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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD TO
COMMISSION FILE NUMBER: 0-21010
CENTURA SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2874178
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) No.)
1060 MARSH ROAD, MENLO PARK, 94025
CALIFORNIA
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (415) 321-9500
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
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 _ No X
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $56,775,510 as of February 28, 1997, based upon the
closing sale price on the NASDAQ National Market reported for such date. Shares
of Common Stock held by each officer and director and by each person who owns 5%
or more of the outstanding Common Stock have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of February 28, 1997, there were 13,763,760 shares of the Registrant's
Common Stock outstanding.
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PART I
ITEM 1. BUSINESS
Except for the historical information contained herein, the matters discussed in
this document are forward-looking statements that involve certain risks and
uncertainties, including the risks and uncertainties under "Risk Factors".
OVERVIEW
Centura Software Corporation (the "Company"), formerly Gupta Corporation,
provides application development and deployment software to organizations
building and deploying large-scale client server and Web-based applications.
The Company's product lines include development tools (SQLWINDOWS and
CENTURA), compact databases (SQLBASE), and connectivity products (SQLHOST)
that enable teams of developers to build and deploy scaleable client/server
applications. The Company offers these products: CENTURA, a product evolved
from SQLWINDOWS logic that helps customers develop and deploy 32-bit, next
generation client/server applications in traditional two- and multi-tiered
client/server environments as well as the Internet and corporate Intranet
environments. (The Internet is also referred to hereinafter as the "World
Wide Web" or the "Web" and corporate internal webs are referred to as
"Intranets"). Created specifically to meet the needs of organizations
seeking the power to move from workgroup and enterprise pilot projects into
large enterprise applications, CENTURA delivers client/server application
scalability, Internet integration, and drag and drop data replication
facilities. SQLWINDOWS is an open client/server development environment for
creating multi-database applications on desktop platforms. SQLBASE consists
of small-footprint database products that help businesses deploy
decentralized applications easily and cost-effectively. SQLHOST allows
organizations to integrate DB2 or legacy data into a client/server
environment without compromising performance, control, or security.
The Company's products enable customers to obtain the benefits of personal
computer ("PC") client/server (including Web-based) computing, while preserving
their investments in corporate data sources. The Company has established
stratified distribution channels that provide broad market coverage for its
products and address the specific needs of its varied customer segments
worldwide. The Company's products are used in at least 75 countries by
organizations including Automatic Data Processing ("ADP"), Citibank N.A.,
Daimler-Benz, Ford Motor Company, Illinois Power, Mobil Oil, Mutualite Fonction
Publique, NASA, New Zealand Post, Norfolk Southern, Ontario Hydro, ORE-IDA
Foods, Siemens-Nixdorf Informations Systeme AG ("Siemens-Nixdorf"), The Southern
Company, United Airlines, United Parcel Service, Westinghouse, and the States of
Alaska and Delaware.
INDUSTRY OVERVIEW
Over the past few decades, organizations have increasingly used their computing
systems to improve their management of mission-critical business functions, such
as manufacturing, distribution, customer support, finance and administration.
In the 1970's and 1980's, computing environments for such applications were
dominated by large computer systems with a mainframe or minicomputer acting as a
host processor for terminals with very limited computing power. These
traditional host-based systems are expensive to install and maintain, and
related software development is typically time consuming. In addition,
management of and access to the critical information resources residing on these
systems is generally limited to a staff of dedicated management information
systems ("MIS") professionals and relatively inaccessible to a broader base of
users.
In the late 1980s, a new architecture for information processing called
"client/server" computing emerged to address the many shortcomings of host-based
systems. Client/server computing typically provides increased functionality at
a lower hardware and software cost, an easier-to-use operating environment and
information access by a broader base of users. A client/server system typically
consists of multiple intelligent desktop client computers linked in a network
with high performance server computers. The client replaces the dumb terminal
employed in host-based systems and has resident software that manages the user
interface and performs local data access and manipulation. The server performs
many of the functions previously performed by the host in a host-based system,
such as network management, data storage, printing, communications, and data
security and integrity.
-2-
The widespread use of increasingly powerful PCs has made it possible for
organizations to deploy client/server systems based on local area networks
("LANs"), thereby increasing the benefits of the large existing installed base
of PCs. A LAN is a group of computers connected for the purpose of sharing data
and networked resources such as printers and data storage devices. PC
client/server computing combines the benefits of host-based systems with the
cost-effectiveness and ease of use of PCs. Other factors increasing the
deployment of PC client/server systems include the continued decline in the
costs of high-performance PCs and improvements to PC operating systems,
including easy-to-use graphical user interfaces such as those incorporated in
Microsoft Corporation's ("Microsoft's") Windows and Windows 95, and
International Business Machines Corporation's ("IBM's") OS/2 operating systems.
In addition, connectivity software is available to enable PC clients to access
varied data sources, including existing mainframes and minicomputers, thereby
protecting an organization's investment in these host-based systems.
Similar to the rapid emergence of PC's and LAN's in the late 1980's and early
1990's, the emergence of the Web over the past several years has raised new
challenges to organizations. The Web opens the corporate data sources and
applications to new and highly distributed end-users who typically operate
through standard platform-independent user environments, commonly known as
"browsers" and typically also run on PCs. Such users typically demand a high
level of access to data and applications and to new applications that take
advantage of the user environment. The demands of such users are typically
unpredictable and raise new issues of security, response and data availability.
A traditional PC client/server system can be deployed as a stand-alone system in
a small or medium sized organization or as a departmental system within a larger
organization. Web-based systems can be deployed as simple departmental systems
or highly distributed networks that can provide access to users in locations and
geographies outside the corporate network. There is also an increasing trend
toward disconnected or so-called "mobile" applications where a stand-alone or
laptop PC manages data locally and may be connected asynchronously to
centralized, host-based data sources. Such systems can also be deployed as part
of an overall enterprise system combining stand-alone PCs, multiple PC
client/servers and enterprise-wide servers.
The increase in the deployment of PCs - in both traditional client/server
environments and increasingly for implementation and access to Web-based
applications - is fueling demand by organizations, application software
vendors and software consultants for specialized systems software utilizing
PC, object-oriented, client/server or Web technologies. The software
required to implement PC client/server systems includes end user and
programmer tools, relational database management systems ("RDBMS") and
connectivity software. End user tools facilitate the access of data stored
throughout the network or across the Web. Programmer tools are used to create
application programs for client PCs, while object-oriented technologies
increase the productivity of programmers and programming teams and reduce the
life-cycle cost of maintenance of such applications. RDBMS software
facilitates data sharing in a network while maintaining data integrity and
security through a sophisticated data access language called structured query
language ("SQL"). Connectivity software enables the transfer of information
between clients and servers as well as between PC client/servers and
host-based information systems. A number of software companies have
addressed specific segments of the PC client/server systems software market
with software originally designed for other computing environments. However,
a need has emerged for an integrated software solution that addresses all
segments of this market and to be specifically optimized for the PC
client/server environment.
The Company was founded to provide cost-effective software solutions
developed and deployed on PC clients and servers. In 1996 and 1997 the
Company has announced and delivered an extension to this architecture to also
address the needs of Web-based applications as well. As the Company's
products have matured, they have been augmented by multi-tier applications,
an object repository, 32-bit architecture, and heterogeneous data
replication. In addition to offering these enhanced technologies, the
Company continues to support and improve its existing product lines to
provide customers with a smooth transition to "next generation" client/server
development. The Company's top line products are optimized for the next
generation of client/server, which requires large-scale applications that can
accommodate a decentralized business environment and the new challenges of
the Internet and Web-enabled applications (i.e., accessing the Web or
Intranets). The Company products include Web-enabled application development
tools, a relational database and connectivity software.
As computing evolves into the next century, the reliance of businesses on
information systems is expected to increase. More than ever before, information
is a strategic corporate asset that can be translated into a significant
competitive
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advantage. The emergence of the Web has placed new user demands for
access to and management of that information. To fully harness the power of
information in today's highly competitive economy, better information systems
need to be built in less time. In the late 1980s and early 1990s, client/server
technology spawned a revolution in information systems delivery. These systems
have demonstrated business benefits that are driving the adoption of
client/server for a broader and more challenging set of information system
functions. To help businesses use information better than they have ever
before, the next generation of client/server applications is required. Such
applications should ideally also integrate with and embrace the Web.
The next generation of client/server systems will need to meet three business
needs. First, these systems should automate more complex business processes and
support more end users who rely on traditional client environments as well as
enabling access from the Web. In other words, they need to scale up to deliver
more functional and more widely deployed business solutions. Second, they need
to encourage teamwork within the organization and help strengthen relationships
with customers, suppliers, distributors and others outside the organization.
Therefore, they should reach out to all entities involved in the business
process, ranging from the customer to the CEO. Finally, they need to work
together in a highly integrated manner to place all information resources at the
command of decision makers and staff members. To do that, next generation
systems should connect it all, i.e., integrate the disparate pieces of
information technology throughout the organization, and thereby deliver greater
business value than if they were used apart. In summary, the Company believes
the next generation client/server systems need to scale up, reach out and
connect it all, to deliver business benefits that result in a measurable and
sustainable competitive advantage.
During 1996, the Company introduced its next generation product for building
and deploying large-scale 32-bit client/server applications. The new
product, CENTURA, builds on the Company's technology leadership over the last
decade to help customers move to the next generation of client/server. With
support for multi-tier applications, including those deployed on the World
Wide Web, an object repository, 32-bit architecture, and heterogeneous data
replication, this new product provides the productivity, flexibility, and
scalability needed to build large-scale, multi-database applications. At the
same time, the Company continues to support its existing products to provide
customers with a smooth transition to next generation client/server
development. See "Risk Factors - New Product Risks; Rapid Technological
Change".
COMPANY STRATEGIES
The Company's objective is to be one of the leading suppliers of
enterprise-scale client/server and Internet application development and
deployment software. As part of this objective, the Company announced a
restructuring of its organization and business strategies to reflect new
positioning and to meet emerging market opportunities in next generation
client/server and Web computing. Key elements of its strategies are
highlighted below:
INTEGRATED PRODUCT LINE. The Company develops software specifically for
development and deployment of PC client/server and Web-based applications.
The Company's products provide users with the benefits of an integrated,
cost-effective solution that supports multi-tier applications, an object
repository, 32-bit architecture, heterogeneous data replication,
object-oriented front-end tools, database and Web application servers and
engines and connectivity software. This product line is evolving into a
framework for migrating, integrating and scaling such applications to the
Web. Such a framework will embrace (i) legacy or large system applications;
(ii) traditional two and multi-tiered client/server applications (including
those developed with the Company's products and those from other vendors);
and (iii) new Web-based applications that are yet to be developed. This
product strategy distinguishes the Company from some software vendors that
offer only a single product type such as front-end tools. Each of the
Company's products is designed to be competitive with stand-alone products
offered by other vendors. The Company also believes that its focus on PC and
Web client/server applications development and deployment provides it with a
competitive advantage over vendors that use software originally developed for
larger computer systems. In addition, the ability of each product to operate
separately and compatibly with products from other vendors also enables the
Company to sell its software to those customers who may acquire part of the
solution from other vendors. See "Risk Factors - New Product Risks; Rapid
Technological Change" and "Highly Competitive Markets".
PRICE/PERFORMANCE. The Company provides software with advanced functionality
and performance necessary for implementing client/server and Web-based systems,
but at prices targeted for PCs, PC networks and Internet/Intranets
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rather than monolithic minicomputers or mainframes. The Company offers its
database server products at prices generally lower than RDBMS server products
designed for minicomputers. This pricing is designed to appeal both to
entry-level programmers who are new to object-oriented application
development as well as to teams of programmers in large organizations who
need to build enterprise-wide applications.
The Company believes that value-oriented pricing models will continue to be
necessary even as applications scale up to the multi-location and even
multi-national enterprise. See "Risk Factors - Highly Competitive Markets".
DISTRIBUTION CHANNELS, PARTNERSHIPS AND STRATEGIC ALLIANCES. The Company
distributes its products using a blended distribution model that provides
incentives for its direct sales force to work closely with business partners.
The Company's Synergy Partner Program is designed to meet the needs of
businesses that include resellers, commercial application developers,
consultants, independent software vendors ("ISVs"), and complementary tools
providers. A number of companies, including SQL Financials and PeopleSoft, have
strategic alliances with the Company to provide superior client/server solutions
based on the Company's technology. See "Risk Factors - Dependence Upon
Distribution Channels" and "Dependence on Third Party Organizations".
GLOBAL MARKET FOCUS. The Company has designed its products and established its
marketing and sales channels to address the global market opportunities for PC
client/server systems. The Company has established operations that have
exclusive rights through subsidiaries and operations on six continents.
Approximately 60% of the Company's net revenues for 1996 were derived from sales
outside North America, and its products are installed in at least 75 countries.
The Company generally launches new products on a worldwide basis. In addition,
the Company has established an international distribution network through
strategic partners, distributors and foreign subsidiaries. The Company's
software products support international data conventions, and certain products
have been localized into French, German and Japanese language editions.
SUPPORT PROGRAMS. The Company provides product support services directly and
through third-party vendors to enable easy customer implementation of its
client/server systems. The Company provides a variety of programs to support
customers ranging from small development groups to those who require access to
qualified support engineers 24 hours a day, seven days a week. Traditional
service offerings are augmented with an informal support network through a forum
on CompuServe, an Internet news group, and a strong presence on the World Wide
Web.
The Company-certified training partners offer courses each year to assure
customers of the right mix of classroom or on-site training.
PRODUCTS
The Company's development environments, compact database, and family of
connectivity products enable teams of developers to build and deploy scaleable
client/server applications. The Company's major products include:
CENTURA - The CENTURA product is based on SQLWINDOWS logic and helps customers
develop and deploy 32-bit, next generation and Web-centric client/server
applications. Created specifically to meet the needs of organizations seeking
the power to move from workgroup and enterprise pilot projects into large
enterprise applications, CENTURA delivers client/server application scalability,
new Internet integration, and drag-and-drop replication facilities. The CENTURA
products include CENTURA Team Developer, and CENTURA Ranger.
SQLWINDOWS - SQLWINDOWS is an open client/server development environment for
creating, multi-database applications on desktop platforms. The Component
Developer's Kit ("CDK"), an add-on, is a set of object-oriented interfaces
into SQLWINDOWS that helps developers create reusable objects. SQLWINDOWS is
available on Microsoft desktop and server platforms as well as on the Sun
MicroSystem's Solaris platform ("Sun Solaris"). The product family includes
SQLWINDOWS, SQLWINDOWS for Microsoft SQL Server 6, and SQLWINDOWS for the
Solaris Operating Environment.
-5-
SQLBASE - The SQLBASE family consists of small-footprint database products that
help businesses deploy decentralized applications easily and cost-effectively.
These products - SQLBASE Server and SQLBASE Desktop - help organizations store
data on machines ranging from mobile and single-user PCs to workgroup servers
and company-wide database servers.
SQLHOST - The SQLHOST products allow organizations to integrate DB2 or legacy
data into a client/server environment without compromising performance, control
or security. SQLHOST for Visual Basic allows Visual Basic applications to
access host-based data.
END USERS AND APPLICATIONS
No customer accounted for more than 10% of net revenues during the fiscal years
ended December 31, 1996, 1995, or 1994.
The Company's products are used by end users in a wide variety of industries for
different applications:
Industry Application
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Aerospace Engineering information tracking and analysis
Automotive Products Multi-media-based information management
Consulting Services Information and human resource management
Consumer Products Sales tracking
Central repository for corporate financial data
Financial Services Various commercial real estate applications
Portfolio and credit tracking
Decision support for insurance underwriters
Tax preparation automation
Government Child welfare case management
Industrial Products Sales administration and analysis
Non-profit Missionary information tracking
Petroleum and Chemicals Chemical hazard assessment and evaluation
Pharmaceuticals Document creation and management
Retail, Wholesale and Enterprise security
Distribution On-line help desk telecommunications maintenance
Mission-critical pricing and production management
Systems Integration Services Document-image processing
Telecommunications Call tracking for technical support
Human resources management
Transportation Economic analysis
Utilities Decision-support for purchasing
Marketing contact and customer support
MARKETING, DISTRIBUTION AND PRODUCT SUPPORT
The Company's marketing and sales efforts are targeted to worldwide users of PC
client/server systems. These users, ranging from individual PC application
developers to MIS departments of large corporations, typically purchase
client/server software through different channels and require different levels
of support. The Company has stratified its sales organization by size and type
of sale to address the distinct needs of the Company's diverse customer
segments, as shown in the table below.
Sales Organization Size of Sale Type of Sale
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Corporate Sales Organization Large Enterprise Projects
Channel Sales Organization Small/Medium Departmental Projects
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The Company pursues similar distribution strategies internationally, tailoring
those strategies to the specific requirements of particular foreign markets.
Sales outside of North America represented approximately 60%, 61% and 56% of the
Company's net revenues during 1996, 1995 and 1994, respectively. Certain risks
are inherent in international operations. See "Risk Factors - International
Sales and Operations" and "Recent Company Losses; Fluctuations in Quarterly
Results".
CORPORATE SALES ORGANIZATION. The Company's corporate sales organization
focuses primarily on customers establishing large, sophisticated,
enterprise-wide client/server systems. These customers typically request
support from either the Company or technically sophisticated third parties in
establishing these systems. To address these requirements, the Company has
established a modest internal sales force, which operates from eight sales
locations in North America as well as offices located in France, Germany,
Italy, Switzerland, Austria, Australia, Singapore, Mexico, the Netherlands,
Belgium, and the United Kingdom.
To complement its internal sales force, the Company has increasingly focused
energies on developing marketing arrangements with third parties, such as
vertical software partners, hardware original equipment manufacturers ("OEMs")
and systems integrators. The Company's vertical software partners develop and
sell applications software for use with the Company's products and include
Learmonth and Burchett Management Systems PLC (CASE tools), Artemis
International (project management), PeopleSoft, Inc. (human resources), Project
Software & Development, Inc. (facilities management), Aurum Software Inc. (sales
management) and Spectrum Associates (manufacturing). In addition, the Company
has an architecture which enables independent software vendors to use the
Company's products to co-engineer enterprise-wide client/server applications or
deliver add-on software. Hardware OEMs purchase the Company's products and
bundle them with their personal computer hardware or applications software for
resale to their customers. The Company currently has OEM relationships with
AT&T Global Information Systems ("AT&T GIS," formerly NCR), Computer Associates
International, Inc. ("CA"), IBM, Siemens-Nixdorf and other computer vendors.
The Company has entered into cooperative arrangements with system integrators,
such as Electronic Data Systems, that build large, custom turnkey solutions for
their corporate customers using the Company's products.
CHANNEL SALES ORGANIZATION. The Company's channel sales organization focuses on
customers who need outside services to specify, design, build and deploy
client/server systems. Increasingly, these customers include both medium and
large size businesses. The Company reaches these customers through an indirect
distribution channel, consisting of resellers, application developers,
distributors, value-added resellers ("VARs") and consultants.
The Company also distributes its products through major independent distributors
that may in turn sell such products to smaller VARs, resellers and dealers. The
Company presently has distribution agreements with Ingram Micro, Inc., Techdata,
Inc. and DistribuPro, for distribution of the Company's products in North
America. The Company also has a network of international distributors,
including Computer 2000 AG GmbH in Europe and Mitsubishi in Japan. Many of the
Company's distributors carry competing product lines. The Company's
distributors may from time to time be granted stock exchange or rotation rights.
Such returns or exchanges are generally offset by an immediate replacement order
of equal or greater value. Although the Company believes that, to date, it has
provided adequate allowances for exchanges and returns, there can be no
certainty that actual returns will not exceed the Company's allowances,
particularly in connection with introduction of new products or enhancements.
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
multi-year master distribution agreements with unrelated 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 has the option to acquire 100% of the outstanding stock of one of
its foreign distributors, using a purchase price formula based on net profits
and revenues.
The Company also sells its products through a worldwide network of VARs and
consultants that specialize in developing customized solutions for smaller,
departmental networks. These VARs bundle the Company's products
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and products of other software vendors into systems that are sold directly to
end users. The Company has certified over 1,000 VARs marketing to industries
such as financial services, telecommunications, publishing, transportation
and health care.
MARKETING. To support its sales organizations, the Company conducts
comprehensive marketing programs and cooperative selling arrangements with the
Company's strategic partners. The Company's marketing programs include direct
mail, public relations, advertising, seminars, trade shows and ongoing customer
communication programs. The Company has entered into cooperative selling
arrangements with strategic partners, including AT&T GIS, Hewlett-Packard
Company, ICL Personal Systems, Microsoft, Siemens-Nixdorf and Sun MicroSystems
that provide joint marketing or network solutions for incorporating their
products with the Company's products. The Company has cooperative selling
arrangements with Microsoft and IBM for the AS/400 computing environment. The
Company also cooperates with suppliers of competitive client/server software,
such as Oracle Corporation ("Oracle") and Sybase, Inc., ("Sybase"), when
customers desire large-scale, joint solutions that include front-end tools from
the Company.
The majority of the Company's revenues have been derived from the licensing of
software products for PC client/server systems, and such products are expected
to continue to account for substantially all of the Company's revenues for the
foreseeable future. Accordingly, broad market acceptance of PC client/server
systems is critical to the Company's future success. Failure of the Company to
successfully implement its sales and marketing strategies, or the loss of one or
more resellers, distributors, vertical software partners or other marketing
partners, could have a material adverse effect on the Company's business,
operating results and financial condition. See "Risk Factors - Dependence Upon
Distribution Channels" and "Market Acceptance of PC Client/Server Systems".
CUSTOMER SUPPORT AND SERVICE. The Company is committed to providing timely,
high-quality technical support, which the Company believes is critical to
maintaining customer satisfaction in the PC client/server market.
Customer requirements for support and service vary depending on factors such as
the number of different hardware and software vendors involved in an
installation, the complexity of the application and the nature of the hardware
configuration. The Company offers flexible multi-tiered technical support
programs tailored to these specific customer needs. The Company offers a
licensed maintenance service to all its customers to provide timely bug fixes
and software enhancements. In addition, the Company provides technical support
through a telephone hotline service. For the large enterprise-wide customer,
the Company offers comprehensive premium support programs. The Company also
maintains an interactive electronic bulletin board that facilitates real-time
access between the Company and its customers. The Company broadens its support
coverage through its worldwide network of authorized support centers, certified
business partners and authorized consultants. See "Risk Factors - Dependence on
Third Party Organizations".
RESEARCH AND PRODUCT DEVELOPMENT
Since inception, the Company has made substantial investments in research and
product development. The Company's products have been developed by its
internal product development staff and, in certain instances, by strategic
use of outside consultants. The Company believes that timely development of
new products and enhancements to existing products is essential to maintain
its competitive position.
The Company is committed to continued development of new technologies for PC
client/server computing. The Company supports or intends to support major
advanced 32-bit operating systems, including Microsoft Windows 95, Microsoft
Windows NT, Novell NetWare and Sun Solaris. In addition, the Company plans to
continue to offer upgrades to its products. Delays or difficulties associated
with new products or product enhancements could have a material adverse effect
on the Company's business, operating results and financial condition. See "Risk
Factors - New Product Risks; Rapid Technological Change" and "Componentized
Markets".
During 1996, 1995 and 1994, the Company's expenditures in research and
development, net of capitalized software, were $11.0 million, $14.4 million and
$11.2 million, representing 17%, 22% and 20% of net revenues, respectively. As
of December 31, 1996, the Company had 74 employees engaged in product
development activities.
-8-
COMPETITION
The market for client/server system software is intensely competitive and
rapidly changing. The Company's products are specifically targeted at the
emerging portion of this market relating to PC and Web client/server software,
and the Company's current and prospective competitors offer a variety of
solutions to address this market segment. The Company's competitors include
providers of sophisticated database software originally designed and marketed
primarily for use with mainframes and minicomputers. These competitors include
IBM, Informix Corporation, Ingres, Oracle, and Sybase. The Company also faces
competition from the providers of PC-based software products, including
Microsoft and Borland International ("Borland"). These competitors offer
database server products and front-end tools designed for stand-alone PCs but
may currently or may in the future offer additional integrated PC client/server
software. In addition, the Company faces competition from providers of software
specifically developed for the PC client/server market, including tools
competitors, such as Sybase's Powersoft Division, Microsoft, and Forte, and
connectivity software competitors, such as IBI Systems, Inc. and Sybase's Micro
DecisionWare Division. The Company also faces potential competition from
vendors of applications development tools based on 4GLs (generation languages)
or CASE (Computer Aided Software Engineers) technologies. With the emergence of
the World Wide Web as an important platform for application development and
deployment, additional competitors or potential competitors have emerged.
Many of the Company's competitors have longer operating histories and
significantly greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and a larger installed base, than
the Company. In addition, many competitors have established relationships with
customers of the Company. The Company's competitors could in the future
introduce products with more features and lower prices than the Company's
offerings. These companies could also bundle existing or new products with more
established products to compete with the Company. Furthermore, as the PC and
Web client/server market expands, a number of companies with significantly
greater resources than the Company, could attempt to increase their presence in
this market by acquiring or forming strategic alliances with competitors of the
Company or by introducing products specifically designed for the PC and Web
client/server market.
The principal competitive factors affecting the market for the Company's
products include product architecture, performance, functionality, price,
product quality, customer support, breadth of distribution and name recognition.
The Company experienced increased competition during 1996, 1995, and 1994,
resulting in loss of market share. The Company must continue to introduce
enhancements to its existing products and offer new products on a timely basis
in order to remain competitive. However, even if the Company introduces such
products in this manner, it may not be able to compete effectively because of
the significantly larger resources available to many of the Company's
competitors. There can be no assurance that the Company will be able to compete
successfully or that competition will not have a material adverse effect on the
Company's business, operating results and financial condition. See "Risk
Factors - Highly Competitive Markets" and "Market Acceptance of PC Client/Server
Systems".
INTELLECTUAL PROPERTY
The Company currently has one patent issued on its SQLWINDOWS and CENTURA
products and relies on a combination of trademark, copyright and trade secret
protection and nondisclosure agreements to establish and protect its proprietary
rights. Policing unauthorized use of the Company's technology is expensive and
difficult, and there can be no assurance that these measures will be successful.
While the Company's competitive position may be affected by its ability to
protect its proprietary information, the Company believes that ultimately
factors such as the technical expertise and innovative skill of its personnel,
its name recognition, and ongoing product support and enhancements may be more
significant in maintaining the Company's competitive position.
The Company provides its software products to customers under non-exclusive,
non-transferable license agreements. As is customary in the software industry,
to protect its intellectual property rights, the Company does not sell or
transfer title to its software products to customers. Under the Company's
current standard form of end user license agreement, licensed software may be
used solely for the customer's internal operations, except for limited
deployment rights provided in certain of its SQLWINDOWS packages, and only on
designated computers at specified
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sites. The Company relies primarily on "shrink-wrap" licenses for the
protection of certain products. A shrink-wrap license agreement is a printed
license agreement included within packaged software that sets forth the terms
and conditions under which the purchaser can use the product, and binds the
purchaser by its acceptance and purchase of the software products to such
terms and conditions. Shrink-wrap licenses typically are not signed by the
licensee and therefore may be unenforceable under the laws of certain
jurisdictions.
The Company has entered into source code escrow agreements with a number of
resellers and end users that require release of source code to such parties with
a limited, nonexclusive right to use such code in the event that there is a
bankruptcy proceeding by or against the Company, the Company ceases to do
business or the Company breaches its contractual obligations to the customer.
The Company has, in certain cases, licensed its source code to customers for
specific uses.
There can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future products or
that any such assertion may not result in costly litigation or require the
Company to obtain a license to intellectual property rights of third parties.
There can be no assurance that such licenses will be available on reasonable
terms, or at all. As the number of software products in the industry increases
and the functionality of these products further overlap, the Company believes
that software developers may become increasingly subject to infringement claims.
Any such claims, with or without merit, can be time consuming and expensive to
defend.
EMPLOYEES
As of December 31, 1996, the Company had 270 full-time employees, including 74
in research and development, 7 in manufacturing, 105 in sales and marketing, 40
in technical services and 44 in finance and administration. The Company
maintains competitive compensation, benefits, equity participation and work
environment policies to assist in attracting and retaining qualified personnel.
None of the Company's employees are covered by collective bargaining agreements.
The Company believes its relationship with its employees is good. The Company
believes that the success of its business will depend in large part on its
ability to attract and retain qualified personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel.
RISK FACTORS
This Annual Report on Form 10-K 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 Annual
Report on Form 10-K. In evaluating the Company's business, prospective
investors should carefully consider the following factors in addition to the
other information presented in this report.
RECENT COMPANY LOSSES; FLUCTUATIONS IN QUARTERLY RESULTS. The Company has
experienced in the past and expects in the future to continue to experience
significant fluctuations in quarterly operating results. While the Company
reported a profit of $2.0 million for fiscal year 1996, it had net losses of
$44.1 million and $31.8 million for fiscal years 1995 and 1994, respectively.
There can be no assurance that the restructuring of the Company's business
strategies and tactics, commenced in early 1996, will be successful or that
the Company will be able to sustain any such profitability on a quarterly or
annual basis. The Company's product licensing arrangements are subject to
sell-through revenue recognition which makes estimation of revenue dependent
on reporting by the Company's resellers and distributors and extremely
uncertain. In addition, quarterly operating results of the Company will
depend on a number of other factors that are difficult to forecast,
including, general market demand for the Company's products; the size and
timing of individual orders during a quarter; the Company's ability to
fulfill such orders; introduction, localization or enhancement of products by
the Company; delays in the introduction and/or enhancement of products by the
Company and its competitors; market acceptance of new products; reviews in
the industry press concerning the products of the Company or its competitors;
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
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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 the Company's strategy; personnel changes;
foreign currency exchange rates; mix of products sold; inventory
obsolescence; product returns and rotations; and general economic conditions.
Sales of the Company's products also may be negatively affected by delays in
the introduction or availability of new hardware and software products from
third parties. The Company's financial results also may vary as a result of
seasonal factors including year and quarter end purchasing and the timing of
marketing activities, such as industry conventions and tradeshows.
Although the Company has operated historically with little or no backlog of
traditional boxed product shipments, it 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 during such quarters. It has generally realized lower European
product revenues in the third quarter as compared to the rest of the year.
The Company has also 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 dependent on orders booked in the last month.
Because the Company's staffing and other operating expenses are based in part
on anticipated net revenues, a substantial portion of which may not be
generated until the end of each quarter, delays in the receipt or shipment of
orders, including delays that may be occasioned by failures of third party
product fulfillment firms to produce and ship products, or the actual loss of
product orders can cause significant variations in operating results from
quarter to quarter. The Company may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Accordingly, any
significant shortfall in sales of the Company's products in relation to the
Company's expectations could have an immediate adverse impact on the
Company's business, operating results and financial condition. To the extent
that the Company's expenses precede or are not subsequently followed by
increased revenues, its business, operating results and financial condition
could be materially and adversely affected. Due to the foregoing factors, it
is likely that the Company's operating results for some future quarter will
fall below the expectations of securities analysts and investors. In such
event, the trading price of the Company's common stock could be materially
and adversely affected. See "Part II, Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations".
VOLATILITY OF THE COMPANY'S COMMON STOCK PRICE. The market for the Company's
common stock is highly volatile. The trading price of the Company's common
stock fluctuated widely in 1995 and 1996 and may continue to be subject to
wide fluctuations in response to quarterly variations in operating and
financial results, announcements of new products or customer contracts by the
Company or its competitors, litigation and other factors. 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 its common stock
price.
POTENTIAL DILUTIVE EFFECT TO SHAREHOLDERS. 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 "Class Action Lawsuit").
The Company reached a binding settlement agreement (the "Settlement
Agreement") with plaintiffs' counsel in the lawsuit, and gained court
approval of the Settlement Agreement on September 30, 1996. As part of the
settlement, the Company agreed to provide up to a maximum of 2,500,000 shares
of its common stock (the "Settlement Shares") to a fund to be distributed
among the members of the plaintiff class. As of December 31, 1996, 1,048,296
Settlement Shares had been issued and distributed, with the remaining number
of Settlement Shares to be determined, issued and distributed according to
the Plan of Allocation set forth in the Settlement Agreement. The maximum
number of additional Settlement Shares required by the Settlement Agreement
is 1,451,704. Issuance of the Settlement Shares is exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to Section 3(a)(10) of the
Securities Act, which provides for exemption of registration under the
Securities Act for securities issued pursuant to terms and conditions which
have been approved, after a hearing on the fairness of such terms and
conditions, by a United States court. As a result, the Settlement Shares,
when issued and delivered in accordance with the Settlement Agreement
approved by the United States District Court for the Northern District of
California, will be
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fully tradeable, fully paid and non-assessable. Issuance of such shares by
the Company will dilute the beneficial ownership of existing the Company
shareholders. See Note 6 of Notes to Consolidated Financial Statements.
From time to time, the Company issues shares of common stock pursuant to its
1992 Employee Stock Purchase Plan and pursuant to options granted under its
1995 Incentive Stock Option Plan and 1996 Directors' Stock Option Plan.
Additional options remain outstanding and are exercisable pursuant to the
Company's 1986 Incentive Stock Option Plan, which terminated in July 1996.
As of February 28, 1997, the Company had reserved (i) an aggregate of
2,000,000 shares of common stock issuable to employees and consultants
pursuant to its 1995 Stock Option Plan, of which 693,499 shares are issuable
upon exercise of outstanding options under such plan, (ii) an aggregate of
1,885,757 shares of common stock issuable to employees and consultants
pursuant to its 1986 Incentive Stock Option Plan, of which 1,885,757 shares
are issuable upon exercise of outstanding options under such plan, (iii) an
aggregate of 400,000 shares of common stock issuable to employees pursuant to
its 1992 Employee Stock Purchase Plan, of which 104,306 shares are available
for future issuance under such plan, (iv) 500,000 shares of common stock
issuable to non-employee directors pursuant to its 1996 Directors' Stock
Option Plan, of which 200,000 shares are issuable upon exercise of
outstanding options under such plan. Future issuance of such shares of the
Company's common stock pursuant to any of the foregoing Company stock
plans will dilute the beneficial ownership of existing Company shareholders.
NEED FOR ADDITIONAL EQUITY FINANCING. The Company may be required to seek
additional equity financing to meet NASDAQ minimum net worth requirements and
for continuing operations. Furthermore, the Company must achieve a
reasonable operating performance to satisfy its current and future financing
needs. During 1995, the Company completed a private debt placement with CA
of approximately $10.0 million. 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 shareholders.
NEW PRODUCT RISKS; RAPID TECHNOLOGICAL CHANGE. The markets for the Company's
software products and services are characterized by rapid technological
developments, evolving industry standards, swift changes in customer
requirements and computer operating environments, and frequent new product
introductions and enhancements. As a result, the success of the Company
depends substantially upon their ability to continue to enhance their
existing products, develop and introduce in a timely manner new products
incorporating technological advances and meet increasing customer
expectations, all on a timely and cost-effective basis. To the extent one or
more competitors introduce products that better address customer needs, the
Company's business could be adversely affected. The Company currently
markets the following primary products: CENTURA, SQLWINDOWS, SQLBASE and
SQLHOST. Its strategy, including the recent change in the Company's name, is
centered on the successful delivery and market acceptance of its CENTURA
products. The release of the CENTURA line of products occurred in May
1996. The Company'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 RDBMS.
Any failure to deliver these products as scheduled or their failure to
achieve early market acceptance as a result of competition, technological
change, failure of the Company to timely release new versions or upgrades,
the failure of such upgrades to achieve market acceptance or otherwise, could
have a material adverse effect on the business, operating results and
financial condition of the Company. In addition, 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. If the Company is unable to develop and
introduce new products or enhancements to existing products in a timely
manner in response to changing market conditions or customer requirements,
its business, operating results and financial condition could be materially
and adversely affected.
The Company depends substantially upon internal efforts for the development
of new products and product enhancements. The Company has in the past
experienced delays in the development of new products and product versions,
which resulted in loss or delays of product revenues, and there can be no
assurance that the Company will not experience further delays in connection
with its current product development or future development activities. Also,
software products as complex as those offered by the Company may contain
undetected errors when first introduced or as new versions are released. The
Company has in the past discovered software errors in certain of its new
products and enhancements, respectively, after their introduction. Although
the Company has not experienced
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material adverse effects resulting from any such errors to date, there can be
no assurance that errors will not be found in new products or releases after
commencement of commercial shipments, resulting in adverse product reviews
and a loss of or delay in market acceptance, which could have a material
adverse effect upon the Company's business, operating results and financial
condition.
From time to time, the Company or its competitors may announce new products,
product versions, capabilities or technologies that have the potential to
replace or shorten the life cycles of the Company's existing products. The
Company has historically experienced increased returns of a particular
product version following the announcement of a planned release of a new
version of that product. The Company provides allowances for anticipated
returns, and believes its existing policies result in the establishment of
allowances that are adequate, and have been adequate in the past, but there
can be no assurance that product returns will not exceed such allowances in
the future. The announcement of currently planned or other new products may
cause customers to delay their purchasing decisions in anticipation of such
products, which could have a material adverse effect on business, operating
results and financial condition of the Company. See "Research and Product
Development" and "Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations".
HIGHLY COMPETITIVE MARKETS. The markets for software products such as the
Company's products are intensely competitive, subject to rapid change and
characterized by constant demand for new product features, pressure to
accelerate the release of new products and product enhancements and to reduce
prices. A number of companies currently offer products that compete directly
or indirectly with one or more of the Company's products. Competitors of the
Company include, among others, providers of sophisticated database software,
originally designed and marketed primarily for use with mainframes and
minicomputers, including IBM, Informix Corporation, Ingres, Oracle and
Sybase. The Company also faces competition from providers of PC-based
software products, including Microsoft and Borland. These competitors offer
database server products and front-end tools designed for stand-alone PCs but
may currently or may in the future offer additional integrated PC
client/server software. 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 connectivity software competitors, such as IBI Systems, Inc.
and Sybase's Micro DecisionWare Division. The Company also faces potential
competition from vendors of applications development tools based on 4GLs or
CASE technologies. With the emergence of the World Wide Web as an important
platform for application development and deployment, additional competitors
or potential competitors have emerged.
Many of the Company's competitors or potential competitors have longer
operating histories and significantly greater financial, managerial,
technical, and marketing resources, as well as greater name recognition and a
larger installed base, than the Company. A variety of potential actions by
any of these competitors, including a reduction of product prices, increased
promotion, announcement or accelerated introduction of new or enhanced
products or features, acquisitions of software applications or technologies
from third parties, the formation of strategic alliances, product giveaways
or product bundling could have a material adverse effect on the business,
operating results and financial condition of the Company. The Company's
products experienced increased competition in 1995 and 1996, resulting in
loss of market share. Present or future competitors may be able to develop
products comparable or superior to those offered by the Company or adapt more
quickly to new technologies or evolving customer requirements. Such
competition has in the past and may again in the future result in price
reductions and/or loss of market share and has in the past and may again in
the future have a material adverse effect on the Company's business,
operating results and financial condition. In particular, while the Company
is currently developing additional product enhancements that it believes
address customer requirements, there can be no assurance that the development
or introduction of these additional product enhancements will be successfully
completed on a timely basis or that these product enhancements will achieve
market acceptance. Accordingly, there can be no assurance that the Company
will be able to continue to compete effectively in its markets, that
competition will not intensify or that future competition will not have a
material adverse effect on the Company's business, operating results and
financial condition. See " Competition".
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. 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
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solutions. Accordingly, some companies may abandon use of PC client/server
systems, which could have a material adverse effect on the Company's future
success. See "Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations".
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 effect on the Company's business, operating results and
financial condition.
INTERNET SOFTWARE MARKET. The market for Internet software in general, and
the segments of such market addressed by the Company's products in
particular, are relatively new. The future financial performance of the
Company will depend in part on the continued expansion of this market and
these market segments and the growth in the demand for other products
developed by the Company, as well as increased acceptance of the Company's
products by MIS professionals. There can be no assurance that the Internet
software market and the relevant segments of the market will continue to
grow, that the Company will be able to respond effectively to the evolving
requirements of the market and market segments, or that MIS professionals
will accept the Company's products. If the Company is not successful in
developing, marketing, localizing and selling applications that gain
commercial acceptance in these markets and market segments on a timely basis,
the Company's business, operating results and financial condition could be
materially and adversely affected. See "Industry Overview".
DEPENDENCE UPON DISTRIBUTION CHANNELS. The Company relies on 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 strategic relationships with a number of vertical
software vendors and other technology companies for marketing or resale of
the Company's products. Any termination or significant disruption of the
Company's relationship with any of its resellers or distributors, or the
failure by such parties to renew agreements with the Company, could
materially and adversely affect the Company's business, operating results and
financial condition. 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 the sales strategies could have a
material adverse effect on the Company. During the year ended December 31,
1996, no customer or distributor of the Company accounted for 10% or more of
its revenues.
The distribution channels through which client/server software products are
sold have been characterized by rapid change, including consolidations and
financial difficulties of distributors, resellers and other marketing
partners including certain of the Company's current distributors. The
bankruptcy, deterioration in financial condition or other business
difficulties of a distributor or retailer could render the Company's accounts
receivable from such entity uncollectible, which could result in a material
adverse effect on the Company's business, operating results and financial
condition. There can be no assurance that distributors will continue to
purchase the Company's products or provide the Company's products with
adequate promotional support. Failure of distributors to do so could have a
material and adverse effect on the Company's business, operating results and
financial condition.
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 agreements 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
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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. See
"Distribution and Product Support".
DEPENDENCE ON THIRD PARTY ORGANIZATIONS. The Company is increasingly
dependent on the efforts of third party "partners", including consultants,
system houses and software developers 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.
INTERNATIONAL SALES AND OPERATIONS. International sales represented 60% and
61% of the Company's net revenues for the years ended December 31, 1996 and
1995, respectively. A key component of the Company's strategy is continued
expansion into international markets, and the Company currently anticipates
that international sales, particularly in new and emerging markets, will
continue to account for a significant percentage of total revenues. The
Company will need to retain effective distributors, and hire, retain and
motivate qualified personnel internationally to maintain and/or expand its
international presence. There can be no assurance that the Company will be
able to successfully market, sell, localize and deliver its products in these
international markets. In addition to the uncertainty as to the Company's
ability to sustain or expand its international presence, there are certain
risks inherent in doing business on an international level, such as
unexpected changes in regulatory requirements and government controls,
problems and delays in collecting accounts receivable, tariffs, export
license requirements and other trade barriers, difficulties in staffing and
managing foreign operations, longer payment cycles, political and economic
instability, fluctuations in currency exchange rates, seasonal reductions in
business activity during summer months in Europe and certain other parts of
the world, restrictions on the export of critical technology, and potentially
adverse tax consequences, which could adversely impact the success of
international operations. Sales of products by the Company currently are
denominated principally in U.S. dollars. Accordingly, any increase in the
value of the U.S. dollar as compared to currencies in overseas markets would
increase the foreign currency-denominated cost of the Company's products,
which may negatively affect the Company's sales in those markets. In
addition, effective copyright and trade secret protection may be limited or
unavailable under the laws of certain foreign jurisdictions. There can be no
assurance that one or more of such factors will not have a material adverse
effect on the Company's international operations and, consequently, on the
Company's business, operating results and financial condition. See
"Marketing, Distribution and Product Support - Customer Support and Service".
DEPENDENCE ON KEY PERSONNEL. The Company's future performance is
substantially dependent on the performance of its executive officers and key
product development, technical, sales, marketing and management personnel.
The Company does not have employment or non-competition agreements with any
of its employees except Sam Inman, the Company's CEO and President.. The
loss of the services of any executive officer or other key technical or
management personnel of the Company for any reason could have a material
adverse effect on the business, operating results and financial condition of
the Company.
The future success of the Company also depends on its continuing ability to
identify, hire, train, motivate and retain other highly qualified technical
and managerial personnel. Competition for such personnel is intense and the
Company has experienced difficulty in identifying and hiring qualified
engineering and software development personnel. There can be no assurance
that the Company will be able to attract, assimilate or retain other highly
qualified technical and managerial personnel in the future. The inability to
attract and retain the necessary technical and managerial personnel could
have a material and adverse effect upon its business, operating results and
financial condition. See "Employees" and "Directors and Executive Officers
of Registrant".
PROPRIETARY RIGHTS. The success and ability of the Company to compete is
dependent in part upon the Company's proprietary technology. While the
Company relies on trademark, trade secret and copyright laws to protect its
technology, the Company believes that factors such as the technological and
creative skills of its personnel, new product developments, frequent product
enhancements, name recognition and customer support are more essential to
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establishing and maintaining a technology leadership position. The Company
has one patent with respect to its SQLWINDOWS and CENTURA products. The
Company believes that the ownership of patents is not presently a significant
factor in its business and that its success does not depend on the ownership
of patents, but primarily on the innovative skills, technical competence and
marketing abilities of its personnel. Also, there can be no assurance that
others will not develop technologies that are similar or superior to the
Company's technology. The source code for the Company's proprietary
software is protected both as a trade secret and as a copyrighted work.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use their products or technology without authorization,
or to develop similar technology independently. In addition, effective
copyright and trade secret protection may be unavailable or limited in
certain foreign countries.
The Company generally enters into confidentiality or license agreements with
its employees, consultants and vendors, and generally controls access to and
distribution of its software, documentation and other proprietary
information. Despite efforts to protect proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products or to obtain
and use information that is regarded as proprietary. Policing such
unauthorized use is difficult. There can be no assurance that the steps
taken by the Company will prevent misappropriation of the Company's
technology or that such agreements will be enforceable. In addition,
litigation may be necessary in the future to enforce intellectual property
rights, to protect trade secrets or to determine the validity and scope of
the proprietary rights of others. Such litigation could result in
substantial costs and diversion of resources and could have a material
adverse effect on the Company's business, operating results and financial
condition.
There can be no assurance that third parties will not claim infringement by
the Company with respect to current or future products, and the Company
expects that it will increasingly be subject to such claims as the number of
products and competitors in the client/server and Internet connectivity
software market grows and the functionality of such products overlaps with
other industry segments. In the past, the Company has received notices
alleging that its products infringe trademarks of third parties. The Company
has historically dealt with and will in the future continue to deal with such
claims in the ordinary course of business, evaluating the merits of each
claim on an individual basis. There are currently no material pending legal
proceedings against the Company regarding trademark infringement. Any such
third party claims, whether or not they are meritorious, could result in
costly litigation or require the Company to enter into royalty or licensing
agreements. Such royalty or license agreements, if required, may not be
available on terms acceptable to the Company, or at all. If the Company was
found to have infringed upon the proprietary rights of third parties, it
could be required to pay damages, cease sales of the infringing products and
redesign or discontinue such products, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Intellectual Property".
MANAGEMENT OF POTENTIAL GROWTH; INTEGRATION OF POTENTIAL ACQUISITIONS. In
recent years, the Company has experienced both expansion and contraction of
its operations each of which has placed significant demands on the Company's
administrative, operational and financial resources. To manage future
growth, if any, the Company must continue to improve its financial and
management controls, reporting systems and procedures on a timely basis and
expand, train and manage its work force. There can be no assurance that the
Company will be able to perform such actions successfully. The Company
intends to continue to invest in improving its financial systems and controls
in connection with higher levels of operations. Although the Company
believes that its systems and controls are adequate for the current level of
operations, the Company anticipates that it may need to add additional
personnel and expand and upgrade its financial systems to manage any future
growth. The Company's failure to do so could have a material adverse effect
upon the Company's business, operating results and financial condition. In
the future, the Company may make acquisitions of complementary companies,
products or technologies. Managing acquired businesses entails numerous
operational and financial risks, including difficulties in assimilating
acquired operations, diversion of management's attention to other business
concerns, amortization of acquired intangible assets and potential loss of
key employees or customers of acquired operations. There can be no assurance
that the Company will be able to effectively achieve growth, or manage any
such growth, and failure to do so could have a material adverse effect on the
Company's operating results.
LEGAL PROCEEDINGS. There are currently no material pending legal proceedings
against the Company or any of its subsidiaries, other than ordinary routine
litigation incidental to the business of the Company. The Company operates,
however, in a complex and volatile industry in which disputes, litigation,
regulatory proceedings and other actions are
-16-
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.
-17-
DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth information as of December 31, 1996,
regarding the directors and executive officers of the Company:
NAME AGE POSITION
- --------------------------- ----- --------------------------------------------------------------
Samuel M. Inman III. . . . . 46 President and Chief Executive Officer (Principal Executive
Officer), Chairman of the Board of Directors
Richard A. Gelhaus . . . . . 54 Senior Vice President, Finance and Operations and Chief
Financial Officer (Principal Financial and Accounting Officer)
Richard J. Heaps . . . . . . 44 Senior Vice President, Business Development and General
Counsel
Earl M. Stahl. . . . . . . . 42 Senior Vice President, Engineering and Chief Technical Officer
Robert Bramley . . . . . . . 38 Vice President, Technical Services
Michael K. Keddington. . . . 37 Vice President, Marketing and North American Sales
Helmut G. Wilke. . . . . . . 42 Vice President, European Operations
D. Bruce Scott . . . . . . . 43 Director
William O. Grabe (1)(2). . . 58 Director
Max D. Hopper. . . . . . . . 62 Director
Anthony Sun (1)(2) . . . . . 43 Director
- -----------------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
Mr. Inman has served as Chairman of the Board of Directors since September
1996, President and Chief Executive Officer (Principal Executive Officer)
since December 1995, and President and Chief Operating Officer since April
1995. Prior to joining the Company, Mr. Inman served as President and Chief
Operating Officer of Ingram Micro Inc., the largest microcomputer products
distributor worldwide, where he was responsible for overseeing and managing
Ingram's U.S. operations. Prior to joining Ingram, Mr. Inman, a 21-year
veteran of IBM, served as President of IBM's Personal Computer Company for
the Americas. He is a graduate of Purdue University, where he earned his
B.S. degree in mathematics.
Mr. Gelhaus joined the Company as Senior Vice President, Finance and
Operations and Chief Financial Officer (Principal Financial and Accounting
Officer) in January 1996. Prior to joining the Company, Mr. Gelhaus was
Senior Vice President, Finance and Operations (CFO) of Spectrum HoloByte,
Inc. ("Spectrum"), an entertainment software company. Previously, Mr.
Gelhaus was the Executive Vice President, Finance and Operations (CFO) and
Secretary of Sierra On-line, Inc. He has held executive-level positions with
Safeway Inc., Levi Strauss & Co., and Ernst & Young. Mr. Gelhaus holds a
B.S. degree in chemical engineering from South Dakota School of Mines and
Technology and an M.B.A. degree from the University of Michigan. He is a
registered C.P.A.
Mr. Heaps joined the Company in 1987, and has served as Senior Vice
President, Business Development and General Counsel since 1995. Mr. Heaps
has served in various capacities at the Company, including Vice President of
Business Development, Vice President of Intercontinental Operations, Director
of Business Development, and Director of Technical Services and Marketing.
Prior to joining the Company, Mr. Heaps was a Strategic Accounts Manager of
UniSoft Corporation, a computer software corporation, from 1986 to 1987.
From 1983 to 1985, Mr. Heaps held various positions at Oracle Corporation,
most recently as Director of Personal Computer Sales. Mr. Heaps holds a J.D.
degree from Stanford School of Law, an M.B.A. degree from Stanford University
Graduate School of Business and a B.A. degree in Economics and Mathematics
from Yale University.
Mr. Stahl joined the Company in 1989, and presently serves as Senior Vice
President, Engineering and Chief Technology Officer. Mr. Stahl has held
various key positions within the Company's development organization,
including spearheading the Company's client/server tools development effort.
Prior to joining the Company, Mr. Stahl managed development projects at Bell
Northern Research, Dest Corporation, and VisiCorp. He holds a B.S. degree in
Computer Science from San Diego State University.
-18-
Mr. Bramley joined the Company in January 1994 and presently serves as Vice
President, Technical Support Services. Mr. Bramley has served as Senior
Director of North American Technical Support. Prior to joining the Company,
he held the position of Vice President of Technical Services at Verity, a
full text retrieval software company from November 1991 to September 1993,
and held director-level positions in support and development at Oracle
Corporation from March 1987 to November 1991.
Mr. Keddington joined the Company in July 1995 as Vice President, Marketing
and North American Sales. Mr. Keddington most recently was Vice President of
Sales with Pure Software, Inc., a software testing and development tools
company from July 1994 to April 1995; Vice President of Sales and Marketing,
Coactive Computing Corporation, a networking company from January 1993 to
July 1994; Americas Sales Manager, Reseller Channels Organization, Intel
Corporation, a semi-conductor manufacturer from December 1988 to January
1993. Mr. Keddington attended San Diego State University, where he
concentrated in marketing management.
Dr. Wilke joined the Company in July 1991 and he presently serves as Vice
President, European Operations. He started with the Company's operations in
Central Europe in 1991, and was then promoted to Vice President, Central
Europe. Prior to joining the Company, Dr. Wilke worked for SUP, a
Frankfurt-based Company partner, and served as the Managing Director of the
German subsidiary of Ingres. Dr. Wilke founded and managed his own software
company, specializing in database application development, and has lectured
on statistical and empirical methods and statistical computing. Dr. Wilke
holds degrees in political and social sciences from the Free University in
Berlin.
Mr. Scott has served as a director since November 1984. In May 1995, Mr.
Scott co-founded inquiry.com Inc., an Internet company. Effective April 30,
1995, Mr. Scott resigned as Senior Vice President of Database Products, in
which position he had served since January 1994. From July 1993 to January
1994, Mr. Scott served as Senior Vice President, Research and Development,
Database and Connectivity Products for the Company. Prior to assuming this
position, Mr. Scott was Senior Vice President and General Manager of Database
Server Products from July 1992 to June 1993, Senior Vice President, Research
and Development from January 1989 to June 1992, and Vice President from
December 1984 to January 1989. Prior to joining the Company, Mr. Scott
served as Manager of Database Development at Victor Technologies, a computer
manufacturer corporation, from 1982 to 1983. Mr. Scott served as Senior
Member of Technical Staff at Oracle Corporation from 1977 to 1982.
Mr. Grabe has served as a director since July 1992. He has been a General
Partner of General Atlantic Partners, an investment firm, since April 1992.
From February 1984 until March 1992, Mr. Grabe was a Vice President at IBM.
Mr. Grabe is a director of Compuware Corporation, a computer systems software
corporation. Mr. Grabe is also a director of Baan N.V., an enterprise
solutions planning software company; CODA Plc, a financial accounting
software company; Gartner Group, an information systems consulting company;
and Marcam Corporation, an enterprise resource planning software company. He
is also a director of several other privately held companies in the computer
software and services industry.
Mr. Hopper has served as a director since April 1995. Mr. Hopper has been
Principal and Chief Executive Officer of Max D. Hopper Associates, Inc., a
consulting firm specializing in creating benefits from the strategic use of
advanced information technologies, since January 1995. Prior to forming Max
D. Hopper Associates, Inc., Mr. Hopper served at AMR Corporation, an air
transportation company and provider of information services to the travel and
transportation industry, as Senior Vice President from 1985 through January
1995, as well as Chairman of The SABRE Group from April 1993 through January
1995. Mr. Hopper served as Executive Vice President for Bank of America from
1982 through 1985. Mr. Hopper is also a director of the Gartner Group,
Computer Language Research, Inc., Bolt Beranek & Newman, Inc., VTEL
Corporation, Scopus Technology Corporation, USData Corporation, BBN
Corporation and Worldtalk Communications Corporation.
Mr. Sun has served as a director since September 1988. He has been at
Venrock Associates, a venture capital firm, since 1979. Previously he was
employed by Hewlett-Packard Company, TRW and Caere Corporation. He is a
director of Award Software International, Inc., a computer systems software
company; Cognex Corporation, a computer systems company; Conductus, Inc., a
superconductive electronics company; Fractal Design Corporation,
-19-
a multimedia software tools company; Inference Corporation, a client/server
and Internet help desk software company; Komag, Inc., a computer storage
component company; and Worldtalk Communications Corporation, a software
application router company. He is also a director of several private
companies. Mr. Sun received S.B.E.E., S.M.E.E. and Engineer degrees from
Massachusetts Institute of Technology, and a Masters of Business
Administration degree from Harvard University.
The Board of Directors elects the Company's officers and such officers serve
at the discretion of the Board of Directors of the Company. There are no
family relationships among the officers or directors of the Company.
ITEM 2. PROPERTIES
The Company leases approximately 54,000 square feet of office, development
and warehousing space in facilities in Menlo Park, California.
As of December 31, 1996, the Company also has offices in the metropolitan
areas of Atlanta, Chicago, Dallas, Los Angeles, New York, Washington D.C.,
Bruetten (Switzerland), Duesseldorf, Leuven (Belgium), London, Sydney
(Australia), Mexico City, Milan, Maarssen (The Netherlands), Munich, Paris,
Singapore and Vienna. The Company believes that its facilities are adequate
for its current needs and that suitable additional space will be available as
needed.
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1996, to the best of the Company's knowledge there were no
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
"Legal Proceedings" section under "Risk Factors" above, 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NOT APPLICABLE
-20-
Part II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's common stock is quoted on the NASDAQ National Market (NASDAQ)
under the trading symbol "CNTR". The following table sets forth, for the
periods indicated, the quarterly high and low sale prices per share of the
Company's common stock. The Company's common stock began trading on NASDAQ on
February 5, 1993 under the trading symbol "GPTA".
HIGH LOW
---------- ---------
1996
First Quarter. . . . . . . . . . . $ 7.125 $5.563
Second Quarter . . . . . . . . . . 6.750 4.688
Third Quarter. . . . . . . . . . . 5.625 4.375
Fourth Quarter . . . . . . . . . . 4.750 2.750
1995
First Quarter. . . . . . . . . . . $13.500 $9.625
Second Quarter . . . . . . . . . . 11.500 8.250
Third Quarter. . . . . . . . . . . 10.500 8.250
Fourth Quarter . . . . . . . . . . 9.063 4.875
The Company has not paid any cash dividends. The Company currently does not
anticipate paying any cash dividends in the foreseeable future.
As of February 28, 1997, there were approximately 468 shareholders of record
(not including beneficial holders of stock held in street name) of the
Company's common stock.
-21-
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and related
notes included elsewhere herein. The statements of operations data for the
years ended December 31, 1996, 1995 and 1994 and the balance sheets data at
December 31, 1996 and 1995 are derived from, and are qualified by reference
to, the audited consolidated financial statements of the Company included
elsewhere in this Annual Report on Form 10-K and should be read in
conjunction with those consolidated financial statements and the notes
thereto, which have been audited by Price Waterhouse, LLP, independent
accountants, whose report is included elsewhere in this Annual Report on Form
10-K. The statement of operations data for the years ended December 31, 1993
and 1992 and the balance sheet data at December 31, 1994, 1993 and 1992 are
derived from audited consolidated financial statements not included in this
Annual Report on Form 10-K.
SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended December 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- ---------- ---------- ---------
Net Revenues:
Product. . . . . . . . . . . $ 45,452 $ 49,408 $ 46,134 $ 41,655 $ 29,961
SERVICE. . . . . . . . . . . 17,781 16,306 10,398 5,820 2,810
--------- --------- ---------- ---------- ---------
NET REVENUES . . . . . . . . 63,233 65,714 56,532 47,475 32,771
COST OF REVENUES . . . . . . 14,578 19,640 17,146 11,407 6,688
--------- --------- ---------- ---------- ---------
Gross Profit . . . . . . . . 48,655 $ 46,074 $ 39,386 $ 36,068 $ 26,083
Operating income (loss). . . $ 2,484 $ (42,993) $ (32,981) $ (1,858) $ 2,439
Net income (loss). . . . . . $ 2,027 $ (44,079) $ (31,841) $ (1,908) $ 1,762
Net income (loss) per
share . . . . . . . . . $ 0.15 $ (3.62) $ (2.66) $ (0.17) $ 0.17
NUMBER OF SHARES USED IN
PER SHARE CALCULATIONS. . 13,335 12,175 11,957 11,411 10,455
SELECTED CONSOLIDATED BALANCE SHEETS DATA
(IN THOUSANDS)
Year Ended December 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- ---------- ---------- ---------
Working Capital (Deficit). . . . . $ (15,616) $ (25,604) $ 599 $ 40,919 $ 7,372
Total Assets . . . . . . . . . . . 36,705 48,104 58,161 72,372 22,872
Long-term Obligations. . . . . . . 12,188 11,744 1,939 477 1,365
Shareholders' Equity (Deficit) . . $ (16,923) $ (24,057) $ 18,670 $ 49,223 $ 11,879
-22-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of the financial condition and results
of operations should be read in conjunction with the audited consolidated
financial statements and the notes thereto, as well as "Risk Factors"
included in this Annual Report on Form 10-K.
OVERVIEW
The Company commenced operations in 1984 and develops, markets and supports
enterprise-scale client/server and Internet application development and
deployment software. The Company's product lines include development
environments (including tools), compact databases, and connectivity products
that enable teams of developers to build and deploy scaleable client/server
applications. Sales of four products - CENTURA, SQLWINDOWS, SQLBASE and
SQLHOST - are the primary source of the Company's net revenues. The CENTURA
product was introduced in May of 1996, and the other three SQL products have
been marketed since 1988. These four products are expected to constitute the
majority of the Company's net revenues for the foreseeable future. The
Company cannot accurately predict the exact timing of a new product release
or enhancement. Any failure to deliver products as scheduled or such
products' failure to achieve early market acceptance as a result of
competition, technological change, failure of the Company to timely release
new versions or upgrades, the failure of such upgrades to achieve market
acceptance or otherwise, could have a material adverse effect on the
business, operating results and financial condition of the Company. The
Company distributes its products in the U.S. and internationally through a
corporate sales organization consisting of the Company's internal sales force
complimented by marketing arrangements with vertical software partners,
hardware original equipment manufacturers and systems integrators, and a
channel sales organization consisting of value-added resellers and
distributors.
The Company had net income of $2.0 million for 1996, which reversed a
three-year trend of net losses. In December 1995, the Company initiated a
plan to restructure its operations by reducing its operating expense
structure through staff reductions, closure of certain sales and marketing
offices, rationalization of its product lines and write-offs of certain
assets. The Company had net losses of $44.1 million and $31.8 million for
1995 and 1994, respectively, and took total restructuring charges of
approximately $5.4 million in 1995. There can be no assurance that the
restructuring of the Company's business strategies and tactics, which
commenced in late 1995, will be successful or that the Company will be able
to sustain any such profitability on a quarterly basis or achieve
profitability on an annual basis. The Company has experienced in the past
and expects in the future to continue to experience significant fluctuations
in quarterly operating results. The Company's product licensing arrangements
are subject to sell-through revenue recognition which makes estimation of
revenue dependent on reporting by the Company's resellers and distributors
and extremely uncertain. In addition, quarterly operating results of the
Company will depend on a number of other factors that are difficult to
forecast, including, the factors listed in "Part I, Item 1. Business, Risk
Factors - Recent Company Losses; Fluctuations in Quarterly Results".
Although the Company has operated historically with little or no backlog of
traditional boxed product shipments, it 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 during such quarters. It has generally realized lower European
product revenues in the third quarter as compared to the rest of the year.
The Company has also 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 dependent on orders booked in the last month.
Due to the foregoing factors, it is likely that the Company's operating
results for some future quarter will fall below the expectations of
securities analysts and investors.
-23-
RESULTS OF OPERATIONS
The following table sets forth consolidated statements of operations data as a
percentage of revenues for the periods indicated:
Year Ended December 31,
---------------------------
1996 1995 1994
------- ------- ------
Net revenues:
Product. . . . . . . . . . . . . . . . . . . 72% 75% 82%
Service. . . . . . . . . . . . . . . . . . . 28 25 18
------- ------- ------
Net revenues . . . . . . . . . . . . . . . . 100 100 100
------- ------- ------
Cost of revenues:
Product. . . . . . . . . . . . . . . . . . . 8 14 13
Service. . . . . . . . . . . . . . . . . . . 15 16 17
------- ------- ------
Cost of revenues . . . . . . . . . . . . . . 23 30 30
------- ------- ------
Gross profit . . . . . . . . . . . . . . . . 77 70 70
------- ------- ------
Operating expenses:
Sales and marketing. . . . . . . . . . . . . 46 65 85
Research and development . . . . . . . . . . 17 22 20
General and administrative . . . . . . . . . 10 17 20
Acquisition expense. . . . . . . . . . . . . 1 - -
Litigation expense . . . . . . . . . . . . . (1) 23 3
Restructuring expense. . . . . . . . . . . . - 8 -
------- ------- ------
Total operating expenses . . . . . . . . . . 73 135 128
------- ------- ------
Operating income (loss). . . . . . . . . . . 4 (65) (58)
Other income, net. . . . . . . . . . . . . . - - 2
Provision for income taxes . . . . . . . . . 1 2 -
------- ------- ------
Net income (loss). . . . . . . . . . . . . . 3% (67)% (56)%
------- ------- ------
------- ------- ------
Gross Margins:
Gross margin on product revenues . . . . . . 89% 82% 83%
Gross margin on service revenues . . . . . . 46% 34% 8%
NET PRODUCT REVENUES. Net product revenues for 1996 decreased 8% to $45.4
million from $49.4 million for 1995 primarily due to decreased sales of
SQLWINDOWS as demand for such products diminished in anticipation of the
release of the Company and to decreased sales of database products from a
single customer. These decreases were partially offset by sales of the
CENTURA product line introduced in May 1996. Sales of the CENTURA product
line, accounted for $8.5 million or 19% of net product revenues for 1996. In
addition, SQLWINDOWS customers under maintenance agreements were able to
purchase the Company products at a discount for a limited introductory period
which is not expected to continue. The Company plans to release enhanced
versions of existing products, some with Internet functionality, and new
Internet and Intranet products which may offset the declining sales of client
server tools, database and connectivity products. See "Part I, Item 1.
Business, Risk Factors - New Product Risks; Rapid Technological Change,
Highly Competitive Markets, Market Acceptance of PC Client/Server Systems and
Internet Software Market" and Note 12 of Notes to Consolidated Financial
Statements. Net product revenues for 1995 increased 7% from $46.1 million
for 1994 primarily due to increased sales of database products. Sales of
tools and connectivity software accounted for $13.1 million or 29%, $24.6
million or 50% and $27.7 million or 60%, and database software accounted for
$23.8 million or 52%, $24.8 million or 50% and $18.4 million or 40% of net
product revenues for 1996, 1995 and 1994, respectively. Channel sales
provided 53%, 53% and 60%, and corporate sales provided 47%, 47% and 40% of
net product revenues for 1996, 1995 and 1994, respectively. International
sales accounted for 67%, 66% and 62% of total net product revenues for 1996,
1995 and 1994, respectively.
-24-
NET SERVICE REVENUES. Net service revenues increased 9% to $17.8 million for
1996 from $16.3 million in 1995 due to a larger installed customer base,
inception of a group focusing on sales of license maintenance and telephone
support and marketing programs designed to encourage customers to reinstate
support. In 1995, net service revenues increased 57% from $10.4 million in
1994. This increase was primarily due to increases in maintenance and
training revenues related to increases in the Company's installed customer
base. License maintenance and telephone support contracts are typically paid
in advance, and revenue is recognized ratably over the term of the contract.
International service revenues accounted for 41%, 46% and 29% of total net
service revenues for 1996, 1995 and 1994, respectively.
COST OF PRODUCT REVENUES. Cost of product includes the cost of subcontracted
production and the amortization of capitalized software. Cost of product
varies significantly by distribution channel. Channel sales typically
involve sales of packaged products and, as a result, generally have higher
costs of production than corporate sales, which generally involve software
reproduction licenses. Cost of product as a percentage of product revenues
was 11%, 18% and 17% for 1996, 1995 and 1994, respectively. In December
1995, the Company completed a financial restructuring which included a
decision to consolidate all warehouse and manufacturing functions into a
single new vendor. This resulted in a non-recurring charge against cost of
sales for an estimated write-off of raw materials of approximately $0.6
million and led to a more efficient production process which contributed to
the reduced cost of product in 1996.
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed", the Company capitalizes internal development costs on a
project when the technological feasibility of such project has been
determined. The Company ceases capitalizing such expenses when the products
derived from the project are released for sale. The capitalized costs are
then amortized ratably over the useful life of the products, generally
estimated to be two to three years. Amortization of capitalized software
costs, which include the software purchased from third parties, decreased to
$1,644,000 in 1996 from $2,200,000 in 1995. In 1995 amortization of
capitalized software costs increased from $1,476,000 in 1994. See Notes 2
and 3 of Notes to Consolidated Financial Statements.
COST OF SERVICE REVENUES. Cost of service revenues consists primarily of
personnel costs related to maintenance, training and technical support. Cost
of service revenues, as a percentage of service revenues, decreased to 54% in
1996 from 66% in 1995 and 92% in 1994. In 1994, the Company continued to
expand its support services and personnel to better serve current and
prospective customers on a worldwide basis, particularly in Europe. As a
result of the investment the Company made to grow this area, the Company has
now experienced increased revenues relative to the cost of providing service.
In addition, in December 1995, the Company completed a financial
restructuring which included a decision to outsource certain support
functions which contributed to the lower cost of service while better serving
the customers.
SALES AND MARKETING EXPENSES. Sales and marketing expenses decreased to
$29.1 million in 1996 from $42.9 million in 1995. In 1995, sales and
marketing expenses decreased 11% from $48.2 million in 1994. Sales and
marketing expenses represented 46%, 65% and 85% of net revenues in 1996, 1995
and 1994, respectively. The decrease in sales and marketing expenses in 1996
was due to reductions in staffing including the elimination of the
telebusiness product sales organization and the reduction of marketing staff
and programs with the objective of targeting marketing at enterprise
client/server solution providers. The decrease in sales and marketing
expenses in 1995 was due to reductions in marketing programs and staff
reductions. Sales and marketing expenses in 1994 were at high levels due to
aggressive marketing campaigns to introduce new products, which included free
seminars and product samples, and investments to expand the Company's sales
force in the United States and Europe.
-25-
RESEARCH AND DEVELOPMENT EXPENSES. The table below sets forth gross research
and development expenses, capitalized internal software development costs, and
net research and development expenses in dollar amounts and as a percentage of
net revenues for the periods indicated:
Year ended December 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
Gross research and development expenses $ 12,898 $ 16,662 $ 12,880
Capitalized internal software development
costs (1,866) (2,242) (1,655)
--------- --------- ---------
Net research and development expenses $ 11,032 $ 14,420 $ 11,225
--------- --------- ---------
--------- --------- ---------
As a Percentage of Net Revenues:
Gross research and development expenses 20% 25% 23%
Net research and development expenses 17% 22% 20%
Research and development expenses in 1996 were essentially flat with the prior
two years (after consideration of write-off in 1995) as the Company maintained
staffing and associated support costs required to develop the CENTURA line of
products and to continuously enhance the Company's product lines. Research and
development expenses in 1995 reflected a $3.4 million write-off of previously
capitalized software development costs in conjunction with the Company's
financial restructuring. The Company believes that the development of new
products and the enhancement of existing products, are essential to its
continued success, and the Company intends to continue to devote substantial
resources to new product development.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased to $6.7 million in 1996 from $11.0 million in 1995. In 1995, general
and administrative expenses were down approximately $1.4 million compared to
$11.1 million in 1994, after considering the $1.3 million one time charge for
accounting and professional fees for re-audits of 1993 and 1994 and audit of
1995. These expenses represented 10%, 17% and 20% of net revenues in 1996, 1995
and 1994, respectively. In December 1995, the Company completed a financial
restructuring which included staff reductions and the abandonment of certain MIS
projects which led to reduced general and administrative expenses in 1996. In
1995, the Company reduced administrative expenses by staff reductions, deferring
MIS projects, and reductions in discretionary spending. In 1994, the Company
experienced significantly higher European administrative expenses as a result of
supporting new locations for sales and technical support. Additionally, the
Company in 1994 incurred a loss in excess of $1 million as a result of the
bankruptcy of a distributor.
RESTRUCTURING CHARGES: In December 1995, the Company approved a plan to
restructure its operations to meet emerging market opportunities in next
generation client/server computing. In connection with the restructuring, the
Company reduced its worldwide headcount by approximately 16% and consolidated
facilities and operations to improve efficiency. The following analysis sets
forth the significant components of the restructuring charge included in other
accrued liabilities at December 31, 1996 and 1995:
Severance
and Write Off Facility
Benefits of Assets Charges Other Total
--------- --------- -------- ------- -------
(IN THOUSANDS)
Restructuring $ 1,623 $ 2,205 $ 1,029 $ 493 $ 5,350
Less: Non-cash costs - (2,205) - - (2,205)
--------- --------- -------- ------- -------
Accrued liability at December 31,
1995 1,623 - 1,029 493 3,145
Less: payments applied (1,400) - (466) (493) (2,359)
Reversal of reserve (223) - - - (223)
--------- --------- -------- ------- -------
Accrued liability at December 31,
1996
$ - $ - $ 563 $ - $ 563
--------- --------- -------- ------- -------
--------- --------- -------- ------- -------
-26-
Severance and related costs represented the reduction of 59 employees on a
worldwide basis primarily impacting sales and marketing. Asset charges included
a write-off of purchased technology and prepaid license fees associated with the
discontinuation of the Company's bundling of Novell's NetWare Run-Time with its
SQLBASE Server. Facility charges included early termination costs associated
with the closing of certain domestic and international sales offices. Other
restructuring costs consist primarily of costs associated with the cancellation
of distribution agreements. The 1996 results of operations include the reversal
of $223,000 of restructuring reserves due to a change in estimated employee
reduction costs.
In addition to the restructuring charges detailed above, the Company took
certain one-time charges that were reflected against operations in the 1995
results. These charges included $1.3 million in accounting and related
professional fees for audits of 1995, 1994 and 1993, charged to general and
administrative; $3.4 million in write-offs of capitalized software development,
charged to research and development; and $0.6 million in liquidation of
inventories, charged to cost of revenues.
OTHER INCOME (EXPENSE), NET. Other income (expense), net is comprised of
interest income, interest expense and gains or losses on foreign currency
transactions. The Company's gains or losses from foreign currency transactions
have fluctuated from period to period, primarily as a result of fluctuating
values of the U.S. dollar and instability in European and Latin American
currency markets. The Company sometimes purchases monthly contracts to protect
against a substantial portion of the outstanding exposure. Since the inception
of this program the costs of the currency hedging have been reflected in the
reported gains and losses of foreign currency transactions. The Company
recorded a gain of $215,000 in 1996, a loss of $439,000 in 1995, and a gain of
$306,000 in 1994. The Company anticipates that it will continue the hedging
program in 1997. Nonetheless, a decrease in the value of foreign currencies
relative to the U.S. dollar could result in losses from foreign currency
transactions.
LITIGATION SETTLEMENT. THE COMPANY reached an agreement with the plaintiff
counsel in this lawsuit. See Note 6 of Notes to Consolidated Financial
Statements. Under the terms of the settlement agreement, the Company would
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. The
1995 financial statements include $15.3 million in litigation expense arising
from the agreement and associated legal expenses. The Company's directors and
officers liability insurer paid $2 million of the cash contribution to the
settlement fund. The Company paid the balance in 1996. The Company has issued
approximately 1,050,000 shares in the first distribution in the fourth quarter
of 1996 with the balance of the shares expected to be distributed in the first
quarter of 1997.
In 1994 the Company settled a lawsuit, filed by a former distributor, for the
amount of $525,000.
PROVISION FOR INCOME TAXES. The provision for income taxes was $0.5 million in
1996, $1.1 million in 1995 and $0.2 million in 1994. The provision for income
taxes related primarily to foreign withholding taxes. As of December 31, 1996,
the Company had net operating loss carryforwards of approximately $57.9 million
available to offset future federal taxable income and $22.5 million available to
offset future state taxes, which expire through 2010. The availability and
timing of these carryforwards to offset future taxable income may be limited due
to the occurrence of certain events, including certain changes in ownership
interests. At December 31, 1996, 1995 and 1994, the Company fully reserved its
deferred tax assets due to the existence of sufficient uncertainty on the
ability to realize the deferred tax assets. See Note 8 of Notes to Consolidated
Financial Statements.
INFLATION. THE COMPANY believes that inflation has not had a material impact on
the Company's operating results and does not expect inflation to have a material
impact on the Company's operating results in 1997.
LIQUIDITY AND CAPITAL RESOURCES:
At December 31, 1996, the Company had a deficit working capital position of
$15.6 million due principally to deferred product and support revenue of $21.9
million and litigation accrual of $6.7 million. The final settlement of the
lawsuit does not require the Company to spend any more cash with the remainder
of the settlement achieved by
-27-
issuance of shares of common stock. The deferred product and support revenue
of $21.9 million at December 31, 1996 reflects a delay in recognition of
revenue in accordance with contractual agreements and requires minimal
resources of the Company.
The Company had an unsecured foreign currency contract in place at December
31, 1996. A revolving unsecured bank line of credit, available for foreign
currency contracts and letters of credit, expired on February 15, 1995. The
Company entered into an unsecured floating rate convertible subordinated note
and related agreement with CA (the "CA Agreement") in March 1995 for $10.0
million. Material covenants of the Company under the CA Agreement include the
Company's agreement to: pay and discharge its material obligations and
liabilities, including tax obligations; continue to engage in business of the
same general type currently conducted; refrain from declaring any dividend or
from repurchasing or redeeming its common stock or indebtedness; refrain from
consolidating or merging (except where the Company is the surviving
corporation and incurs no event of default under such note); refrain from
incurring senior or pari passu indebtedness or from creating or incurring
encumbrances or liens, other than certain permitted liens on its properties.
At December 31, 1996, the Company also had an outstanding promissory note of
$0.4 million.
Net cash used by operating activities was $7.7 million in 1996, $5.1 million in
1995 and $12.1 million in 1994, net income and increases in depreciation and
amortization in 1996 were offset by decreases in accounts payable and accrued
liabilities, litigation expense and deferred revenue. In 1995, increases in
depreciation and amortization, deferred revenue, provision for sales returns and
allowances, accounts payable and accrued litigation, were offset by the net
loss. Inventories, which were located at the Company's third party turnkey
vendor, decreased by $1.1 million in 1995 following an increase of $1.2 million
in 1994. This decrease in 1995 was due in part to planned reductions of
inventories and a consolidation of worldwide inventories into a single third
party vendor location.
Cash provided from investing activities in 1996 totaled $4.6 million and
resulted primarily from maturities of investments offset by acquisition of
property and equipment, capitalization of software development costs, and
capitalization of other intangible assets. Cash used in investing activities of
$2.7 million in 1995 was utilized for additions of $4.0 million of internally
developed and purchased software and $3.1 million in additions to property and
equipment, primarily computer and other capital equipment, partially offset by
the sale of $5.4 million of short-term investments, net of purchases. Cash
provided by investing activities of $2.1 million in 1994 was generated by the
sale of $11.6 million of short-term investments, net of purchases, which was
offset by the capitalization of $3.2 million of software development costs and
the purchase of $5.9 million of property and equipment.
Net cash provided by financing activities in 1996 totaled $0.2 million
primarily as a result of proceeds from issuance of common stock offset by
repayment of the notes payable. Net cash provided by financing activities in
1995 totaled $10.5 million primarily as a result of the $10.0 million
subordinated convertible debt financing by CA. In 1994, the Company
generated cash of $1.2 million through financing activities, primarily
related to proceeds from a $1 million note payable to a bank and $1.1 million
of employee purchases of Company common stock through both the Incentive
Stock Option Plan and the Employee Stock Purchase Plan.
Additional financing may be required 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 CA of approximately
$10.0 million. The Company believes that expected cash flows from operations
and existing cash balances, will be sufficient to meet the Company's currently
anticipated working capital and capital expenditure requirements for the next 12
months. However, the Company may choose to raise cash for operational or other
needs sometime in the future. 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
shareholders.
The Company's capital requirements also may be affected by acquisitions of
businesses, products and technologies that are complementary to the Company's
business, which the Company considers from time to time. The Company regularly
evaluates such opportunities. Any such transaction, if consummated, may further
reduce the Company's working capital or require the issuance of equity.
-28-
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company has experienced in the past and expects in the future to continue to
experience significant fluctuations in quarterly operating results. The Company
has at times recognized a substantial portion of its net revenues in the last
month or last few weeks of a quarter. The Company generally ships products as
orders are received and, therefore, has little or no backlog. As a result,
quarterly sales and operating results generally depend on a number of factors
that are difficult to forecast, including, among others, the volume and timing
of and ability to fulfill orders received within the quarter. Operating results
also may fluctuate due to factors such as demand for the Company's products,
introduction, localization or enhancement of products by the Company and its
competitors, market acceptance of new products, reviews in the industry press
concerning the products of the Company or its competitors, changes or
anticipated changes in pricing by the Company or its competitors, mix of
distribution channels through which products are sold, mix of products sold,
returns from the Company's distributors and general economic conditions. As a
result, the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as any
indication of future performance.
In addition, because the Company's staffing and other operating expenses are
based in part on anticipated net revenues, a substantial portion of which may
not be generated until the end of each quarter, delays in the receipt or
shipment of orders and ability to achieve anticipated revenue levels can cause
significant variations in operating results from quarter to quarter. The
Company may be unable to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall. Accordingly, any significant shortfall in
sales of the Company's products in relation to the Company's expectations could
have an immediate adverse impact on the Company's business, operating results
and financial condition. In addition, the Company currently intends to increase
its operating expenses to fund greater levels of research and product
development, increase its sales and marketing operations and expand distribution
channels. To the extent that such expenses precede or are not subsequently
followed by increased net revenues, the Company's business, operating results
and financial condition could be materially and adversely affected.
In the future, the Company may make acquisitions of complementary companies,
products or technologies. Managing acquired businesses entails numerous
operational and financial risks, including difficulties in assimilating acquired
operations, diversion of management's attention to other business concerns,
amortization of acquired intangible assets and potential loss of key employees
or customers of acquired operations. There can be no assurance that the Company
will be able to effectively complete or integrate acquisitions, and failure to
do so could have a material adverse effect on the Company's operating results.
As of the date hereof, the Company has no understanding or agreement with any
other entity regarding any potential acquisition or combination, the
consummation of which is probable.
-29-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Centura Software Corporation:
In our opinion, the consolidated financial statements of Centura Software
Corporation listed in the Index to the Consolidated Financial Statements and
the Index to the Financial Statement Schedules appearing under Item 14(a)(1)
and (2) on page 49 present fairly, in all material respects, the financial
position of Centura Software Corporation at December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
San Jose, California
January 28, 1997
-30-
CENTURA SOFTWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------
1996 1995
---------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
ASSETS
Current Assets:
Cash and cash equivalents $ 6,669 $ 9,865
Short-term investments 2,065 9,557
Accounts receivable, less allowances
of $2,826 and $3,475 13,574 12,174
Inventories 216 218
Other current assets 3,300 2,999
---------- ---------
Total current assets 25,824 34,813
Property and equipment, at cost, net of
accumulated depreciation 3,622 5,881
Capitalized software, at cost, net of
accumulated amortization 4,226 2,980
Long-term investments 1,221 2,354
Other assets 1,812 2,076
---------- ---------
Total assets $ 36,705 $ 48,104
---------- ---------
---------- ---------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Current portion of long-term debt $ 336 $ 397
Accounts payable 5,683 6,152
Accrued compensation and related expenses 2,484 3,168
Other accrued liabilities 4,313 7,572
Accrued litigation expenses 6,733 14,328
Deferred revenue 21,891 28,800
---------- ---------
Total current liabilities 41,440 60,417
Long-term debt, less current portion 10,032 10,330
Other long-term liabilities 2,156 1,414
---------- ---------
Total liabilities 53,628 72,161
---------- ---------
Commitments and contingencies (Note 6 and 12)
Shareholders' Deficit:
Preferred stock, no par value; 2,000 shares authorized;
none issued - -
Common stock, par value $.01 per share;
60,000 shares authorized; 13,728 shares
and 12,382 shares issued and outstanding 63,047 57,577
Cumulative translation adjustment (513) (150)
Accumulated deficit (79,457) (81,484)
---------- ---------
Total shareholders' deficit (16,923) (24,057)
---------- ---------
Total liabilities and shareholders' deficit $ 36,705 $ 48,104
---------- ---------
---------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS.
-31-
CENTURA SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
-----------------------------
1996 1995 1994
------- -------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net revenues:
Product $45,452 $ 49,408 $ 46,134
Service 17,781 16,306 10,398
------- -------- --------
Net revenues 63,233 65,714 56,532
------- -------- --------
Cost of revenues:
Product 5,060 8,878 7,625
Service 9,518 10,762 9,521
------- -------- --------
Cost of revenues 14,578 19,640 17,146
------- -------- --------
Gross profit 48,655 46,074 39,386
------- -------- --------
Operating expenses:
Sales and marketing 29,106 42,931 48,209
Research and development 11,032 14,420 11,225
General and administrative 6,667 11,043 11,136
Acquisition expense 467 - -
Litigation expense (878) 15,323 1,797
Restructuring expense (223) 5,350 -
------- -------- --------
Total operating expenses 46,171 89,067 72,367
------- -------- --------
Operating income (loss) 2,484 (42,993) (32,981)
Other income (expense):
Interest income 637 1,127 1,188
Interest expense (831) (701) (137)
Foreign currency gain (loss) 215 (439) 306
------- -------- --------
Income (loss) before income taxes 2,505 (43,006) (31,624)
Provision for income taxes 478 1,073 217
------- -------- --------
Net income (loss) $ 2,027 $(44,079) $(31,841)
------- -------- --------
------- -------- --------
Earnings (loss) per share $ 0.15 $ (3.62) $ (2.66)
------- -------- --------
------- -------- --------
Weighted average common shares and equivalents 13,335 12,175 11,957
------- -------- --------
------- -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS.
-32-
CENTURA SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock Cumulative
------------------- Translation (Accumulated
Shares Amount Adjustment Deficit) Total
-------- --------- ------------ ------------ --------
(IN THOUSANDS)
Balances, December 31, 1993 11,620 $55,151 $(364) (5,564) $ 49,223
Issuance of common stock under stock option plans 380 799 - - 799
Issuance of common stock under Employee Stock
Purchase Plan 41 327 - - 327
Cumulative translation adjustment - - 162 - 162
Net loss - - (31,841) (31,841)
-------- --------- ------------ ------------ --------
Balances, December 31, 1994 12,041 56,277 (202) (37,405) 18,670
Issuance of common stock under stock option plans 243 397 - - 397
Issuance of common stock under Employee Stock Purchase Plan 98 903 - - 903
Cumulative translation adjustment - - 52 - 52
Net loss - - (44,079) (44,079)
-------- --------- ------------ ------------ --------
Balances, December 31, 1995 12,382 57,577 (150) (81,484) (24,057)
Issuance of common stock under stock option plans 198 362 - - 362
Issuance of common stock under Employee Stock
Purchase Plan 100 225 - - 225
Issuance of common stock in relation to settlement
of class action securities litigation 1,048 4,718 - - 4,718
Issuance of stock warrants for 100,000 shares related
to merger with InfoSpinner, Inc. - 165 - - 165
Cumulative translation adjustment - - (363) - (363)
Net income - - - 2,027 2,027
-------- --------- ------------ ------------ --------
Balances, December 31, 1996 13,728 $63,047 $(513) $(79,457) $(16,923)
-------- --------- ------------ ------------ --------
-------- --------- ------------ ------------ --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS.
-33-
CENTURA SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------
1996 1995 1994
------- -------- -------
(IN THOUSANDS)
Cash flows from operating activities:
Net income (loss) $ 2,027 $(44,079) $(31,841)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,311 6,252 4,774
Adjustments to capitalized software development costs - 3,360 -
Valuation of stock warrants issued 165 - -
Provision for doubtful accounts 406 1,708 2,470
Provision for sales returns and allowances 180 5,430 5,778
Non-cash restructuring charges 223 2,205 -
Changes in assets and liabilities:
Accounts receivable (1,986) (4,978) (5,824)
Inventories 2 1,096 (1,152)
Other current assets (301) 169 (1,669)
Other assets (21) (155) (421)
Accounts payable and accrued liabilities (4,635) 2,099 5,276
Deferred revenue (6,909) 6,921 9,618
Accrued litigation expense (2,877) 14,328 -
Other long-term liabilities 742 546 868
------- ------- --------
Net cash used in operating activities (7,673) (5,098) (12,123)
------- ------- --------
Cash flows from investing activities:
Maturities of investments 8,748 19,812 29,617
Purchases of investments (123) (14,419) (18,025)
Proceeds from sale of property and equipment 341 - -
Acquisitions of property and equipment (1,262) (3,115) (5,849)
Capitalization of software costs (2,890) (4,013) (3,235)
Capitalization of other intangibles (202) (932) (401)
------- ------- --------
Net cash provided by (used in) investing activities 4,612 (2,667) 2,107
------- ------- --------
Cash flows from financing activities:
Repayment of note payable (327) (305) -
Proceeds from notes payable - 10,000 1,000
Repayment of capital lease obligations (32) (448) (883)
Proceeds from issuance of common stock, net 587 1,300 1,126
------- ------- --------
Net cash provided by financing activities 228 10,547 1,243
------- ------- --------
Effect of exchange rate changes on cash and cash equivalents (363) 52 162
------- ------- --------
Net increase (decrease) in cash and cash equivalents (3,196) 2,834 (8,611)
Cash and cash equivalents at beginning of period 9,865 7,031 15,642
------- ------- --------
Cash and cash equivalents at end of period $ 6,669 $ 9,865 $ 7,031
------- ------- --------
------- ------- --------
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 154 $ 1,183 $ 274
------- ------- --------
------- ------- --------
Cash paid for interest $ 62 $ 142 $ 138
------- ------- --------
------- ------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS.
-34-
CENTURA SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND RISK FACTORS
Centura Software Corporation (the "Company"), formerly Gupta Corporation,
develops, markets and supports an integrated set of software solutions for
the PC client/server system market.
The Company experienced significant losses from operations during 1995 and
1994, and as a result its liquidity and capital resources have declined.
Management implemented measures which improved its operating results,
including cost-cutting measures, new product introductions and refocused
marketing efforts. However, the Company's future profitability is subject to
certain risks, including competition from larger companies with greater
financial resources, its ability to raise additional financing, if needed,
its ability to retain key personnel and its ability to successfully develop,
produce and market new products. Management feels that the recent measures
combined with the introduction of new product has heightened the possibility
of the Company to improve cash flow.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reported period. Actual
results could differ materially from those estimates.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the financial statements of the Company and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated
in consolidation.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
FINANCIAL INSTRUMENTS: The Company accounts for investments under the
Statement of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting
for Certain Investments in Debt and Equity Securities". SFAS 115 establishes
standards for financial accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments
in debt securities. Each investment is classified into one of three
categories: held-to-maturity, available-for-sale or trading. Investments
which the Company has the intent and ability to hold until maturity are
classified as held-to maturity and are recorded at amortized cost.
At December 31, 1996, the Company's investments consist of Money Markets,
Certificates of Deposit and other debt securities. Cost approximates market
value of the securities at December 31, 1996.
The Company has classified all of its securities as held-to-maturity, and
accordingly it only liquidates these investments upon their maturity.
Securities which mature during 1997, except those classified as cash
equivalents, are classified as short-term investments on the accompanying
balance sheets, and those with maturities after 1997 are classified as
long-term investments on the accompanying balance sheets.
The Company sometimes enters into forward contracts to reduce the risks
associated with foreign currency fluctuations on net assets denominated in
foreign currencies. At December 31, 1996, the Company had $400,000 forward
contracts denominated in Mexican Pesos. At December 31, 1995 the Company had
no forward contracts. Foreign currency gains (losses) for 1996, 1995 and
1994 under these and similar type contracts were immaterial.
Based upon the Company's ability to borrow funds under similar terms, the
fair value of the subordinated debt would approximate the aggregate principle
balance plus accrued interest of $11,300,000 at December 31, 1996. The
carrying value of all other financial instruments approximate their
respective fair values.
-35-
INVENTORIES: Inventories are stated at the lower of cost (determined on a
first-in, first-out basis) or market, and consist principally of finished
goods.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of three to five years. Leasehold improvements are amortized
over the life of the lease or the estimated useful life, whichever is shorter.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS: The Company capitalizes internally
generated software development costs and purchased software in compliance
with Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed".
Capitalization of internally generated software development costs begins upon
the establishment of technological feasibility of the product, which the
Company defines as the time when a complete product is available. The
Company makes an ongoing assessment of the recoverability of these costs
which requires considerable judgment by management with respect to certain
external factors, including but not limited to, anticipated future gross
product revenue, estimated economic life and changes in software and hardware
technology. Internally generated software development costs capitalized were
$1,865,000 and $2,242,000 for the years ended December 31, 1996 and 1995,
respectively. The Company capitalized $1,025,000 and $1,791,000 of purchased
software in 1996 and 1995, respectively.
Amortization of all capitalized software costs begins when a product is
available for general release to customers, and is computed separately for
each product as the greater of (a) current gross revenue for a product to the
total of current and anticipated gross revenue for the product, or (b) the
straight-line method over the remaining estimated economic life of the
product, up to three years. Amortization and adjustments are included in
cost of product revenues and amounted to $1,644,000, $5,580,000 and
$1,476,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
FOREIGN CURRENCY TRANSACTIONS: The functional currency of each foreign
subsidiary is the local currency. For these operations, assets and
liabilities are translated into U.S. dollars at period-end exchange rates,
and income and expense accounts are translated at a rate that approximates
the average exchange rate prevailing during the period. The resulting
translation adjustments are recorded as a separate component of shareholders'
equity. Gains and losses from foreign currency-denominated transactions
effected by the Company's U.S. operations are included in other income
(expense), net, and were not material in any of the periods presented.
REVENUE RECOGNITION: The Company receives fees from certain resellers
(including original equipment manufacturers) under product licensing
arrangements. Such fees are recorded as revenue on a sell through basis as
reported by the reseller. For licensing agreements with end-users, fees are
recognized upon shipment of product, if there are no significant
post-delivery obligations and collectibility is probable. Service revenues
from customer maintenance fees for ongoing customer support and product
updates, including maintenance bundled with software licenses, is recognized
ratably over the period of the contract. When licensing agreements
terminate, the Company records any licensing fees previously not recognized.
Revenue from other services, including training, are recognized as performed.
The Company enters into agreements with certain of its distributors involving
boxed product. Revenues from these distributors are generally recognized
when the product is shipped and are reduced by management's estimate of
anticipated stock exchanges based on historical experience.
License maintenance and telephone support contracts are typically paid in
advance, and revenue is recognized ratably over the term of the contract.
NET INCOME (LOSS) PER SHARE: Net income (loss) per share is computed using
the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares (using the modified treasury stock
method) have been included in the computation when dilutive. Debentures
which are not common stock equivalents are also not included in the
calculation of loss per share because their effect is antidilutive.
-36-
RECENT ACCOUNTING PRONOUNCEMENT: During 1995, Financial Accounting Standards
Board ("FASB") issued Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of", which establishes accounting standards for the impairment
of long-lived assets, certain identifiable intangibles and goodwill related
to those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS 121 is required to be
adopted for the first quarter of 1996. The adoption of SFAS 121 did not have
a significant effect on the consolidated financial position or results of
operations.
STOCK-BASED COMPENSATION: During 1995, the FASB issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation", which requires companies to measure employee stock
compensation based on the fair value method of accounting or to continue to
apply the provisions of Accounting Principles Board Opinion No. 25 ("APB
25"), "Accounting for Stock Issued to Employees", and provide pro forma
footnote disclosure under the fair value method described in SFAS 123. The
Company adopted SFAS 123 on January 1, 1996, and will continue to apply the
principles of APB 25, while providing the pro forma footnote disclosure
required by SFAS 123. See Note 7 for the required pro forma disclosure.
RECLASSIFICATIONS: In order to conform to the 1996 presentation, certain
reclassifications have been made to the 1995 and 1994 consolidated financial
statements.
NOTE 3. BALANCE SHEET DETAIL:
Property and equipment, at cost, net of accumulated depreciation consists of the
following:
December 31,
-----------------------
1996 1995
--------- ---------
(IN THOUSANDS)
Computer equipment $ 16,253 $ 15,882
Furniture and fixtures 2,045 1,902
Leasehold improvements 491 476
--------- ---------
18,789 18,260
Less: accumulated depreciation and amortization (15,167) (12,379)
--------- ---------
$ 3,622 $ 5,881
--------- ---------
--------- ---------
The net book value of equipment and other assets under capital leases
included in property and equipment were $23,000 and $114,000 at December 31,
1996 and 1995, respectively.
Capitalized software, at cost, net of accumulated amortization consists of
the following:
December 31,
-----------------------
1996 1995
--------- ---------
(IN THOUSANDS)
Internally developed software $ 6,124 $ 4,259
Purchased software 3,852 2,827
--------- ---------
9,976 7,086
Less: accumulated amortization (5,750) (4,106)
--------- ---------
$ 4,226 $ 2,980
--------- ---------
--------- ---------
-37-
Deferred revenue consists of the following:
December 31,
-----------------------
1996 1995
--------- ---------
(IN THOUSANDS)
Deferred product revenue $ 15,002 $ 21,166
Deferred support revenue 6,889 7,634
--------- ---------
$ 21,891 $ 28,800
--------- ---------
--------- ---------
NOTE 4. RESTRUCTURING CHARGES
In December 1995, the Company approved a plan to restructure its operations
to meet emerging market opportunities in next generation client/server
computing. In connection with the restructuring, the Company reduced its
worldwide headcount by approximately 16% and consolidated facilities and
operations to improve efficiency. The following analysis sets forth the
significant components of the restructuring charge included in other accrued
liabilities at December 31, 1996 and 1995:
Severance
and Write Off Facility
Benefits of Assets Charges Other Total
---------- --------- --------- ------- --------
(IN THOUSANDS)
Restructuring . . . . . . . . . . . . . . . . . $ 1,623 $ 2,205 $ 1,029 $ 493 $ 5,350
Less: Non-cash costs. . . . . . . . . . . . . . -- (2,205) -- -- (2,205)
---------- --------- --------- ------- --------
Accrued liability at December 31, 1995. . . . . 1,623 -- 1,029 493 3,145
Less: payments applied. . . . . . . . . . . . . (1,400) -- (466) (493) (2,359)
Reversal of reserve . . . . . . . . . . . . . . (223) -- -- -- (223)
---------- --------- --------- ------- --------
Accrued liability at December 31, 1996. . . . . $ -- $ -- $ 563 $ -- $ 563
---------- --------- --------- ------- --------
---------- --------- --------- ------- --------
Severance and related costs represented the reduction of 59 employees on a
worldwide basis primarily impacting sales and marketing. Asset charges
included a write-off of purchased technology and prepaid license fees
associated with the discontinuation of the Company's bundling of Novell's
NetWare Run-Time product with the Company's SQLBASE Server. Facility charges
included early termination costs associated with the closing of certain
domestic and international sales offices. Other restructuring costs consist
primarily of costs associated with the cancellation of distribution
agreements. The 1996 results of operations include the reversal of $223,000
of restructuring reserves due to a change in estimated headcount.
NOTE 5. LONG-TERM DEBT
Long-term debt consists of the following:
December 31,
-----------------------
1996 1995
--------- ---------
(IN THOUSANDS)
Subordinated note payable . . . . $ 10,000 $ 10,000
Other note payable. . . . . . . . 368 695
Capital lease obligations . . . . -- 32
--------- ---------
10,368 10,727
less: current portion . . . . . . (336) (397)
--------- ---------
Long-term debt. . . . . . . . . . $ 10,032 $ 10,330
--------- ---------
--------- ---------
During the first quarter of 1995 the Company issued a $10,000,000 floating
rate convertible subordinated note to Computer Associates International, Inc.
The note matures in 1998 and is convertible into common stock at the
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Company's option on the maturity date with the number of shares based on the
market price at the time of conversion. Interest on the note is the
one-month LIBOR plus 1.25% and is payable quarterly. The LIBOR rate at
December 31, 1996 was 5.53125%. The agreement also requires the Company to
maintain a minimum market capitalization of $40.0 million commencing on (and
including) November 1, 1997, and continuing through the duration of the note.
At the Company's option interest payments may be deferred until the principal
is due. At December 31, 1996 and 1995, accrued interest totaled $1,300,000
and $559,000, respectively, and is included in other long-term liabilities.
In December 1994, the Company signed a $1 million promissory note payable
with a bank. The note is collateralized by a certificate of deposit
(classified as a long term investment) in the amount of $354,000, until
certain profitability levels have been achieved, and bears interest at a rate
of approximately 4.76% per annum. The note is due in 36 monthly installments
of $32,000 through January 1, 1998. The Company must meet certain covenants
in connection with this note, with which it was in compliance as of December
31, 1996.
NOTE 6. COMMITMENTS AND CONTINGENCIES:
The Company has long-term noncancelable lease commitments for office space and
equipment. At December 31, 1996, future minimum rental payments under
noncancelable operating leases are as follows (in thousands):
1997 $ 2,068
1998 2,501
1999 2,533
2000 2,642
2001 2,749
2002 and thereafter 1,359
----------
$ 13,852
----------
----------
Rent expense for the years ended December 31, 1996, 1995 and 1994, amounted
to $3,235,000, $3,524,000, and $3,317,000, respectively.
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 a binding settlement agreement with plaintiffs' counsel
in this lawsuit, and gained court approval on September 30, 1996. Under the
terms of the agreement, the Company would 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. The Company's directors and
officers' liability insurer paid approximately $2 million of the cash
contribution to the settlement fund. The Company paid the remaining cash
settlement during 1996. The 1995 financial statements include $15.3 million
in litigation expense for the agreement and associated legal expenses.
As of December 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 were likely to result in potential damages that would have a
material adverse impact on the Company's financial statements. As noted in
"Part I, Item 1. Business - Risk Factors - Legal Proceedings", 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.
-39-
NOTE 7. CAPITAL STOCK:
INCENTIVE STOCK OPTION PLAN: Under the Company's 1986 Incentive Stock Option
Plan, as amended, (the "86 ISOP"), 6,000,000 shares of common stock have been
reserved for issuance to eligible employees, directors and consultants.
Under the 86 ISOP, incentive stock options or nonstatutory stock options may
be granted at prices not less than fair market value of the Company's common
stock at the date of grant (85% for nonstatutory options). The options
generally vest over a four year period, beginning one year after the date of
grant. Unexercised options expire one to three months after termination of
employment with the Company.
Under the Company's 1995 Incentive Stock Option Plan, as amended, (the "95
ISOP"), 1,000,000 shares of common stock were initially reserved for issuance
to eligible employees, directors and consultants. In September, 1996, an
additional 1,000,000 shares were reserved increasing the total to 2,000,0000
shares. Under the 95 ISOP, incentive stock options or nonstatutory stock
options may be granted at prices not less than fair market value of the
Company's common stock at the date of grant (85% for nonstatutory options).
The options generally vest over a four year period, beginning one year after
the date of grant. Unexercised options expire three months after termination
of employment with the Company.
During 1996, 1995 and 1994, holders of stock options were granted the
opportunity to exchange previously granted stock options for new stock
options exercisable at $5.94, $9.00 and $10.75 per share, respectively, the
fair market value of common stock on the dates of exchange. The remaining
original terms of the stock options were not changed. Options to purchase
2,337,000, 904,100 and 882,750 shares of common stock were exchanged in the
1996, 1995 and 1994 repricing, respectively.
The following table summarizes the stock activity under the 86 ISOP and 95 ISOP:
Option Shares Option Price Per Share
------------------------- --------------------------
Available Outstanding Low High
----------- ------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Balances, December 31, 1993 . . 306 2,089 $ 0.250 $30.250
Shares authorized . . . . . . . 1,000 -
Options granted . . . . . . . . (1,819) 1,819 $10.750 $27.250
Options exercised . . . . . . . - (380) $ 0.250 $11.000
Options canceled. . . . . . . . 1,195 (1,195) $ 1.250 $30.250
------- -------
Balances, December 31, 1994 . . 682 2,333 $ 0.250 $27.250
Shares authorized . . . . . . . 1,000 -
Options granted . . . . . . . . (3,606) 3,606 $ 6.625 $13.125
Options exercised . . . . . . . - (243) $ 0.500 $10.750
Options canceled. . . . . . . . 2,163 (2,163) $ 0.500 $20.000
------- -------
Balances, December 31, 1995 . . 239 3,533 $ 0.250 $27.250
Shares authorized . . . . . . . 1,000 -
Shares discontinued . . . . . . (689)
Options granted . . . . . . . . (2,886) 2,886 $ 4.250 $ 6.625
Options exercised . . . . . . . - (198) $ 3.375 $ 6.500
Options canceled. . . . . . . . 3,536 (3,536) $ 1.250 $27.250
------- -------
Balances, December 31, 1996 . . 1,200 2,685 $ 0.250 $12.062
------- -------
------- -------
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The following table summarizes information regarding stock options outstanding
at December 31, 1996:
Options Outstanding Options Exercisable
Weighted- ----------------------------------
Number Average Number
Outstanding at Remaining Weighted Exercisable at Weighted
Range of December 31, Contractual Average December 31, Average
Exercise Prices 1996 Life (Years) Exercise Price 1996 Exercise Price
- ------------------- -------------- ------------ -------------- -------------- --------------
$0.2500 to $5.5000 690,075 8.05 $3.80 317,575 $3.54
$5.9375 1,743,599 9.02 $5.94 644,879 $5.94
$6.6250 to $12.0620 251,439 8.40 $8.44 176,731 $9.21
--------- ---------
2,685,113 8.63 $5.62 1,139,185 $5.78
--------- ---------
--------- ---------
DIRECTORS' STOCK OPTION PLAN: Under the 1992 Directors' Stock Option Plan
(the "DSOP"), 100,000 shares of common stock have been reserved for issuance
to non-employee directors of the Company. The DSOP provides that each new
non-employee director initially will be granted a nonstatutory stock option
to purchase 20,000 shares of common stock. Thereafter, on each anniversary
of the effective date of the DSOP, each non-employee director may be granted
an additional option to purchase 5,000 shares of common stock if the director
served on the Board for at least six months. The options are generally
exercisable over a four-year period, beginning one year after the date of
grant. Options under the DSOP are granted at a price equal to the fair
market value of the Company's common stock on the date of grant. Options
granted under the DSOP have a term of ten years. 20,000 options were granted
under the DSOP in 1994 and no options were granted in 1995 and 1996.
Under the 1995 Directors' Stock Option Plan (the "95 DSOP"), 200,000 shares
of common stock have been reserved for issuance to non-employee directors of
the Company. The 95 DSOP provides that each outside Director will be
automatically granted a non-statutory stock option to purchase 25,000 shares
of common stock on the later of the following events occurring: (a) the
effective date of the plan, or (b) the date on which such person first
becomes a non-employee Director, provided that such Director agrees to cancel
all options granted to such Director from the Company's DSOP, other than the
initial 20,000 shares granted to the Director under the Company's DSOP. The
options are exercisable over four years in installments of 25% on the
anniversary of each of the four years. Options are granted at a price equal
to the fair market value of the Company's common stock on the date of the
grant. Options granted under the 95 DSOP have a term of ten years. 125,000
options were granted in 1995 under the 95 DSOP and no options were granted in
1996.
Under the 1996 Directors' Stock Option Plan (the "96 DSOP"), 500,000 shares
of common stock have been reserved for issuance to non-employee directors of
the Company. The 96 DSOP provides that each outside Director will be
automatically granted a non-statutory stock option to purchase 50,000 shares
of common stock on the later of the following events occurring: (a) the
effective date of the plan, or (b) the date on which such person first
becomes a non-employee Director, provided that such Director agrees to cancel
all options granted to such Director from the Company's DSOP, other than the
initial 20,000 shares granted to the Director under the Company's DSOP. The
options become exercisable in installments cumulatively as to 1/48 of the
shares on each of the first forty-eight monthly anniversaries of the grant
date. The options will remain exercisable for up to ninety days following
the optionee's termination of service as a director of the Company unless
such termination is a result of death, in which case the options will remain
exercisable for up to 6 month period. Options are granted at a price equal
to the fair market value of the Company's common stock on the date of the
grant. Options granted under the 96 DSOP have a term of ten years. 250,000
options were granted in 1996 under the 96 DSOP.
EMPLOYEE STOCK PURCHASE PLAN: Under the 1992 Employee Stock Purchase Plan
(the "ESPP"), 300,000 shares of common stock were initially reserved for
issuance to eligible employees. In 1996, 100,000 additional shares of common
stock were reserved for issuance to eligible employees increasing the total
to 400,000. The ESPP permits employees to purchase common stock through
payroll deductions, which may not exceed 10% of an employee's base
compensation, at a price equal to the lower of 85% of the fair market value
of the Company's common stock at the beginning or end of the offering period.
The ESPP became effective upon the Company's initial public offering and
100,000, 98,000 and 41,000 purchase rights were issued in 1996, 1995 and
1994, respectively.
-41-
WARRANTS: Warrants to purchase 100,000 shares of common stock were issued by
the Company on November 22, 1996 in connection with the proposed acquisition
(see note 12) of InfoSpinner, Inc. These warrants were valued at $165,000,
using a risk-free rate of 5.97% and a volatility factor of 55%, and are included
in acquisition expenses.
SHARES RESERVED FOR FUTURE ISSUANCE: The following table summarizes shares
of common stock reserved for future issuance as of December 31, 1996 (in
thousands):
Incentive stock option plan 1,200
Directors' stock option plan 405
Employee stock purchase plan 125
-----
1,730
-----
-----
PRO FORMA STOCK COMPENSATION DISCLOSURE: The Company applies the provisions
of APB 25 and related interpretations in accounting for compensation expense
under the 86 ISOP, 95 ISOP, DSOP, 95 DSOP, 96 DSOP and ESPP. Had
compensation expense under these plans been determined pursuant to SFAS 123,
the Company's net income (loss) and net income (loss) per share for the years
ended December 31, 1996 and 1995 would have been as follows:
Year Ended December 31,
--------------------------------------
1996 1995
------------------- -----------------
(IN THOUSANDS, EXCEPT, PER SHARE DATA)
Net income (loss):
As reported. . . . . . . . . . $ 2,027 $(44,079)
Pro Forma. . . . . . . . . . . $(3,594) $(46,548)
Net income (loss) per share:
As reported. . . . . . . . . . $ .15 $ (3.62)
Pro Forma. . . . . . . . . . . $ (.27) $ (3.82)
The fair value of each stock option granted under the 86 ISOP, 95 ISOP, DSOP,
95 DSOP and 96 DSOP was estimated using the Black-Scholes model with the
following assumptions: zero dividend yield; an expected life of 48 months;
expected volatility of 63.54% in 1996 and 67.49% in 1995; and a risk-free
interest rate of 5.57% in 1996 and 6.21% in 1995. The weighted average fair
value of stock options granted under the 86 ISOP, 95 ISOP, DSOP, 95 DSOP and
96 DSOP for the years ended December 31, 1996 and 1995, were $3.06 and $5.28,
respectively.
The fair value of the shares granted under the ESPP is considered to have an
immaterial impact on this calculation.
The above pro forma amounts include compensation expense based on the fair
value of stock options granted and vesting during the years ended December
31, 1996 and 1995, and exclude the effects of stock options granted prior to
January 1, 1995. Accordingly, the above pro forma net income and net income
per share are not representative of the effects of computing stock
compensation expense using the fair value method for future periods.
SHAREHOLDER RIGHTS PLAN: In August 1994, the Company adopted a Shareholder
Rights Plan pursuant to which one Preferred Share Purchase "Right" was
distributed for each outstanding share of common stock. Each Right entitles
shareholders to purchase a fraction of a share of Preferred Stock at an
exercise price of $60.00 upon certain events. The Rights expire on August 3,
2004, unless earlier redeemed by the Company.
The Rights become exercisable if a person acquires 15% or more of the
Company's common stock or announces a tender offer that would result in such
person owning 15% or more of the Company's common stock. If the Rights
become exercisable, the holder of each Right (other than the person whose
acquisition triggered the exercisability of the Rights) will be entitled to
purchase, at the Right's then current exercise price, a number of shares of
the Company's common stock having a market value of twice the exercise
price. In addition, if the Company were to be acquired in a merger or the
Company sells more than 50% of its assets or earning power, each Right will
entitle its holder to purchase, at the Right's then current exercise price,
common stock of the acquiring company having a market value of
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twice the exercise price. The Rights are redeemable by the Company at a
price of $.01 per Right at any time within ten days after a person has
acquired 15% or more of the Company's common stock.
NOTE 8. INCOME TAXES:
Operating income (loss) before income taxes are attributable to the following
jurisdictions:
Year End December 31
-----------------------------
1996 1995 1994
------ -------- --------
(IN THOUSANDS)
Domestic $2,882 $(41,096) $(34,787)
Foreign (398) (1,897) 1,806
------ -------- --------
$2,484 $(42,993) $(32,981)
------ -------- --------
------ -------- --------
The provision for income taxes on income (loss) before income taxes primarily
consists of foreign withholding taxes.
The difference between income taxes at the statutory federal income tax rate and
income taxes reported in the income statement are primarily the result of the
reduction of deferred revenue and reserves, and foreign withholding taxes.
Deferred income taxes result from temporary differences in the recognition of
certain expenses for financial and income tax reporting purposes. The net
deferred tax asset consisted of the following:
Year End December 31
1996 1995
-------- -------
(IN THOUSANDS)
Deferred tax assets:
Net operating losses $21,414 $13,627
Nondeductible reserves 4,486 5,499
Credit carryforwards 3,756 2,700
Deferred revenue 8,379 9,760
Depreciation 534 427
-------- -------
Gross deferred tax asset 38,569 32,013
Less: valuation allowance (37,585) (31,785)
-------- -------
Net deferred tax asset 984 228
-------- -------
Deferred tax liabilities:
Software capitalization (984) (228)
-------- -------
Total net deferred tax assets (liabilities) $ - $ -
-------- -------
-------- -------
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $57.9 million available to offset future federal taxable income
and $22.5 million available to offset future state taxes, which expire
through 2010. The availability and timing of these carryforwards to offset
future taxable income may be limited due to the occurrence of certain events,
including certain changes in ownership interests. At December 31, 1996 and
1995, the Company fully reserved its deferred tax assets due to the existence
of sufficient uncertainty with respect to its the ability to realize the
deferred tax assets.
-43-
NOTE 9. SEGMENT INFORMATION:
The Company participates in one industry segment: the development and marketing
of computer software and related services. No one customer has accounted for
more than 10% of consolidated annual revenues. The following table presents a
summary of operations by geographic region:
North Rest of
America Europe World Total
------- ------ -------- -------
(IN THOUSANDS)
Year ended December 31, 1996:
Total revenues $25,332 $27,551 $10,350 $63,233
Operating income (loss) $(4,472) $ 3,932 $ 3,024 2,484
Identifiable assets at year end $30,281 $ 5,443 $ 981 36,705
Year ended December 31, 1995:
Total revenues $25,644 $28,679 $11,391 $65,714
Operating income (loss) (38,936) (4,061) 4 (42,993)
Identifiable assets at year end 40,482 7,124 498 48,104
Year ended December 31, 1994:
Total revenues $24,933 $24,065 $ 7,534 $56,532
Operating income (loss) (34,076) (492) 1,587 (32,981)
Identifiable assets at year end 52,259 5,494 408 58,161
Revenues have been allocated to geographic regions based primarily upon
destination of product shipment. Operating income (loss) represents total
revenue less operating expenses. In computing operating income (loss), all
general corporate expenses have been allocated to North American operations, and
cost of product revenues have been allocated based upon revenues attributable to
each region.
NOTE 10. EMPLOYEE BENEFIT PLAN:
The Company has a Savings Plan (the "Plan") as allowed under Section 401(k) of
the Internal Revenue Code. The Plan provides employees with tax deferred salary
deductions and a number of investment options. The Plan allows for
contributions by the Company as determined annually by the Board of Directors.
The Company has not contributed to the Plan since its inception.
NOTE 11. RELATED PARTY TRANSACTIONS:
In August 1992, the Company and Novell, which owns 7.70% of the Company's common
stock at December 31, 1996, entered into a reseller agreement under which the
Company agreed to pay Novell commissions and trademark license fees on certain
sales on a quarterly basis. In 1993, this agreement was extended until
September 1996. There were no outstanding balances at December 31, 1996 and
1995. In the fourth quarter of 1995, the Company as a result of the
restructuring plan, wrote off the remaining prepaid balance of $338,000, which
is included in restructuring charges described in Note 4. The amounts expensed
for the years ended December 31, 1996, 1995 and 1994, were $0, $666,000 and
$209,000, respectively.
The Company recognized revenue of $664,000 and $2,450,000 for the years ended
December 31,1996 and 1995, respectively, from Computer Associates International,
Inc., the holder of the floating rate subordinated convertible debenture.
The Company has the option to acquire 100% of the outstanding stock of one of
its independent foreign distributors, using a purchase price formula based on
net profits and revenues. At December 31, 1996 and 1995 the Company had no
outstanding receivables from this distributor. The Company recognized revenue
of $1,783,000 and $2,007,000 for the years ended December 31, 1996 and 1995,
from this distributor.
-44-
NOTE 12. SUBSEQUENT EVENTS:
On January 6, 1997, the Company entered into a definitive agreement to acquire
(the "Agreement") InfoSpinner, Inc. ("InfoSpinner") of Richardson, Texas. The
completion of the transaction is expected to occur during the second quarter of
1997 and is subject to approval of both companies' shareholders as well as other
legal requirements.
Under the Agreement, which was approved by the board of directors of both
companies, 4,500,000 shares of the Company's common stock will be exchanged for
the outstanding InfoSpinner common stock, and series A and series B convertible
preferred stock shares. It is anticipated that the transaction will be
accounted for as a pooling of interests. If consummated, the financial position
and results of operations of the Company and InfoSpinner will be combined for
1997 and all prior periods will be restated to give effect to the merger.
InfoSpinner is a privately held company that develops technologies which
uniquely address the challenges of open, scaleable Web computing. InfoSpinner
has developed and is marketing an application server, Foresite, that allows
companies to migrate existing applications to the Web, integrate with new Web
technologies such as Java and HTML, and scale the resulting application to
handle large transaction loads over the Web.
-45-
Schedule II
CENTURA SOFTWARE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Balance at Additions Balance at
Beginning of Charged to End of
Description the Year Expenses Write-Offs the Year
- -------------------------------------- ------------ --------- ---------- ----------
1996:
Allowance for doubtful accounts $1,529 $ 406 $ (795) $1,140
Reserve for sales returns & allowances 1,946 180 (440) 1,686
------------ --------- ---------- ----------
$3,475 $ 586 $(1,235) $2,826
------------ --------- ---------- ----------
------------ --------- ---------- ----------
1995:
Allowance for doubtful accounts $1,007 $1,708 $(1,186) $1,529
Reserve for sales returns & allowances 1,884 5,430 (5,368) 1,946
------------ --------- ---------- ----------
$2,891 $7,138 $(6,554) $3,475
------------ --------- ---------- ----------
------------ --------- ---------- ----------
1994:
Allowance for doubtful accounts $ 189 $2,470 $(1,652) $1,007
Reserve for sales returns & allowances 735 5,778 (4,629) 1,884
------------ --------- ---------- ----------
$ 924 $8,248 $(6,281) $2,891
------------ --------- ---------- ----------
------------ --------- ---------- ----------
-46-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company makes reference to its report on From 8-K as filed with the
Commission on October 11, 1995, as amended by the Form 8-K/A (Amendment No. 1)
as filed with the Commission on October 26, 1995 (the "Form 8-K/A"), in
which the Company reported that effective October 4, 1995, Arthur Andersen
LLP ("Arthur Andersen") resigned as independent accountants to audit the
financial statements of the Company for the 1995 fiscal year. The Form 8-K/A
also describes the Company's disagreement with Arthur Andersen regarding the
Company's restatement of its financial results for its quarter ended
March 31, 1994.
The Company also makes reference to its report on Form 8-K as filed with the
Commission on January 11, 1996, in which the Company reported that subsequent
to Arthur Andersen's resignation, the Company received a letter from Arthur
Andersen dated January 2, 1996 (the "January Letter"), in which Arthur
Andersen advised the Company that it had concluded that it was no longer
willing to rely on management's representations made in connection with
Arthur Andersen's audits of the Company's December 31, 1994 and 1993,
financial statements and therefore had withdrawn its reports dated January 23,
1995 and January 14, 1994, issued with respect to the Company's December 31,
1994 and 1993 financial statements, respectively. A copy of the January
Letter was filed as Exhibit 16.4 to the January 11, 1996 Form 8-K. The
Company informed the Securities and Exchange Commission that Arthur Andersen
did not inform the Company either prior or subsequent to its resignation,
except in the context of the January Letter, that it was no longer able to
rely on management's representations made in connection with the
above-referenced audits, and that in accordance with instruction 5 to Item
304 of Regulation S-K, the Company believed that no reportable event occurred
within the meaning of Item 304(a)(1)(v) of Regulation S-K. Furthermore, the
Company believes that the opinion of Arthur Andersen contained in the January
Letter is unfounded.
During the two most recent fiscal years and subsequent interim periods prior to
October 4, 1995, there were no disagreements with Arthur Andersen on any matter
of accounting principles or practices, financial statement disclosure, auditing
scope or procedure, or any reportable events, except the Company's disagreement
with Arthur Andersen regarding the Company's restatement of its financial
results for the quarter ended March 31, 1994, as described in the Form 8K/A.
The reports of Arthur Andersen on the financial statements of the Registrant at
and for the years ended December 31, 1994 and 1993, contained no adverse opinion
or other disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles.
Effective January 2, 1996, the Board of Directors of the Company engaged the
accounting firm of Price Waterhouse LLP ("Price Waterhouse") as independent
accountants to audit the Company's financial statements at and for the years
ended December 31, 1995, 1994 and 1993.
The Company has not consulted with the independent accounting and audit group at
Price Waterhouse responsible for performing future independent accounting work
during the preceding two years or subsequent interim periods through September
30, 1995, on (i) either the application of accounting principles or type of
opinion Price Waterhouse might issue on the Company's financial statements or
(ii) the Company's disagreement with Arthur Andersen regarding the Company's
restatement of its financial results for its quarter ended March 31, 1994, as
described in the Form 8-K/A. Through its outside litigation counsel the Company
previously engaged the Dispute Analysis and Corporate Recovery Consulting Unit
of Price Waterhouse as litigation consultants and to provide expert witness
testimony in connection with the securities class action litigation filed
against the Company and various of its officers and directors in May 1994, as
described in the Form 8-K dated January 11, 1996.
The Company requested Arthur Andersen to furnish a letter addressed to the SEC
stating whether Arthur Andersen agrees with the above statements.
-47-
PART III
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
(1) Identification of Directors:
The information concerning the Company's directors and nominees is
incorporated by reference from the section entitled "Proposal No. 1 -
Election of Directors" in the Proxy Statement for the 1997 Annual
Meeting of Shareholders (the Proxy Statement), a copy of which will
be filed with the Securities and Exchange Commission no later than
120 days from the end of the Company's last fiscal year.
(2) Identification of Executive Officers:
See Part I, "Directors and Executive Officers of the Registrant."
The information concerning compliance with Section 16(a) of
the Exchange Act is incorporated by reference from "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" in the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the sections entitled "Compensation of
Executive Officers", "Report of the Compensation Committee", "Compensation
Committee Interlocks and Insider Participation" and "Performance Graph" in
the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the section entitled "Common Stock Ownership
of Certain Beneficial Owners and Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the section entitled "Certain Relationships
and Related Transactions" in the Proxy Statement.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS. The following financial statements of the
Company are contained in Item 8 of this Annual Report on Form 10-K:
1. Report of Price Waterhouse LLP, Independent Accountants.
2. Consolidated Balance Sheets at December 31, 1996 and 1995.
3. Consolidated Statements of Operations for each of the three years in
the period ended December 31, 1996.
4. Consolidated Statements of Shareholders' Equity (Deficit) at December
31, 1996, 1995 and 1994.
5. Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 1996.
6. Notes to Consolidated Financial Statements.
(2) FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedules of the Company for the year ended December 31, 1996, 1995
and 1994 is contained in Item 8 of this Annual Report on Form 10-K:
1. II - Valuation and Qualifying Accounts
2. Report of Price Waterhouse LLP, Independent Accountants. Refer to
Item 14(a)(1)1 above.
Schedules not listed above have been omitted because they are either
inapplicable or the required information has been given in Management's
Discussion and Analysis of Financial Condition and Results of Operations or
in the financial statements or the notes thereto.
(3) EXHIBITS. - Refer to Item 14(c) below.
(b) REPORTS ON FORM 8-K. - Not Applicable
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(c) EXHIBITS.
Exhibits (numbered in accordance with Item 601 of Regulation S-K)
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------
2.1 (1) Agreement and Plan of Reorganization dated January 6, 1997
by and among the Registrant, IS Acquisition Corporation and
InfoSpinner, Inc.
2.2 (1) Form of Certificate of Merger among the Registrant, IS
Acquisition Corporation and InfoSpinner, Inc.
3(i) (2) Articles of Incorporation of Registrant, as amended on
September 24,1996.
3(ii) (2) Bylaws of Registrant, as amended on September 24, 1996.
4.1 (13) Preferred Shares Rights Agreement, dated as of August 3,
1994, between Gupta Corporation and Chemical Trust Company of
California, including the Certificate of Determination of Rights,
Preferences and Privileges of Series A Participating Preferred Stock,
the form of Rights Certificate and the Summary of Rights, attached
thereto as Exhibits A, B and C, respectively.
10.1 (3) Form of Directors' and Officers' Indemnification Agreement.
10.2 (4)(5) 1986 Incentive Stock Option Plan, as amended, and forms
of agreements thereunder.
10.3 (3) 1991 United Kingdom Sub Plan and forms of agreement
thereunder.
10.4 (2) 1992 Employee Stock Purchase Plan and forms of agreements
thereunder, as amended on September 24, 1996.
10.5 (3) 1992 Directors' Stock Option Plan and forms of agreements
thereunder.
10.8 (3) Lease Agreement dated February 4, 1992 between Registrant
and Bohannon Associates.
10.9 (6) 1996 Executive Officers' Compensation Plan.
10.12 (3) Forms of License Agreements.
10.14 (2) 1995 Stock Option Plan and forms of agreement
thereunder, as amended on September 24, 1996.
10.16 (7) Note Purchase Agreement dated March 31, 1996 between
the Company and Computer Associates International, Inc.
10.17 (8) Executive Employment Agreement dated April 10, 1996
between the Company and Sam M. Inman III.
10.18 (9) Loan Agreement Secured by Property and Securities dated
August 31, 1996 between the Company and Earl and Ann Stahl.
10.19 (2) 1996 Directors' Stock Option Plan and forms of
agreement thereunder.
10.20 (2) Stipulation of Settlement dated July 19, 1996, in
regards to the Registrant's securities litigation between plaintiff's
settlement counsel and the Registrant's counsel, including exhibits
thereto, and related Final Judgment and Order of Dismissal dated
September 30, 1996.
10.21 (14) Distributorship Agreement dated January 6, 1997,
between Centura Software Corporation and InfoSpinner, Inc.
10.22 1997 Executive Officers' Compensation Plan.
11.1 (14) Statement regarding Computation of per share earnings.
16 (10)(11)(12) Letter regarding change in Certifying Accountant.
21 (1) Subsidiaries of Registrant.
23.1 Consent of Price Waterhouse LLP, Independent Accountants.
24.1 Power of Attorney. See Page 52.
27 Financial Data Schedule
- -------------------------------
(1) Incorporated by reference from the Company's Registration Statement on
Form S-4 (No. 333-20491) filed with the Commission on January 27, 1997.
(2) Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996.
(3) Incorporated by reference from the Company's Registration Statement on
Form S-1 (No. 33-55566), declared effective by the Commission on
February 4, 1993.
(4) Incorporated by reference from the Company's Registration Statement on
Form S-8 (No. 33-62194) filed with the Commission on May 5, 1993.
(5) Incorporated by reference from the Company's Registration Statement on
Form S-8 (No. 33-83850) filed with the Commission on September 9, 1994.
(6) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
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(7) Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995.
(8) Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995.
(9) Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995.
(10) Incorporated by reference from the Company's Current Report on Form 8-K
dated July 2, 1993.
(11) Incorporated by reference from the Company's Current Report on Form 8-K
dated October 11, 1995 as amended by Amendment No. 1 dated October 25,
1995 (Form 8-K/A).
(12) Incorporated by reference from the Company's Current Report on Form 8-K
dated January 8, 1996.
(13) Incorporated by reference from the Company's Registration Statement on
Form 8-A filed with the Commission on August 10, 1994.
(14) Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form S-4 filed with the Commission on
March 10, 1997.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CENTURA SOFTWARE CORPORATION
By: /s/ Sam M. Inman III Date: March 31, 1997
----------------------------------------------- -------------------
Samuel M. Inman III, PRESIDENT, CHIEF EXECUTIVE
OFFICER (PRINCIPAL EXECUTIVE OFFICER)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Samuel M. Inman or Richard A. Gelhaus, or either
of them, with the power of substitution, his attorney-in-fact and agents, to
sign any and all amendments to this Annual Report on Form 10-K, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorney-in-fact, or his substitute or substitutes may do or cause
to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: /s/ Sam M. Inman III Date: March 31, 1997
--------------------------------------- ------------------
Samuel M. Inman III, CHAIRMAN, BOARD OF
DIRECTORS, PRESIDENT, CHIEF EXECUTIVE
OFFICER(PRINCIPAL EXECUTIVE OFFICER)
By: /s/ Richard A. Gelhaus Date: March 31, 1997
--------------------------------------- ------------------
Richard A. Gelhaus, SENIOR VICE PRESIDENT
OF FINANCE AND OPERATIONS, CHIEF FINANCIAL
OFFICER (PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
By: /s/ William O. Grabe Date: March 31, 1997
--------------------------------------- ------------------
William O. Grabe, DIRECTOR
By: /s/ Max D. Hopper Date: March 31, 1997
--------------------------------------- ------------------
Max D. Hopper, DIRECTOR
By: /s/ D. Bruce Scott Date: March 31, 1997
--------------------------------------- ------------------
D. Bruce Scott, DIRECTOR
By: /s/ Anthony Sun Date: March 31, 1997
--------------------------------------- ------------------
Anthony Sun, DIRECTOR
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CENTURA SOFTWARE CORPORATION
INDEX TO EXHIBITS*
Exhibit Sequentially
Number Exhibit Numbered Page
- ------- --------------------------------------------------------- -------------
10.22 1997 Executive Officers Compensation Plan.
23.1 Consent of Price Waterhouse LLP, Independent Accountants
* Only exhibits actually filed are listed. Exhibits incorporated by
reference are set forth in the exhibit listing included in Item 14 of the
Annual Report on Form 10-K.
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