 29,945
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Basic net income per share $ 0.05 $ 0.18
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Diluted net income per share $ 0.05 $ 0.15
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In July 1998, the remaining outstanding Series B Preferred Stock automatically
converted to common stock.
ACQUISITION
On December 31, 1998, the Company acquired DataWorks Corporation ("DataWorks") a
publicly traded provider of enterprise resource planning software based in San
Diego, California. As consideration for the acquisition, the Company issued
11,739,459 shares of common stock in exchange for all of the outstanding shares
of common stock of DataWorks. The exchange ratio used with respect to the
conversion of the DataWorks shares was 0.794 (i.e., each share of DataWorks
common stock converted into 0.794 shares of the Company's common stock). In
addition, options and warrants to acquire DataWorks common stock were converted
as a result of the acquisition into equivalent options and warrants for the
Company's common stock, based upon the exchange ratio. The acquisition was
accounted for as a purchase for financial reporting purposes, and the results of
operations of DataWorks are included with the results of the Company's
operations subsequent to the date of acquisition.
RESTRUCTURING
In December 1998, the Company underwent a restructuring as a result of the
DataWorks acquisition. This resulted in a restructuring charge of $5.95 million,
which was recorded in the three months ended December 31, 1998. Such amount
included approximately $5.5 million for severance and other extended benefit
costs related to a reduction in force of approximately 30 people, and
approximately $0.45 million in lease terminations and buyout costs related to
the closure of duplicate facilities.
At December 31, 1998, the Company also recorded $7.1 million in accrued costs
related to the DataWorks acquisition. These costs included investment banking
fees, legal and accounting fees, severance payments, lease terminations and
various estimated costs accrued by DataWorks during the three months ended
December 31, 1998 associated with the acquisition of DataWorks by the Company.
During the three months ended March 31, 1999, the Company paid $5.1 million in
previously-accrued transaction fees, severance, lease termination and other
costs related to the 1998 acquisition and restructuring. In addition, the
Company also paid $0.1 million in duplicate facility costs related to
restructuring charges accrued in 1996 and 1997. At March 31, 1999, the Company
has $9.9 million in cash obligations related to severance payments, lease
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EPICOR SOFTWARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
terminations and other estimated costs of the 1996, 1997 and 1998 restructurings
and the 1998 acquisition which the Company expects to fund from existing cash
reserves and working capital during the year 1999.
SETTLEMENT OF PENDING TRADEMARK LITIGATION
In February 1999, the Company and PLATINUM technology International, Inc.
(PLATINUM technology) settled all claims under pending trademark litigation
between the two companies. Under terms of the settlement, the Company has
transferred all rights to the PLATINUM trademark to PLATINUM technology.
PLATINUM technology granted the Company a one-year license to use Platinum
Software Corporation as its corporate name and agreed to pay the Company $4
million to offset costs associated with changing the Company's name, which the
Company is obligated to do under the settlement. Because of this obligation, the
Company has deferred the recognition of the settlement and at March 31, 1999,
recorded a receivable in the amount of $4 million and an equivalent accrued
liability to reflect the obligation. Costs associated with the name change will
be offset by the accrued liability as incurred. Upon completion of all costs
associated with the name change, any remaining amount will be recorded as a
gain. Additionally, PLATINUM technology has granted the Company a license to use
the Platinum mark in connection with the marketing and sale of certain products.
Finally, the Company entered into a reseller agreement with PLATINUM technology
as part of the settlement, whereby the Company will distribute PLATINUM
technology products, and in connection with this provision, the Company will
receive certain credits based on the level of product sold.
CONTINGENCIES
DataWorks, and certain of its officers, directors and former officers, have been
named as defendants in two lawsuits alleging violations of the federal
securities laws. The complaints were filed in the United States District Court
for the Southern District of California. They purport to be brought on behalf of
classes of stockholders who purchased DataWorks stock, and allege that between
October 30, 1997 and July 16, 1998, the defendants issued misleading statements
concerning DataWorks' acquisition of the Interactive Group, Inc. and sales of
certain products. The complaints do not specify the dollar amount of damages
alleged or relief requested. The Company is also named in the lawsuit as a
defendant as a successor of DataWorks.
The Company is subject to miscellaneous legal proceedings in the normal course
of business and other legal proceedings. 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.
SUBSEQUENT EVENT
On April 29, 1999, the Company filed a certificate of amendment to its
Certificate of Incorporation in which the Company changed its corporate name to
Epicor Software Corporation. This name change was approved by the Company's
stockholders at a duly held meeting on April 29, 1999.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
OVERVIEW
Acquisition
On December 31, 1998, the Company acquired DataWorks Corporation ("DataWorks") a
publicly traded provider of enterprise resource planning software based in San
Diego, California. As consideration for the acquisition, the Company issued
11,739,459 shares of common stock in exchange for all of the outstanding shares
of common stock of DataWorks. The exchange ratio used with respect to the
conversion of the DataWorks shares was 0.794 (i.e., each share of DataWorks
common stock converted into 0.794 shares of the Company's common stock). In
addition, options and warrants to acquire DataWorks common stock were converted
as a result of the acquisition into equivalent options and warrants for the
Company's common stock, based upon the exchange ratio. The acquisition was
accounted for as a purchase for financial reporting purposes, and the results of
operations of DataWorks are included with the results of the Company's
operations subsequent to the date of acquisition. The acquisition of DataWorks
resulted in a material increase in the Company's revenues and expenses for the
three months ended March 31, 1999; accordingly, current and future financial
statements are not directly comparable to the Company's historical financial
statements.
RESULTS OF OPERATIONS
Net income for the first quarter of 1999 was $2.1 million, or $0.05 per diluted
share, as compared to net income of $4.3 million, or $0.15 per diluted share,
for the comparable quarter of 1998. The following summarizes the significant
aspects related to the Company's results of operations.
Revenues
Revenues were approximately $66.1 million and $26.4 million for the three months
ended March 31, 1999 and 1998, respectively, representing an increase of 150%.
The increase for the three months ended March 31, 1999 was primarily a result of
the DataWorks acquisition as stated above.
Total license fee revenue was approximately $25.6 million and $15.4 million for
the three months ended March 31, 1999 and 1998, respectively, representing an
increase of 66%. The growth in license fee revenue was attributable to the
DataWorks suite of software products licensed during the three months ended
March 31, 1999 which consisted primarily of the Avante product and to a lesser
extent, the Vantage and Vista products. An increase in license fee revenue from
the Company's Clientele product also contributed to the growth. Although license
fee revenue increased in absolute dollars, as a percentage of total revenues,
license fee revenue decreased from 58% to 39% for the three months ended March
31, 1999. The change in revenue mix was impacted by the acquisition of DataWorks
which in recent quarters reported relatively less license fees as a percentage
of total revenues than the Company's previous results. In addition, the change
in revenue mix was due to reduced license fee revenue experienced during the
three months ended March 31, 1999, due to unusually high attrition of the Avante
sales force following the acquisition and to a lesser extent, reduced Vantage
license fees attributable to a sales force reorganization. A decrease in license
fee revenue from the Company's Platinum ERA product line also contributed to the
change in revenue mix. The reduced license fees experienced from the Platinum
ERA product line was attributable to increased competition and uncertainty in
the marketplace over the integration of applications following the DataWorks
acquisition.
International license fee revenue increased $5.0 million or 119% to $9.2 million
for the three months ended March 31, 1999. As a percentage of total license fee
revenue, International represented 36% and 27% for the three months ended March
31, 1999 and 1998, respectively. The increases were primarily attributable to
the DataWorks acquisition as DataWorks had a larger European sales force and
marketing presence then the Company prior to the acquisition.
Services revenue increased $27.9 million or 257% to $38.7 million for the three
months ended March 31, 1999 from $10.8 million for the same period in the prior
year. The increase was primarily a result of the DataWorks acquisition and to a
lesser extent, revenue growth realized from the existing customer base. Services
revenue attributable to the DataWorks acquisition derived from the Avante,
Vantage and Vista customer base, totaled approximately $22.2 million for the
three months ended March 31, 1999. The remaining increase of approximately
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$5.7 million in services revenue was generated primarily from the Company's
Platinum ERA customer base and attributable to an overall rise in the installed
base of end-users and an increase in the number of revenue-generating
professional service personnel.
Other revenue increased $1.7 million to $1.8 million in the three months ended
March 31, 1999 from $0.1 million for the same period in 1998. The increase was
attributable to the DataWorks acquisition and consisted primarily of third-party
hardware sales.
Gross Profit
Gross profit as a percentage of revenues was 58% and 71% for the three months
ended March 31, 1999 and 1998, respectively. The decrease was primarily
attributable to the acquisition of DataWorks which historically reported lower
gross profit percentages then the Company compounded by a change in the overall
revenue mix experienced during the three months ended March 31, 1999. The
overall gross profit percentage was unfavorably impacted by a higher cost
structure underlying services revenue generated from the Avante, Vantage and
Vista customer base combined with lower gross profit percentage realized from
third-party hardware sales. In addition, the reduction in gross margin
percentage was due to a higher proportion of overall revenues recognized from
services revenue during the three months ended March 31, 1999, which bear a
lower gross margin percentage then license fee revenue.
Operating Expenses
Total operating expenses increased from $14.5 million for the three months ended
March 31, 1998 to $36.7 million for the three months ended March 31, 1999. The
increase was primarily a result of the DataWorks acquisition. Total operating
expenses as a percentage of revenues increased from 55% to 56% for the three
months ended March 31, 1999 and was attributable to increased expenses
undertaken to position the Company for possible growth.
Sales and marketing expenses were $20.6 million and $10.3 million for the three
months ended March 31, 1999 and 1998, respectively, or 31% and 39% of total
revenues. The absolute dollar increase was a result of the DataWorks
acquisition. The decrease as a percentage of total revenues was attributable to
lower marketing related infrastructure costs due to a current refinement in cost
alignments as discussed below.
Software development expenditures were $7.2 million and $3.1 million or 11% and
12% of total revenues for the three months ended March 31, 1999 and 1998,
respectively, before capitalization of software costs of $1.6 and $0.2 million.
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
22% for the three months ended March 31, 1999 and 6% for the three months ended
March 31, 1998. During the three months ended March 31, 1999, costs were
capitalized for the localization and translation into different languages of the
Platinum ERA product and certain applications of the Platinum ERA 7.0a release.
General and administrative expenses were $10.5 million and $1.2 million for the
three months ended March 31, 1999 and 1998, respectively, or 16% and 5% of total
revenues. The increases were primarily attributable to the acquisition of
DataWorks, which included a higher general and administrative cost
infrastructure. In connection with the acquisition, the Company broadened its
qualified pool of general and administrative costs in order to report results of
operations more consistent with the Company's actual operating infrastructure.
Other Income
Other income for the three months ended March 31, 1999 and 1998, was $1.1
million and $0.2, respectively. Other income included $0.7 million in realized
foreign currency gains due to the strengthening of the U.S. dollar against
primarily the Canadian dollar and Iris punt and $0.3million of interest earned
on the Company's cash, cash equivalents and short-term investments held during
the three months ended March 31, 1999.
Provision for Income Taxes
The Company has recorded a provision for income taxes of $366,000 for the three
months ended March 31, 1999 for expected federal alternative minimum taxes
payable and expected certain foreign taxes payable. For the comparable period in
1998, the Company's tax expense was offset by a reduction of valuation
allowances related to net deferred tax assets recorded in prior years.
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Liquidity and Capital Resources
As of March 31, 1999, the Company's principal sources of liquidity included cash
and cash equivalents and short-term investments of $47.3 million. These
resources decreased by $5.4 million from the December 31, 1998 balance primarily
due to the payment of accrued restructuring and merger costs, 1998 bonuses,
sales commissions and capital expenditures, offset in part by the collection of
accounts receivable. The Company had working capital of $59.1 million at
December 31, 1998 compared to working capital of $63.0 million at March 31,
1999.
During the three months ended March 31, 1999, the Company paid $5.1 million for
severance, lease termination and other costs related to the 1998 restructuring.
In addition, the Company also paid $0.1 million in duplicate facility costs
related to restructuring charges accrued in 1996 and 1997. At March 31, 1999,
the Company has $9.9 million in cash obligations related to severance payments,
lease terminations and other costs of the 1996, 1997 and 1998 restructurings.
The Company believes that these obligations will be funded from existing cash
reserves, working capital and operations.
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.
Year 2000 Issues
OVERVIEW. The Year 2000 Problem generally involves whether a computer system,
software product or business system, when working alone or in conjunction with
other software or hardware systems, accepts input of, stores, manipulates and
outputs dates in the Year 2000 or thereafter without error or interruption (the
"Year 2000 Problem"). The Year 2000 Problem potentially impacts the Company in
the following principal areas: (i) The Company's software products, including
products manufactured by third parties that are resold by the Company; (ii) the
Company's internal technology systems; (iii) the Company's non-internal
technology systems which contain embedded computer devices; and (iv) the
business systems of the Company's distributors, resellers and customers. The
Company's Year 2000 efforts are being managed by a team of internal staff and
third party consultants specializing in Year 2000 issues.
COMPANY PRODUCTS. As a leading supplier of client/server enterprise resource
planning software for the middle market, the Company is aware of the Year 2000
Problem and is committed to offering software products that are Year 2000
compliant. The Company presently believes that the current releases of its
Platinum ERA, Platinum ERA and Platinum for Windows software products are Year
2000 compliant. The Company's Platinum for DOS product, which was initially
released in the mid-1980s was not Year 2000 compliant until the release of
version 4.6 in August 1998. The version 4.6 release is being offered for free to
all existing Platinum for DOS users on maintenance. The Company believes that
the current releases of the products acquired in the DataWorks merger are also
Year 2000 compliant. While the Company's products are the subject of a
continuing testing program, there can be no assurance that these products do not
contain undetected errors associated with the year 2000-date functions that may
result in material costs to the Company. See "Certain Factors that May Affect
Future Results - Risks Associated with Year 2000 Compliance."
As part of its Platinum ERA, Platinum ERA and Platinum for Windows product lines
the Company resells certain products that are manufactured by third parties,
both on an OEM and reseller basis. In addition, such products, in certain cases,
include third party technology. The Company has received assurances from such
third parties regarding the Year 2000 compliance of the third party products.
Despite these assurances, there can be no guaranty that the third party products
do not contain undetected errors associated with Year 2000 date functions. The
Company is in the process of formally querying the suppliers of third party
products that are resold with or embedded in the DataWorks software products as
to their progress in identifying and addressing Year 2000 Problems. It is
possible that such formal inquiries will uncover unanticipated Year 2000 issues.
INTERNAL TECHNOLOGY SYSTEMS. The Company's internal technology systems include
telecommunications (phones, voice mail and network connections), computer
hardware (personal computers and network servers) and software. The Company has
assessed the Year 2000 Problem with respect to telecommunications with the
exception of its Louisville, Kentucky and New York offices. The assessment with
respect to these offices is scheduled to be completed prior to July 31, 1999.
The Company has identified fixes that need to be made to its telecommunications
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systems to make them Year 2000 compliant. These fixes relate primarily to
upgrades to voice mail and phone systems at some of the Company's international
offices and sales offices. It is anticipated that these fixes will be
implemented by September 1, 1999 and fully tested by September 30, 1999. In
addition, the Company has assessed approximately 90 percent of its hardware used
for Year 2000 compliance and has not uncovered any material non- compliance. The
assessment of the remaining 10 percent is scheduled to be completed by July 31,
1999. The Company's principal software systems include accounting, customer
support, order entry and desktop productivity (e-mail, word processing,
spreadsheets, etc.). The Company uses Microsoft Corporation products for desktop
productivity which have been certified by Microsoft as Year 2000 compliant with
minor issues. The Company, for the most part, uses its own products for its
accounting, order entry and customer support software needs. Certain former
DataWorks offices use third party accounting software and the Company is in the
process of converting to its own accounting software for internal use.
NONINTERNAL TECHNOLOGY SYSTEMS. Noninternal technology systems include security
systems, elevators and other systems which contain an embedded computer or
computer like device which is used to control the operation of plant, machinery
and equipment. Most of embedded systems on which the Company relies in its daily
operations are owned and managed by the lessors of the facilities in which the
Company's operations are located. The Company has not assessed completely
whether there are any Year 2000 Problems with its noninternal technology systems
and anticipates that the full assessment will be completed by July 31, 1999. The
Company is in the process of completing a contingency plan for its internal and
non-internal technology systems which it expects to complete by September 1,
1999.
THIRD PARTY RELATIONSHIPS. The Company has over 350 resellers of its software
products, including distributors and VARs. No one of the resellers is
responsible for a material amount of the Company's license fees. The Company,
from time to time, queries its resellers as to their progress in identifying and
addressing Year 2000 Problems. Although the Company feels confident that its
internal technology will be Year 2000 ready, the Company does recognize that it
is vulnerable, as are most organizations, to the inability of significant
suppliers and utility organizations to become Year 2000 ready. For example, the
failure or interruption of electrical services would disrupt the Company's
ability to communicate with its customers, suppliers, business partners and
others and would adversely affect the Company's operations.
To date the Company has incurred approximately $100,000 in Year 2000 remediation
costs which was funded from working capital. The Company expects to incur an
additional $225,000 by September 1, 1999 to upgrade voice mail and phone systems
at some of the Company's international offices and sales offices. The Company
recently engaged a third party consulting firm to assist with Year 2000
readiness efforts. These efforts include continued product testing and
contingency planning. The Company anticipates spending between approximately
$1.5 million and $2.0 million for this effort. These fees will be expensed as
incurred during the remainder of 1999 and the first quarter of 2000.
FORWARD LOOKING STATEMENTS. The Company has made forward looking statements
regarding its Year 2000 readiness, anticipated dates for completion of
assessment, testing, and implementation of fixes and anticipated costs to be
incurred. The Company has described many of the risks associated with these
forward looking statements. See "Certain Factors that May Affect Future Results
- - Risks Associated with Year 2000 Compliance." The Company wishes to caution the
reader that there are many factors that could cause its actual results to differ
materially from those stated in the forward looking statements. This is
especially the case because many aspects of Year 2000 readiness are outside the
control of the Company, such as the performance of third party suppliers. All of
these factors make it impossible for the Company to ensure that it will be able
to resolve all Year 2000 problems in a timely manner to avoid materially
adversely affecting its operations or business.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
FORWARD LOOKING STATEMENTS. Certain statements in this Quarterly Report,
including statements regarding the anticipated dates of product releases and
commercial shipments, and the anticipated dates of completion of Year 2000
assessments, testing and implementation of fixes are forward looking statements
within the meaning of Section 27A of the Securities and Exchange Act of 1993, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended,
that involve risks and uncertainties. Any statements contained herein (including
without limitation statements to the effect that the Company or Management
"estimates," "expects," "anticipates," "plans," "believes," "projects,"
"continues," "may," or "will" or statements concerning "potential" or
"opportunity" or variations thereof or comparable terminology or the negative
thereof,) that are not statements of historical fact should be construed as
forward looking statements. Actual results could differ materially and adversely
from those
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anticipated in such forward looking statements as a result of certain factors
including the factors listed at pages 12-17. 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.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's quarterly operating
results have fluctuated in the past. The Company's operating results may
fluctuate in the future as a result of many factors that may include:
o The demand for the Company's products
o The size and timing of orders for the Company's products
o The number, timing and significance of new product announcements by
the Company and its competitors
o The Company's ability to introduce and market new and enhanced
versions of its products on a timely basis
o The level of product and price competition
o Changes in operating expenses of the Company
o Changes in average selling prices
In addition, the Company will most likely record a significant portion of its
revenues in the final month of a quarter with a concentration of such revenues
recorded in the final 10 business days of that month.
Due to the above factors, among others, the Company's revenues will be difficult
to forecast. The Company, however, will base its expense levels, in significant
part, on its expectations of future revenue. As a result, the Company expects
its expense levels to be relatively fixed in the short run. The Company's
failure to meet revenue expectations could adversely affect operating results.
Further, an unanticipated decline in revenue for a particular quarter may
disproportionately affect the Company's net income because a relatively small
amount of the Company's expenses will vary with its revenues in the short run.
As a result, the Company believes that period-to-period comparisons of the
Company's results of operations are not and will not necessarily be meaningful,
and you should not rely upon them as an indication of future performance. Due to
the foregoing factors, it is likely that in some future quarter the Company's
operating results will be below the expectations of public market analysts and
investors. Such an event would likely have a material adverse effect upon the
price of the Company's Common Stock.
INTEGRATION OF DATAWORKS. On December 31, 1998, a wholly owned subsidiary of the
Company was merged with DataWorks and DataWorks became a subsidiary of the
Company. The Company is still in the process of integrating the operations of
the two companies. During the first quarter of 1999, a significant number of
Avante sales representatives and certain sales management employees have
resigned from the Company. The Company expects that these departures will
materially adversely effect the Company's revenues from the Avante product in
the near term, as well as the Company's financial results. There can be no
assurance that other employees will not resign from the Company. There may be
substantial difficulties, costs and delays involved in integrating the
operations of DataWorks. These difficulties, costs and delays may include:
o Distracting management from the business of the Company
o Potential incompatibility of business cultures
o Perceived and potential adverse change in client service standards,
business focus, billing practices or service offerings available to
clients
o Potential inability to successfully coordinate the research and
development and sales and marketing efforts
o Costs and delays in implementing common systems and procedures,
including financial accounting systems
o Costs and inefficiencies in delivering services to the clients of the
Company
o Inability to retain and integrate key management, technical sales and
customer support personnel
o Potential conflicts in direct sales channels and VARs
Further, there is no assurance that the Company will retain and successfully
integrate its key management, technical, sales and customer support personnel,
or that it will realize any of the anticipated benefits of the DataWorks Merger.
Any one or all of the factors identified above may cause increased operating
costs, lower than anticipated financial performance or the loss of customers and
employees. The failure to integrate the Company and DataWorks will have a
material adverse effect on the business, financial condition and results of
operations of the Company.
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 its existing client/server enterprise resource
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planning applications, such as human resources and payroll products. This
strategy may involve acquisitions, investments in other businesses that offer
complementary products, joint development agreements or licensing of technology
agreements. The risks commonly encountered in the acquisitions of businesses
would accompany any future acquisitions or investments by the Company. Such
risks may include, the following:
o The difficulty of integrating previously distinct businesses into one
business unit
o The substantial management time devoted to such activities
o The potential disruption of the Company's ongoing business
o Undisclosed liabilities
o Failure to realize unanticipated benefits (such as synergies and cost
savings)
o Issues related to product transition (such as development,
distribution and customer support)
The Company expects that the consideration it would pay in such future
acquisitions would consist of stock, rights to purchase stock, cash or some
combination. If the Company issues stock or rights to purchase stock in
connection with these future acquisitions, earnings per share and then-existing
holders of the Company's Common Stock may experience dilution.
DEPENDENCE ON DISTRIBUTION CHANNELS. The Company distributes its Platinum for
Windows product exclusively through third-party distributors and VARs, and
distributes its Platinum ERA product, including Clientele, through a direct
sales force as well as through VARs and distributors. The Company's distribution
channel includes distributors, VARs and authorized consultants, which consist
primarily of professional firms. The Company's agreements with its VARs and
authorized consultants do not require such VARs and consultants to offer
exclusively or recommend the Company's products, and either party can terminate
such agreements with or without cause. If the Company's VARs or authorized
consultants cease distributing or recommending the Company's products or
emphasize competing products, the Company's results of operations could be
materially and adversely affected. In addition, Platinum ERA, a client/server
ERP application, requires additional skill and training for successful
implementation. Although the Company is actively seeking additional VARs to sell
Platinum ERA, delays in training or recruiting VARs could adversely impact the
Company's ability to generate license revenue from its Platinum ERA line of
products.
In the fourth quarter of fiscal 1996, the Company reestablished a direct sales
force for Platinum ERA. There can be no assurance that the direct sales force
will not lead to conflicts with the Company's VAR channel.
DEPENDENCE ON PRINCIPAL PRODUCTS. The Company derives a substantial portion of
its revenue from the sale of information systems and related support services.
Accordingly, any event that adversely affects fees derived from the sale of such
systems would materially and adversely affect the Company's business, results of
operations and performance. These events may include:
o Competition from other products
o Significant flaws in the Company's products
o Incompatibility with third-party hardware or software products
o Negative publicity or evaluation of the Company or its products
o Obsolescence of the hardware platforms or software environments in
which the Company's systems run.
RISKS OF PRODUCT DEFECTS. Software products as complex as those ERP products
offered by the Company may contain undetected errors or failures when first
introduced or as new versions are released. Despite testing by the Company, and
by current and potential customers, any of the Company's products may contain
errors after their commercial shipment. Such errors may cause loss of or delay
in market acceptance of the Company's products. The Company has been informed by
customers of certain errors with respect to its Avante product which the Company
is addressing. The inability of the Company to correct such errors in a timely
manner could have a material adverse effect on the Company's results of
operations. In addition, technical problems with the current release of the
database platforms on which the Company's products operate could impact sales of
these products, which could have a material adverse effect on the Company's
results of operations.
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RELIANCE ON THIRD-PARTY SUPPLIERS. The Company's products incorporate and use
software products developed by other entities. The Company cannot assure you
that such third parties will:
o Remain in business
o Support the Company's product line
o Maintain viable product lines
o Make their product lines available to the Company on commercially
acceptable terms
Any significant interruption in the supply of such third-party technology could
have a material adverse effect on the Company's business, results of operation
and financial condition.
RISKS ASSOCIATED WITH RAPID TECHNOLOGICAL CHANGE AND PRODUCT DEVELOPMENT. The
market for the Company's software products is subject to ongoing technological
developments, evolving industry standards and rapid changes in customer
requirements. As companies introduce products that embody new technologies or as
new industry standards emerge, existing products may become obsolete and
unmarketable. The Company's future business, operating results and financial
condition will depend on its ability to:
o Enhance its existing products
o Develop new products that address the increasingly sophisticated needs
of its customers
o Develop products for additional platforms
Further, if the Company fails to respond to technological advances, emerging
industry standards and end-user requirements, or experiences any significant
delays in product development or introduction, the Company's competitive
position and revenues could be adversely affected. The Company's success will
depend on its ability to develop and successfully introduce new products and
services. The Company cannot assure you that it will successfully develop and
market new products on a timely basis, if at all. Any such delay or failure
could have a material adverse effect on the Company's business, results of
operations and financial condition. From time to time, the Company or its
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. The Company cannot assure you that such announcements will not cause
customers to delay or alter their purchasing decisions, which could have a
material adverse effect on the Company's business, operating results and
financial condition.
DEPENDENCE ON CLIENT/SERVER ENVIRONMENT. The Company's development tools,
application products and consulting and education services help organizations
build, customize or deploy solutions that operate in a client/server computing
environment. The Company cannot assure you 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 will be materially and adversely affected.
HIGHLY COMPETITIVE INDUSTRY. The business information systems industry in
general and the ERP computer software industry in particular are very
competitive and subject to rapid technological change. Many of the Company's
current and potential competitors have (1) longer operating histories, (2)
significantly greater financial, technical and marketing resources, (3) greater
name recognition, (4) larger technical staffs, and (5) a larger installed
customer base than the Company has. A number of companies offer products that
are similar to the Company's products and that target the same markets. In
addition, any of these competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements, and to devote
greater resources to the development, promotion and sale of their products than
the Company. Furthermore, because there are relatively low barriers to entry in
the software industry, the Company expects to experience additional competition
from other established and emerging companies. Such competitors may develop
products and services that compete with those offered by the Company or may
acquire companies, businesses and product lines that compete with the Company.
It also is possible that competitors may create alliances and rapidly acquire
significant market share. Accordingly, the Company cannot assure you that the
Company's current or potential competitors will not develop or acquire products
or services comparable or superior to those that the Company develops, combine
or merge to form significant competitors, or adapt more quickly than will the
Company to new technologies, evolving industry trends and changing customer
requirements. Competition could cause price reductions, reduced margins or loss
of market share for the Company's products and services, any of which could
materially and adversely affect the Company's business, operating results and
financial condition. The Company cannot assure you that the Company will be able
to compete successfully against current and future competitors or that the
competitive pressures that the Company may face will not materially adversely
affect its business, operating results and financial condition.
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DEPENDENCE ON MANUFACTURING INDUSTRY. The Company's business depends, in large
part, upon the capital expenditures of mid-range discrete manufacturers, which
in part depend upon the demand for such manufacturers' products. A recession or
other adverse event that affects the manufacturing industry in the United States
or in other markets that the Company serves could affect such demand. Decreased
demand could force manufacturers in the Company's target markets to curtail or
postpone capital expenditures on business information systems. Any such change
in the amount or timing of capital expenditures in its target markets could
materially and adversely affect the Company's business and operations.
RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE. Significant uncertainty exists in
the software industry concerning the potential effects of the "Year 2000" issue.
The "Year 2000" issue exists because the date codes used in some computer
software and hardware systems use only two digits so that many computer systems
cannot distinguish between the years 1900 and 2000. The Company believes that
the current versions of its products are Year 2000 compliant. However, despite
its belief and although the Company has conducted or is conducting its own
quality testing procedures, we cannot assure you that the Company's software
products contain all necessary date code changes or do not contain errors
related to the Year 2000. If any of the Company's software products fail to
perform, including failures due to the onset of calendar year 2000 there would
likely be a material adverse effect on the Company's business, financial
condition and results of operations.
The Company is currently evaluating its information technology infrastructure
for Year 2000 compliance, including reviewing what actions are required to make
all software systems used internally Year 2000 compliant as well as actions
necessary to make the Company less vulnerable to Year 2000 compliance problems
associated with third parties' systems. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations Year 2000 Issues." We
cannot assure you that such measures will alleviate all Year 2000 problems which
could have a material adverse effect on the Company's business, operating
results and financial condition.
The Company believes that as the Year 2000 approaches, potential purchasers of
ERP software systems may curtail or delay their purchases of ERP software until
the Year 2000 passes and the potential purchaser is comfortable that its
business operations are not negatively impacted by the Year 2000. As a result,
it is possible that in the remainder of calendar 1999 and into the first six
months of 2000 the Company may experience a reduction in revenues from ERP
software sales and such reduction may materially and adversely affect the
Company's financial results.
DEPENDENCE ON RETENTION AND INTEGRATION OF KEY PERSONNEL. The Company's success
depends on the continued service of key management personnel, including L.
George Klaus, William Pieser, Ken Lally, Stuart W. Clifton and Norman R.
Farquhar. Messrs. Klaus, Pieser, Lally and Farquhar are not subject to an
employment agreement for a specified time duration with the Company. In
addition, the competition to attract, retain and motivate qualified technical,
sales and operations personnel is intense. During the first quarter of 1999, a
significant number of Avante sales representatives and certain sales management
employees have resigned from the Company. The Company expects that these
departures will materially adversely affect the Company's revenues from the
Avante product in the near term as well as the Company's financial results. The
Company is actively seeking qualified replacements. The Company has at times
experienced, and continues to experience, difficulty in recruiting qualified
personnel, particularly in software development and customer support. There is
no assurance that the Company can replace the departed employees in a timely
manner or retain its key personnel or attract other qualified personnel in the
future. The failure to attract or retain such persons could have a material
adverse effect on the Company's business, operating results, cash flows and
financial condition.
RISKS ASSOCIATED WITH INTERNATIONAL SALES. The following table compares
international sales of the Company to the total revenues of the Company for the
periods indicated.
International Sales as a Percentage of Total Revenues
-----------------------------------------------------
Six Months ended December 31, 1998 -- 27%
Three Months ended March 31, 1999 -- 29%
The Company believes that any future growth of the Company will be dependent, in
part, upon its ability to increase revenues in international markets. The
Company will continue to expand its operations outside of the United States. The
expansion will require significant management attention and financial resources
and could adversely affect the Company's margins. To increase international
sales in subsequent periods, the Company must establish additional foreign
operations, hire additional personnel and recruit international resellers. The
Company cannot assure you that the Company will maintain or expand its
international sales. If the revenues that the Company generates from
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foreign activities are inadequate to offset the expense of maintaining foreign
offices and activities, the Company's business, financial condition and results
of operations could be materially and adversely affected. International sales
are subject to inherent risks, including:
o Unexpected changes in regulatory requirements
o Tariffs and other barriers
o Unfavorable intellectual property laws
o Fluctuating exchange rates
o Difficulties in staffing and managing foreign sales and support
operations
o Longer accounts receivable payment cycles
o Difficulties in collecting payment
o Potentially adverse tax consequences, including repatriation of
earnings
o Lack of acceptance of localized products in foreign countries
o Burdens of complying with a wide variety of foreign laws
o Effects of high local wage scales and other expenses
Any one of these factors could materially and adversely affect the Company's
future international sales and, consequently, the Company's business, operating
results, cash flows and financial condition. In the recent past, the financial
markets in Asia, Latin America and other world regions have experienced
significant turmoil. Such turmoil in the Asian financial markets, in particular,
may negatively affect the Company's sales to that region. A portion of the
Company's revenues from sales to foreign entities, including foreign
governments, has been in the form of foreign currencies. The Company does not
have any hedging or similar foreign currency contracts. Fluctuations in the
value of foreign currencies could adversely impact the profitability of the
Company's foreign operations.
RISKS ASSOCIATED WITH INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS PROTECTION.
The Company relies on a combination of copyright, trademark and trade secret
laws, employee and third-party nondisclosure agreements and other industry
standard methods for protecting ownership of its proprietary software. However,
the Company cannot assure you that in spite of these precautions, an
unauthorized third party will not copy or reverse-engineer certain portions of
the Company's products or obtain and use information that the Company regards as
proprietary. The Company cannot assure you that the mechanisms that the Company
uses to protect its intellectual property will be adequate or that the Company's
competitors will not independently develop products that are substantially
equivalent or superior to the Company's products.
The Company may from time to time receive notices from third parties claiming
that its products infringe upon third-party intellectual property rights. The
Company expects that as the number of software products in the country increases
and the functionality of these products further overlaps, the number of these
types of claims will increase. Any such claim, with or without merit, could
result in costly litigation and require the Company to enter into royalty or
licensing arrangements. The terms of such royalty or license arrangements, if
required, may not be acceptable to the Company.
In addition, in certain cases, the Company provides the source code for its
application software under licenses to its customers to enable them to customize
the software to meet particular requirements. Although the source code licenses
contain confidentiality and nondisclosure provisions, we cannot assure you that
such customers will take adequate precautions to protect the Company's source
code or other confidential information.
SHARES ELIGIBLE FOR FUTURE SALE. As of May 1, 1999, the Company had 40,440,869
shares of common stock outstanding. There are presently 95,305 shares of Series
C Preferred Stock outstanding. 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 C
Preferred Stock is convertible into 953,050 shares of common stock. The holders
of the 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 C
Preferred Stock. Also, the Company has a substantial number of options or shares
issuable to employees under employee option or stock grant plans. 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.
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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.
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 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
INTEREST RISK. The Company's exposure to market risk for changes in interest
rates relates primarily to the Company's investment portfolio. The Company does
not use derivative financial instruments in its investment portfolio. The
Company places its investments with high credit quality issuers and, by policy,
limits the amount of credit exposure to any one issuer. The Company is adverse
to principal loss and ensures the safety and preservation of its invested funds
by limiting default risk, market risk, and reinvestment risk. The Company
mitigates default risk by investing in only the safest and highest credit
quality securities and by constantly positioning its portfolio to respond
appropriately to a significant reduction in a credit rating of any investment
issuer or guarantor. The portfolio includes only corporate debt securities and
municipal bonds.
FOREIGN CURRENCY RISK. The Company transacts business in various foreign
currencies, primarily in certain European countries, Canada and Australia. The
Company does not have any hedging or similar foreign currency contracts.
Although international revenues approximated 29% of the Company's total revenues
for the three months ended March 31, 1999, less than 20% of the revenues are
denominated in foreign currencies. Significant currency fluctuations could
adversely impact foreign revenues; however the Company does not foresee or
expect any significant changes in foreign currency exposure in the near future.
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PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS:
DataWorks, and certain of its officers, directors and former officers have been
named as defendants in two lawsuits alleging violations of the federal
securities laws. The complaints were filed in the United States District Court
for the Southern District of California. They purport to be brought on behalf of
classes of stockholders who purchased DataWorks stock, and allege that between
October 30, 1997 and July 16, 1998, the defendants issued misleading statements
concerning DataWorks' acquisition of the Interactive Group, Inc. and sales of
certain products. The complaints do not specify the dollar amount of damages
alleged or relief requested. The Company is also named in the lawsuit as a
defendant as a successor of DataWorks.
In February 1999, the Company and PLATINUM technology International, Inc.
(PLATINUM technology) settled all claims under pending trademark litigation
between the two companies. Under terms of the settlement, the Company has
transferred all rights to the PLATINUM trademark to PLATINUM technology.
PLATINUM technology granted the Company a one-year license to use Platinum
Software Corporation as its corporate name and agreed to pay the Company
$4 million to offset costs associated with changing the Company's name, which
the Company is obligated to do under the settlement. Because of this obligation,
the Company has deferred the recognition of the settlement and at March 31,
1999, recorded a receivable in the amount of $4 million and an equivalent
accrued liability to reflect the obligation. Costs associated with the name
change will be offset by the accrued liability as incurred. Upon completion of
all costs associated with the name change, any remaining amount will be
recorded as a gain. Additionally, PLATINUM technology has granted the Company a
license to use the Platinum mark in connection with the marketing and sale of
certain products. Finally, the Company entered into a reseller agreement with
PLATINUM technology as part of the settlement, whereby the Company will
distribute PLATINUM technology products, and in connection with this provision,
the Company will receive certain credits based on the level of product sold.
The Company is subject to miscellaneous legal proceedings in the normal course
of business. 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
10.63 1999 Merger Transition Nonstatutory Stock Option Plan and
Form of Nonstatutory Stock Option Agreement
10.64 Trademark License Agreement between the Company and
Platinum Technology, Inc. dated as of January 14, 1999
10.65 Value Added Reseller Agreement with Ardent Software
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.
EPICOR SOFTWARE CORPORATION
----------------------------
(Registrant)
Date: May 17, 1999 /s/ Norman R. Farquhar
--------------------------------
Norman R. Farquhar
Principal Financial Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.63 1999 Merger Transition Nonstatutory Stock Option Plan and
Form of Nonstatutory Stock Option Agreement
10.64 Trademark License Agreement between the Company and
Platinum Technology, Inc. dated as of January 14, 1999
10.65 Value Added Reseller Agreement with Ardent Software
27 Financial Data Schedule