UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 Commission File Number
MARCH 31, 1996 0-21010
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
GUPTA CORPORATION
(DOING BUSINESS AS CENTURA SOFTWARE COMPANY)
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2874178
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1060 Marsh Road
Menlo Park, California 94025
(Address of principal executive offices)
Registrant's telephone number, including area code:
(415) 321-9500
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 at least the past 90 days.
Yes X No
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As of June 30, 1996, there were 12,600,842 shares of the Registrant's common
stock outstanding.
GUPTA CORPORATION
FORM 10-Q For the Quarter Ended March 31, 1996
INDEX
Page
Facing sheet 1
Index 2
Part I. Financial Information
Item 1. a) Condensed consolidated balance sheets at
March 31, 1996 and December 31, 1995 3
b) Condensed consolidated statements of operations for
the three months ended March 31, 1996 and March 31, 1995 4
c) Condensed consolidated statements of cash flows for
the three months ended March 31, 1996 and March 31, 1995 5
d) Notes to condensed consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II Other Information 13
Signature 15
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ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GUPTA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS) March 31, December 31,
1996 1995
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Unaudited
ASSETS
Current Assets
Cash and cash equivalents $10,326 $9,865
Short-term investments 5,545 9,557
Accounts receivable, less allowances
of $3,464 in 1996 and $3,475 in 1995 10,891 12,174
Inventories 104 218
Other current assets 4,215 2,999
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Total current assets 31,081 34,813
Property and equipment, at cost, less accumulated
depreciation 5,432 5,881
Capital software, at cost, net of accumulated
amortization 3,491 2,980
Long-term investments 2,500 2,354
Other assets 2,028 2,076
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Total assets $44,532 $48,104
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of long-term debt $ 384 $ 397
Accounts payable 5,813 6,152
Accrued compensation and related expenses 2,925 3,168
Other accrued liabilities 4,665 7,572
Accrued Litigation Expense 14,328 14,328
Deferred revenue 28,144 28,800
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Total current liabilities 56,259 60,417
Long-term debt, less current portion 10,250 10,330
Other long-term liabilities 1,537 1,414
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Total liabilities 68,046 72,161
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SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value:
Authorized: 60,000 shares
Issued and outstanding: 12,595 shares
in 1996 and 12,382 shares in 1995 57,781 57,577
Cumulative translation adjustment (132) (150)
Accumulated deficit (81,163) (81,484)
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Total shareholders' equity (deficit) (23,514) (24,057)
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Total liabilities and shareholders'
equity (deficit) $44,532 $48,104
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
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GUPTA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(IN THOUSANDS, Three Months ended March 31,
----------------------------
EXCEPT PER SHARE DATA) 1996 1995
---------- ----------
Net revenues:
Product $10,931 $13,441
Service 4,462 3,982
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Net revenues 15,393 17,423
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Cost of revenues:
Product 1,246 1,930
Service 2,195 2,598
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Cost of revenues 3,441 4,528
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Gross profit 11,952 12,895
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Operating expenses:
Sales and marketing 6,753 11,038
Research and development 2,901 3,149
General and administrative 1,641 2,333
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Total operating expenses 11,295 16,520
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Operating income (loss) 657 (3,625)
Other income (expense), net (174) 446
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Net income (loss) before provision
for income taxes 483 (3,179)
Provision for income taxes 162 508
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Net income (loss) $321 $(3,687)
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Net income (loss) per share $.03 $(.30)
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Weighted average common shares
and equivalents 12,665 12,105
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
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GUPTA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN THOUSANDS, Three Months ended March 31,
----------------------------
1996 1995
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Cash flows from operating activities:
Net income (loss) $321 $(3,687)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 810 1,063
Amortization of and adjustments to
capitalized software development costs 316 422
Provision for doubtful accounts 10 33
Provision for sales returns and allowances 474 1,065
Changes in assets and liabilities:
Accounts receivable 799 1,160
Inventories 114 355
Prepaid expenses and other current assets (1,216) 26
Accounts payable and accrued liabilities (3,489) (3,074)
Deferred revenue (656) 5,344
Other liabilities 123 200
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Net cash provided by (used in)
operating activities (2,394) 2,907
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Cash flows from investing activities:
Maturities of investments 4,012 4,162
Purchases of investments (146) -
Capitalization of software development costs (827) (1,451)
Other assets 48 (343)
Additions to property and equipment (361) (941)
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Net cash provided by (used in)
investing activities 2,726 1,427
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Cash flows from financing activities:
Repayment of note payable (80) (70)
Repayment of capital lease obligations (13) (199)
Proceeds from issuance of common stock, net 204 635
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Net cash provided by (used in) financing
activities 111 366
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Effect of exchange rate changes on cash and
cash equivalents 18 (11)
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Net increase (decrease) in cash and cash
equivalents 461 4,689
Cash and cash equivalents at beginning of year 9,865 7,031
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Cash and cash equivalents at end of period $10,326 $11,720
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENT
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GUPTA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF PREPARATION
The condensed consolidated balance sheets as of March 31, 1996, and the
condensed consolidated statements of income and cash flows for the periods ended
March 31, 1996 and 1995 have been prepared by the Company, without audit. The
financial statements for the period ended March 31, 1995 have been restated (see
Notes to the Company's Annual Report on Form 10-K). In the opinion of
management, all adjustments necessary for a fair statement of the financial
position, results of operations, and cash flows have been made for all periods
presented. The financial data should be reviewed in conjunction with the
audited financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995. The results of
operations for the interim period ended March 31, 1996 are not necessarily
indicative of the operating results for the full year.
The December 31, 1995, balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average
number of shares of common stock outstanding. Common equivalent shares from
stock options and warrants (using the treasury stock method modified when
appropriate) have been included in the computation when dilutive. The common
shares issuable upon conversion of the preferred stock are included in the
fully diluted earnings per share computations.
2. LITIGATION
On May 2, 1994, a lawsuit was filed against the Company and certain of its
officers and directors, by a holder of the Company's common stock, on his own
behalf and purportedly on behalf of a class of others similarly situated. The
lawsuit was subsequently amended, and alleged that the Company made false and
misleading statements and failed to disclose material information relating to
existing business conditions and the Company's prospects and that officers and
directors violated the insider trading laws. The plaintiff was seeking damages
of an unstated amount.
The Company reached an agreement in principal with plaintiff counsel in
this lawsuit. Under the terms of the settlement agreement, the Company will
provide $3 million and 1,875,000 shares to a fund to be distributed among the
members of the plaintiff class. The Company also agreed to supplement this
payment with up to 625,000 additional shares in the event the value of its
common stock is less than $6.00 per share at certain dates in the future. $2
million of the cash contribution to the settlement fund will be paid by the
Company's directors and officers' liability insurer. As a result of the
settlement, shares outstanding will increase by approximately 15% based on the
settlement price. The 1995 financial statements include a charge of $12.3
million included in litigation expense as a result of the agreement in
principle.
As of March 31, 1996, to the best of the Company's knowledge there were no
other pending actions, potential actions, claims or proceedings against the
Company that could result in potential damages in excess of $50,000. As noted
in the "Risk Factors" in Item 2 below, the Company exists in a volatile legal
and regulatory environment and it is not possible to anticipate or estimate the
potential adverse impact of unknown claims or liabilities against the Company,
its officers and directors, and as such no estimate is made in the Company's
financial statements for such unknown claims or liabilities.
-6-
ITEM 2.
GUPTA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included in Part
I--Item 1 of this Quarterly Report, and the audited consolidated financial
statements, and notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
With the exception of historical information contained herein, the matters
discussed in this Form 10Q are forward looking statements that involve risk and
uncertainties, including quarterly fluctuations in operating results, timely
availability and market acceptance of new products and upgrades, the impact of
competitive products and pricing, and other risk factors as detailed below.
Results for future quarters could differ materially from those expressed in any
forward looking statements made by or on behalf of the company.
RESULTS OF OPERATIONS:
NET REVENUES. During 1995, the Company restated revenues on certain product
licensing arrangements for fiscal years 1995, 1994, and 1993. For these
contracts the Company has deferred recognition of revenues until the customer
indicates that it has sublicensed or distributed the product. The restatement
resulted in a reduction of operating revenues of $2.6 million in the first
quarter of 1995.
Net revenues decreased 12% to $15.4 million for the first quarter of 1996
from $17.4 million for the first quarter of 1995. The decrease and lack of
growth was partially due to an agreement with Computer Associates for sales of
approximately $2 million in product recognized in the first quarter of 1995.
Additionally, during the first quarter of 1996 the Company announced the planned
introduction of its Centura product line, subsequently released in the second
quarter. In the Company's view, this announcement caused some customers to
delay purchase of the Company's existing products, in anticipation of
considering purchase of the new product line. International revenues accounted
for approximately 59% of net revenues in the first quarter of 1996 compared to
56% for the same period in 1995. Revenue from expired contracts amounted to
$502,000 and $360,000 in the first quarter of 1996 and 1995, respectively.
Product revenues decreased by $2.5 million or 19% to $10.9 million for
the first quarter of 1996. Sales of tools and connectivity software accounted
for approximately 41% of product revenues, and sales of database products
accounted for approximately 59% of product revenues in the first quarter of
1996, compared to 45% and 55%, respectively, in the first quarter of 1995. The
decline in tools sales in the first quarter of 1996 was caused by the
announcement of the planned second quarter introduction of the new Centura
product line. Channel sales accounted for 69% and 63% of net revenues,
respectively, for the first quarter of 1996 compared to first quarter of 1995.
Service revenues increased 12% to $4.5 million for the first quarter of 1996
from $4.0 million for the first quarter of 1995.
COST OF PRODUCT. Cost of product as a percentage of product revenues was
11% for the first quarter of 1996, compared to 14% for the same period of 1995.
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COST OF SERVICES. Cost of services as a percentage of service revenues was
49% for the first quarter of 1996 compared to 65% for the first quarter of 1995.
The reduction in percentage is a combination of increased revenue from support
agreements and cost reduction programs implemented as part of the announced
restructuring program.
SALES AND MARKETING EXPENSES. For the first quarter of 1996, the Company
spent $6.8 million, or 44% of net revenues, in sales and marketing activities,
compared to $11.0 million, or 63% of net revenues, for the first quarter of
1995. The reduction in sales and marketing expense reflected the Company's
commitment to control spending, while continuing its worldwide marketing
efforts.
RESEARCH AND DEVELOPMENT EXPENSES. The table below sets forth gross
research and development expenses, capitalized software development costs, and
net research and development expenses in dollar amounts and as a percentage of
net revenues for the periods indicated:
(IN THOUSANDS) Three months ended
March 31,
---------------------
1996 1995
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Dollar Amounts:
Gross research and development expenses $3,728 $4,600
Capitalized software development costs 827 1,451
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Net research and development expenses $2,901 $3,149
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As a Percentage of Net Revenues:
Gross research and development expenses 24% 26%
Net research and development expenses 19% 18%
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased 30% to $1.6 million for the first quarter of 1996 from $2.3 million
for the first quarter of 1995. In 1995, the Company began a program of reducing
administrative expenses by staff reductions, deferring MIS projects, and
reductions in discretionary spending. The Company is now experiencing the
benefits of this program, in reduced General and Administrative Expenses.
Additionally, the Company completed a restructuring announced on January 2,
1996, the costs of which were accrued in the fourth quarter of 1995, which
further reduced general and administrative staff.
OTHER INCOME (EXPENSE). Other income (expense) is comprised of interest
income, interest expense, and gains or losses on foreign currency transactions.
For the first quarter of 1996 other income (expense) was $(0.2) million,
compared to $0.4 million for the first quarter of 1995.
PROVISION FOR INCOME TAXES. The provision for income taxes was $0.2
million in the first quarter of 1996 and $0.5 million in the first quarter of
1995. The provision primarily relates to foreign withholding taxes. Due to
the Company's existing NOL position with regard to prior years, no tax provision
was made for income in this quarter.
LIQUIDITY AND CAPITAL RESOURCES:
At March 31, 1996, the Company had a deficit working capital position of
$25.2 million due principally to the restatement of fiscal years 1993, 1994 and
1995, which increased deferred revenues by $20 million, and to the litigation
accrual associated with the agreement in principle on the shareholder
litigation. Net cash used in operating activities in the first quarter of 1996
was $2.4 million, which resulted primarily from a decrease in accounts payable.
Cash provided by investing activities totaled $2.7 million, which related
primarily to the maturities of short-term investments of $4.0 million, which
was offset by the capitalization of software development costs of $0.8 million.
-8-
Additional financing may be necessary to meet NASDAQ minimum net worth
requirements. Furthermore, the Company is dependent upon achieving a reasonable
operating performance to satisfy its current and future financing needs. During
1995, the Company completed a private debt placement with Computer Associates
International of approximately $10 million dollars. If the Company needs
further financing, there can be no assurance that it will be available on
reasonable terms or at all. Any additional equity financing will result in
dilution to the Company's stockholders.
RISK FACTORS:
This Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements as a result of
certain of the risk factors set forth below and elsewhere in this Quarterly
Report on Form 10-Q. In evaluating the Company's business, prospective
investors should carefully consider the following factors in addition to the
other information presented in this report.
CONTINUING LOSSES. The Company had a net loss of $44.1 million for fiscal
year 1995 and a net loss of $31.8 million in 1994. On January 2, 1996, the
Company announced a restructuring of its organization and its business
strategies. This process is intended to improve the Company's financial
results. However, the process has only recently been commenced, and is still
evolving. There can be no assurance that the restructuring of the Company's
business strategies and tactics will be successful or that the Company will be
able to achieve profitability on a quarterly basis or, if achieved, whether the
Company will be able to sustain any such profitability.
CENTURA PRODUCTS. The Company's strategy, including a proposed change in
the Company's name, is centered on the successful delivery and market acceptance
of its Centura product line. The initial release of the Centura products
occurred in May 1996, with additional products scheduled for delivery throughout
1996. The failure to deliver these products as scheduled or their failure to
achieve early market acceptance could have a material adverse affect on the
Company's business, operating results and financial condition.
NEED FOR ADDITIONAL FINANCING. Additional financing may be necessary to
meet NASDAQ minimum net worth requirements. Furthermore, the Company is
dependent upon achieving a reasonable operating performance to satisfy its
current and future financing needs. During 1995, the Company completed a
private debt placement with Computer Associates International of approximately
$10 million dollars. If the Company needs further financing, there can be no
assurance that it will be available on reasonable terms or at all. Any
additional equity financing will result in dilution to the Company's
stockholders.
DEPENDENCE ON THIRD PARTY ORGANIZATIONS. The Company is increasingly
dependent on the efforts of third party "partners" (e.g., consultants, system
houses, software developers, etc.) to implement, service and support the
Company's products. These third parties increasingly have opportunities to
select from a very broad range of products from the Company's competitors, many
of whom have greater resources and market acceptance than the Company. In order
to succeed, the Company must actively recruit and sustain relationships with
these third parties. There can be no assurance that the Company will be
successful in recruiting new partners or in sustaining its relationships with
its existing partners
DEPENDENCE ON KEY PERSONNEL. The Company's future success depends in large
part on the continued service of its key product development, technical, sales,
marketing and management personnel and on its ability to continue to attract,
motivate and retain highly qualified employees. The Company depends on teams of
programmers, and competition for these skilled employees is intense. The loss
of services of key technical or management personnel could have a material
adverse effect upon the Company's current business, new product development
efforts and prospects. Competition for qualified
-9-
software development, sales and other personnel is intense and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. The Company does not have employment or non-competition agreements
with any employees, except for Sam Inman, the Company's CEO and President.
COMPETITION. The market for client/server system software is intensely
competitive and characterized by rapidly changing technology, evolving industry
standards, and changing customer requirements. The Company's competitors
include providers of sophisticated database software including IBM, Informix
Corporation, Ingres, Oracle Corporation and Sybase, Inc. The Company also faces
competition from the providers of PC-based software products, including
Microsoft Corporation and Borland International. In addition, the Company faces
competition from providers of software specifically developed for the PC
client/server market, including front-end tools offered by Sybase's Powersoft
Division, Microsoft, and Forte, and potentially from vendors of applications
development tools based on fourth-generation languages or computer-aided
software engineering technologies. Many of the Company's competitors have
longer operating histories and greater financial, technical, sales, marketing
and other resources, as well as greater name recognition and a larger installed
base, than the Company. Furthermore, these competitors could attempt to
increase their presence in this market by acquiring or forming strategic
alliances with competitors or bundling existing or new products with other, more
established products. The Company's products experienced increased competition
in 1995 and 1994, resulting in price reductions and loss of market share. There
can be no assurance that the Company will be able to compete successfully or
that competition will not have a material adverse effect in the future.
NEW PRODUCT RISKS; RAPID TECHNOLOGICAL CHANGE. The market for the
Company's software products and services is characterized by dynamic customer
demands, rapid technological and marketplace changes, and frequent new product
introductions. The Company believes that its future success will depend on its
ability to enhance its existing products and introduce new products on a timely
and cost-effective basis that meet dynamic customer requirements. The Company
has experienced delays in introducing new products and enhancements which
resulted in loss or delays of product revenues. In addition, programs as
complex as the software products offered by the Company may contain undetected
errors or bugs when they are first introduced which could adversely affect
commercial acceptance of such products. Gupta's success will also depend on the
ability of its products to perform well with existing and future leading,
industry-standard application software products intended to be used in
connection with RDBMSs. There can be no assurance that the Company will be able
to respond effectively to technological changes or product announcements by
competitors. Furthermore, the Company may announce new products, capabilities
or technologies that have an immediate adverse impact on the Company's existing
product offerings. Commercial acceptance of the Company's products and services
could be adversely affected by critical or negative statements or reports by
industry and financial analysts concerning the Company and its products, or
other factors such as the Company's financial performance.
DEPENDENCE UPON DISTRIBUTION CHANNELS. The Company increasingly relies on
strategic relationships with value-added resellers and distributors for a
substantial portion of its sales and revenues. Some of the Company's resellers
and distributors also offer competing products. Most of the Company's resellers
and distributors are not subject to any minimum purchase requirements, can cease
marketing the Company's products at any time, and may from time to time be
granted stock exchange or rotation rights. The introduction of new and enhanced
products may result in higher product returns and exchanges. Any product
returns or exchanges in excess of recorded allowances could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company also maintains relationships with a number of vertical
software "partners" and strategic marketing "partners" for marketing or resale
of the Company's products. The loss of one or more resellers, distributors,
vertical software partners or other marketing partners, or failure of such
parties to renew agreements with the Company on expiration, could have a
material adverse effect on the Company.
-10-
Since 1994 the Company has reduced its resources devoted to North American
corporate sales and also decreased its expenditures on corporate and product
marketing. The Company expects to rely increasingly on third-party channels for
sales of packaged product while focusing its corporate sales efforts on larger
opportunities. Failure of the Company to successfully implement, support and
manage these sales strategies could have a material adverse effect on the
Company.
In a number of markets, including rapidly growing client/server markets
such as Japan, Korea, China/Hong Kong and Brazil, the Company has entered into
quasi-exclusive multi-year agreements with independent companies that have also
licensed the use of the Company's name. These organizations are in place to
increase the Company's opportunities and penetration in such markets where the
rapid adoption of client/server technologies is anticipated. While the Company
believes that to date these agreements have increased the Company's penetration
in these markets, there can be no certainty that this performance will continue
nor that these relationships will remain in place. The Company's future cost of
maintaining its business in these markets could increase substantially if these
agreements are not renewed.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. The Company's revenues and
operating results have fluctuated and may vary substantially from period to
period. The product licensing arrangements which are subject to sell through
revenue recognition will make estimation of revenues dependent on customer
reporting. Thus, estimation of operating results prior to the end of a quarter
becomes extremely uncertain. The Company has operated historically with little
or no backlog of traditional boxed product shipments. Gupta has experienced a
seasonal pattern of product revenue decline between the fourth quarter and the
succeeding first quarter, contributing to lower worldwide product revenues and
operating results. The Company has generally realized lower European product
revenues in the third quarter as compared to the second quarter of each year.
The Company has experienced a pattern of recording a substantial portion of its
revenues in the third month of a quarter. As a result, product revenues in any
quarter are substantially dependent on orders booked in the last month. Because
the Company's operating expenses are based on projected annual and quarterly
revenue levels, operating results for a particular period may be adversely
affected by delays in or loss of orders. Additional factors have caused and may
in the future cause, the Company's revenues and operating results to vary
significantly from period to period. These factors include: delays in
introduction of products or product enhancements; size and timing of individual
orders; software "bugs" or other product quality problems; competition and
pricing in the software industry; sales mix among distribution channels;
customer order deferrals in anticipation of new products; market acceptance of
new products; reduction in demand for existing products and shortening of
product life cycles as a result of new product introductions; changes in
operating expenses; changes in Company strategy; personnel changes; foreign
currency exchange rates; mix of products sold; inventory obsolescence; product
returns and rotations; and general economic conditions
COMPONENTIZED MARKETS: The advent of so-called componentized software may
alter the way in which customers buy software. As specific software
functionality can be bundled into smaller units or objects rather than in broad,
highly functional products such as the Company's development tools, customers
may be less willing to buy such broad, highly functional products. If such a
trend continues, there can be no assurance that the Company will be able to
repackage and efficiently distribute its products in such componentized
packages. The costs and efforts necessary to package and distribute such
components are largely unknown. Failure of the Company to introduce
componentized products successfully and cost-effectively could have a material
adverse affect on the Company's business, operating results and financial
condition.
MARKET ACCEPTANCE OF PC CLIENT/SERVER SYSTEMS. Substantially all of the
Company's revenues have been derived from the licensing of software products for
PC client/server systems, and licenses of such products are expected to continue
to account for substantially all of the Company's revenues for the foreseeable
future. With the increasing focus on enterprise-wide systems, some customers
may opt for solutions that favor mainframe or mini-computer solutions.
Accordingly, companies may abandon use of PC client/server systems and such
decisions could be critical to the Company's future success.
-11-
INTERNATIONAL SALES AND OPERATIONS. The Company expects that international
revenues, particularly in new and emerging markets, will continue to account for
a significant percentage of its total revenues. Certain risks are inherent in
international operations, including foreign currency fluctuations and losses,
governmental controls, export license requirements, restrictions on the export
of critical technology, political and economic instability, trade restrictions,
changes in tariffs and taxes, difficulties in staffing and managing
international operations, and possibility of difficulty in accounts receivable
collection. There can be no assurance that these or other factors will not have
a material adverse effect on the Company's future international sales and
operations.
LEGAL PROCEEDINGS: The Company operates in a complicated and volatile
industry in which disputes, litigation, regulatory proceedings and other actions
are a necessary risk of doing business. There can be no assurance that the
Company will not participate in such legal proceedings and that the costs and
charges will not have a material adverse impact on the Company's future success.
POSSIBLE VOLATILITY OF STOCK PRICE. The market for the Company's stock is
highly volatile. The trading price of the Company's common stock fluctuated
widely in 1995 and 1994 and may continue to be subject to wide fluctuations in
response to quarterly variation in operating and financial results and
announcements of new products or customer contracts by the Company or its
competitors. Any shortfall in revenue or earnings from levels expected by
securities analysts or others could have an immediate and significant adverse
effect on the trading price of the Company's common stock in any given period.
Additionally, the Company may not learn of, or be able to confirm, revenue or
earnings shortfalls until late in the fiscal quarter or following the end of the
quarter, which could result in an even more immediate and adverse effect on the
trading of the Company's common stock. Finally, the Company participates in a
highly dynamic industry, which often results in significant volatility of the
Company's common stock price.
-12-
PART II: OTHER INFORMATION
GUPTA CORPORATION
ITEM 1. LEGAL PROCEEDINGS
On May 2, 1994, a lawsuit was filed against the Company and certain of its
officers and directors, by a holder of the Company's common stock, on his own
behalf and purportedly on behalf of a class of others similarly situated. The
lawsuit was subsequently amended, and alleged that the Company made false and
misleading statements and failed to disclose material information relating to
existing business conditions and the Company's prospects and that officers and
directors violated the insider trading laws. The plaintiff was seeking damages
of an unstated amount.
The Company reached an agreement in principal with plaintiff counsel in this
lawsuit. Under the terms of the settlement agreement, the Company will provide
$3 million and 1,875,000 shares to a fund to be distributed among the members of
the plaintiff class. The Company also agreed to supplement this payment with up
to 625,000 additional shares in the event the value of its common stock is less
than $6.00 per share at certain dates in the future. $2 million of the cash
contribution to the settlement fund will be paid by the Company's directors and
officers' liability insurer. As a result of the settlement, shares outstanding
will increase by approximately 15% based on the settlement price. The 1995
financial statements include a charge of $12.3 million included in litigation
expense as a result of the agreement in principle.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
None
(b) Reports on Form 8-K
The Company filed a Form 8-K, reporting the engagement of the accounting
firm of Price Waterhouse, LLP, as independent accountants to audit the Company's
financial statements for years ended December 31, 1993, 1994 and 1995, dated
January 8, 1996 ("Form 8-K"). The Company also reported that Arthur Andersen
LLP had withdrawn its reports dated January 14, 1994, and January 23, 1995,
issued with respect to the Company's December 31, 1993, and December 31, 1994,
financial statements.
The Company filed an 8K on April 17, 1996, announcing that its annual
report on form 10K would be delayed due to the fact that the Company's audit for
the periods ended December 31, 1993, 1994 and 1995, by Price Waterhouse LLP was
not yet complete.
The Company filed an 8K on June 18, 1996, announcing that its annual report
on form 10k would be further delayed due to the fact that the Company's audit
for the periods ended December 31, 1993, 1994 and 1995 by Price Waterhouse LLP
was not yet complete.
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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.
GUPTA CORPORATION
/s/ Richard A. Gelhaus
-------------------------------------------------
Senior Vice President and Chief Financial Officer
(Duly Authorized and Principal Financial and
Accounting Officer)
Date: July 17, 1996
---------------
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