SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1996 .
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period to .
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Commission File Number 0-23720
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Atria Software, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Massachusetts 04-3072943
- ---------------------------- -------------------------------
(State of Incorporation) (IRS Employer Identification No.)
20 Maguire Road, Lexington, Massachusetts 02173-3104
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(Address of Principal Executive Offices) (Zip COde)
(617) 676-2400
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(Telephone Number, Including Area Code)
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 registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES X NO____
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As of August 6, 1996 there were 14,390,387 shares of Common Stock, $.01 par
value, outstanding.
ATRIA SOFTWARE, INC.
INDEX TO FORM 10-Q
Page No.
PART I - FINANCIAL INFORMATION
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Condensed Consolidated Balance Sheets 3
at June 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations 4
for the Three Months and Six Months Ended June 30, 1996
and June 30, 1995
Condensed Consolidated Statements of Cash Flows 5
for the Six Months Ended June 30, 1996
and June 30, 1995
Notes to Condensed Consolidated and Financial
Statements 6
Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to Vote of Securityholders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
ATRIA SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
June 30, December 31,
1996 1995
--------------- ----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 24,006 $ 18,459
Available-for-sale securities $ 23,105 22,640
Accounts receivable-trade, net of allowance for doubtful accounts of $628 and $320 6,195 4,700
Prepaid expenses 952 384
Deferred taxes 1,515 1,515
Other current assets 654 462
--------------- ----------------
Total current assets 56,427 48,160
Property and equipment, net 4,421 3,026
Other assets, net 846 786
--------------- ----------------
Total assets $ 61,694 $ 51,972
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 609 $ 850
Accrued payroll and other related expenses 3,117 2,647
Accrued other 6,346 5,752
Deferred revenue 7,415 5,012
Income tax payable --- 1,225
--------------- ----------------
Total current liabilities 17,487 15,486
Deferred revenue 468 342
Deferred rent 111 123
Stockholders' equity:
Preferred stock, $1.00 par value, 2,000,000 shares authorized; none issued --- ---
Common stock, $.01 par value, 50,000,000 shares authorized; 14,372,812 and
14,194,544 shares issued at June 30, 1996 and December 31, 1995 144 142
Additional paid-in capital 32,733 29,643
Retained earnings 10,749 6,232
Unrealized gain from available-for-sale securities 2 2
Cumulative foreign currency translation adjustment --- 2
--------------- ----------------
Total stockholders' equity 43,628 36,021
--------------- ----------------
Total liabilities and stockholders' equity $ 61,694 $ 51,972
=============== ================
See notes to condensed consolidated financial statements.
3
ATRIA SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------------- ------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
Revenue:
License fees $10,839 $ 6,858 $20,479 $12,869
Services 4,657 2,351 8,519 4,360
----------- ----------- ----------- -----------
15,496 9,209 28,998 17,229
----------- ----------- ----------- -----------
Cost of Revenue:
License fees 309 218 462 333
Services 1,382 760 2,751 1,441
----------- ----------- ----------- -----------
1,691 978 3,213 1,774
----------- ----------- ----------- -----------
Gross profit 13,805 8,231 25,785 15,455
----------- ----------- ----------- -----------
Operating expenses:
Research and development 2,859 1,833 5,413 3,405
Sales and marketing 6,524 4,099 12,243 7,662
General and
administrative 1,115 687 2,083 1,287
----------- ----------- ----------- -----------
10,498 6,619 19,739 12,354
----------- ----------- ----------- -----------
Income from operations 3,307 1,612 6,046 3,101
----------- ----------- ----------- -----------
Dividend and interest
income 449 406 903 711
----------- ----------- ----------- -----------
Income before income
taxes 3,756 2,018 6,949 3,812
----------- ----------- ----------- -----------
Provision for income
taxes 1,315 606 2,432 1,144
----------- ----------- ----------- -----------
Net income $ 2,441 $ 1,412 $ 4,517 $ 2,668
=========== =========== =========== ===========
Net income per share $ .16 $ .09 $ .30 $ .18
=========== =========== =========== ===========
Weighted average number
of common and dilutive
common equivalent shares
outstanding 15,410 15,024 15,310 14,978
=========== =========== =========== ===========
See notes to condensed consolidated financial statements.
4
ATRIA SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
SIX MONTHS ENDED
JUNE 30
----------------------
1996 1995
--------- ---------
Operating activities:
Net income $ 4,517 $ 2,668
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,549 813
Allowance for doubtful accounts 308 150
Loss on sale of property and equipment 13
Tax benefit from stock options exercised 1,540 400
Changes in operating assets and liabilities:
Accounts receivable (1,875) (1,517)
Prepaid expenses (568) (51)
Other current assets (195) (122)
Other assets (80) (27)
Accounts payable (241) 59
Accrued payroll and other related expenses 471 624
Accrued other 613 879
Income tax payable (1,225) (472)
Deferred revenue 2,539 473
Deferred rent 2 --
Other, net 89 (17)
--------- ---------
Total adjustments 2,940 1,192
--------- ---------
Net cash provided by operating activities 7,457 3,860
--------- ---------
Investing activities:
Purchase of available-for-sale securities (3,100) (10,274)
Proceeds from sale of available-for-sale securities 2,540 9,657
Proceeds from sale of property and equipment 28 --
Purchase of property and equipment (2,886) (1,237)
--------- ---------
Net cash used in investing activities (3,418) (1,854)
--------- ---------
Financing activities:
Issuance of common stock 1,552 381
Purchase of treasury stock -- (10)
--------- ---------
Net cash provided by financing activities 1,552 371
--------- ---------
Effect of foreign currency exchange rate changes
on cash (44) 17
Net increase in cash and cash equivalents 5,547 2,394
Cash and cash equivalents at beginning of period 18,459 11,530
--------- ---------
Cash and cash equivalents at end of period $ 24,006 $ 13,924
========= =========
See notes to condensed consolidated financial statements.
5
ATRIA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Atria Software, Inc. (the "Company") was incorporated in Massachusetts
on January 11, 1990. The Company develops, markets and supports software
that facilitates the management of complex software development,
enhancement and maintenance. The Company also provides a comprehensive
range of services, including customer support, training and consulting.
CONSOLIDATION POLICY
The accompanying condensed consolidated financial statements include
the accounts of Atria Software, Inc. and its wholly-owned subsidiaries.
Intercompany balances and transactions have been eliminated.
INTERIM FINANCIAL STATEMENTS
The condensed consolidated balance sheet at June 30, 1996 and
condensed consolidated statements of operations for the three and six month
periods ended June 30, 1996 and 1995 are unaudited and, in the opinion of
management, include all adjustments (consisting only of normal and
recurring adjustments) necessary for a fair presentation of results for
these interim periods. Certain information and footnote disclosures
normally included in the Company's annual consolidated financial statements
have been condensed or omitted. The results of operations for the interim
period ended June 30, 1996 are not necessarily indicative of the results to
be expected for the entire year. The balance sheet at December 31, 1995
contained herein has been derived from the audited consolidated financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. It is suggested that these interim condensed
consolidated financial statements be read in conjunction with the audited
consolidated financial statements for the year ended December 31, 1995,
which are contained in the Company's 1995 Annual Report to Stockholders.
STOCK SPLIT
On August 10, 1995, the Company's Board of Directors approved a two-
for-one stock split effected in the form of a 100% stock dividend that was
payable on September 18, 1995 to stockholders of record as of August 28,
1995. Accordingly, all presentations of shares outstanding and amounts per
share have been restated to reflect the split. The par value of the
additional shares issued was transferred from additional paid-in capital to
common stock.
INCREASED NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
On May 1, 1996, the stockholders of the Company approved an amendment
to the Company's Restated Articles of Organization to increase the number
of authorized shares of the Company's common stock from 25,000,000 to
50,000,000.
PROPOSED MERGER WITH PURE SOFTWARE INC.
On June 6, 1996, the Company entered into an Agreement and Plan of
Reorganization (the "Agreement") with Pure Software Inc. ("Pure"), a
publicly-held company that develops, markets and supports a comprehensive,
integrated suite of software products that are designed to enable the
production of reliable, high-quality software and improve the software
development process. Under the terms of the Agreement, Pure will issue
1.544615 shares of common stock for each outstanding share of the Company's
common stock. In addition, each outstanding option or right to purchase the
Company's common stock under the Company's various stock option and stock
purchase plans will be assumed by Pure and will become an option or right
to purchase Pure's common stock after giving effect to the 1.544615
exchange ratio. Consummation of the merger contemplated by the Agreement is
conditioned upon the affirmative vote of each company's stockholders, among
other conditions. The Board of Directors of the Company has unanimously
approved the Agreement and transactions contemplated thereby. A special
meeting of the Company's stockholders is scheduled to be held on August 23,
1996 to consider and vote upon the proposed Agreement and other related
matters. The terms of the proposed merger between the Company and Pure,
including conditions required to be satisfied in order to consummate the
transactions and certain Risk Factors to be considered in evaluating the
proposed transaction are set forth in detail in the Company's
Prospectus/Joint Proxy Statement dated July 26, 1996. These financial
statements should be considered in conjunction with the matters described
in the Prospectus/Joint Proxy Statement dated July 26, 1996.
6
ATRIA SOFTWARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion of the Company's Results of Operations should be read in
conjunction with the terms of the proposed merger transaction with Pure
Software Inc., which are described in detail in the Prospectus/Joint Proxy
Statement dated July 26, 1996, including the satisfaction of conditions of
the transaction as well as the Risk Factors set forth therein.
RESULTS OF OPERATIONS
The following table sets forth certain condensed consolidated financial
data as a percentage of total revenue for the periods indicated.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
------------ ------------ ------------ -----------
Revenue:
License fees 69.9% 74.5% 70.6% 74.7%
Services 30.1% 25.5% 29.4% 25.3%
------------ ------------ ------------ -----------
100.0% 100.0% 100.0% 100.0%
------------ ------------ ------------ -----------
Cost of revenue:
License fees 2.0% 2.4% 1.6% 1.9%
Services 8.9% 8.2% 9.5% 8.4%
------------ ------------ ------------ -----------
10.9% 10.6% 11.1% 10.3%
------------ ------------ ------------ -----------
Gross Profit 89.1% 89.4% 88.9% 89.7%
------------ ------------ ------------ -----------
Operating expenses:
Research and development 18.4% 19.9% 18.7% 19.8%
Sales and marketing 42.1% 44.5% 42.2% 44.5%
General and administrative 7.2% 7.5% 7.2% 7.4%
------------ ------------ ------------ -----------
67.7% 71.9% 68.1% 71.7%
------------ ------------ ------------ -----------
Income from operations 21.4% 17.5% 20.8% 18.0%
Dividend and interest income 2.9% 4.4% 3.1% 4.1%
------------ ------------ ------------ -----------
Income before income taxes 24.3% 21.9% 23.9% 22.1%
------------ ------------ ------------ -----------
Provision for income taxes 8.5% 6.6% 8.4% 6.6%
------------ ------------ ------------ -----------
Net income 15.8% 15.3% 15.5% 15.5%
============ ============ ============ ===========
Gross margins:
License fees 97.1% 96.8% 97.7% 97.4%
Services 70.3% 67.7% 67.7% 66.9%
------------ ------------ ------------ -----------
89.1% 89.4% 88.9% 89.7%
============ ============ ============ ===========
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
REVENUE. Total revenue increased 68% to $15,496,000 in the three months
ended June 30, 1996 compared to $9,209,000 in the three months ended June 30,
1995. Revenue growth was affected by expanded sales and marketing activities as
well as expanded product offerings. Approximately 95% of the Company's total
revenue in the three months ended June 30, 1996 was attributable to the
Company's direct sales force compared with approximately 93% in the three months
ended June 30, 1995. This increase was primarily due to the expansion of the
direct sales force. Revenue from customers outside North America increased to
approximately 23% of total revenue in the three months ended June 30, 1996
compared to approximately 20% in the three months ended June 30, 1995. This
increase is the result of the Company's continuing penetration of international
markets, primarily in Europe through the efforts of its direct sales force
located in the United Kingdom, France and Germany.
License fee revenue increased 58% to $10,839,000 in the three months ended
June 30, 1996 compared to $6,858,000 in the three months ended June 30, 1995.
The principal reason for this increase was the continued increase in customer
acceptance of the Company's products, which the Company believes was
strengthened by releases of new versions of the
7
Company's Windows products as well as expansion of platform support for the
UNIX-based products. This increased customer acceptance resulted in an expansion
of the customer base as well as strong repeat orders from existing customers.
Services revenue increased 98% to $4,657,000 in the three months ended June
30, 1996 compared to $2,351,000 in the three months ended June 30, 1995. The
increase in services revenue was primarily attributable to increased software
maintenance, training and consulting revenue that was realized principally as a
result of the growth in the installed base. To date, substantially all of the
Company's direct customers have purchased annual service contracts on initial
sale and have renewed such contracts upon expiration.
COST OF REVENUE. Total cost of revenue increased 73% to $1,691,000 in the
three months ended June 30, 1996 compared to $978,000 in the three months ended
June 30, 1995, and increased as a percentage of total revenue to 10.9% from
10.6%.
Cost of license fee revenue consists of the cost of product packaging,
documentation and tapes that are shipped to customers, and royalties payable
upon the license of products for which another party is entitled to receive
compensation. Such royalties are incurred on a per license basis and are
included in cost of revenue in the period in which the associated revenue is
recognized. The Company is not currently obligated to pay any minimum royalty
amounts to third parties. Cost of license fee revenue increased 42% to $309,000
in the three months ended June 30, 1996 compared to $218,000 in the three months
ended June 30, 1995 and decreased as a percentage of license fee revenue to 2.9%
from 3.2%. This percentage decrease is primarily due to a decrease in royalty
expense offset by a slight increase in material costs due to variances in
product mix and customers' utilization of camera-ready documentation. Royalty
expense as a percentage of license fee revenue decreased slightly in the three
months ended June 30, 1996 versus the three months ended June 30, 1995. To date,
the Company has not capitalized any software development costs.
Cost of services revenue consists principally of personnel costs for
training, consulting and customer support. Cost of services revenue increased
82% to $1,382,000 in the three months ended June 30, 1996 compared to $760,000
in the three months ended June 30, 1995 and decreased as a percentage of
services revenue to 29.7% from 32.3%. The decrease is the net result of higher
costs due primarily to increased staffing of the Company's customer support and
training organizations in the United States and Germany offset by higher
services revenue.
RESEARCH AND DEVELOPMENT. Research and development expenses, consisting
primarily of salaries, benefits and related costs, increased 56% to $2,859,000
in the three months ended June 30, 1996 compared to $1,833,000 in the three
months ended June 30, 1995 and decreased as a percentage of total revenue to
18.4% from 19.9%. This increase in research and development expenses resulted
primarily from growth in the research and development staff for the continued
development of new software products, as well as the enhancement and support of
existing products. To date, the Company has not capitalized any software
development costs.
SALES AND MARKETING. Sales and marketing expenses, consisting primarily of
salaries, commissions and promotional costs, increased 59% to $6,524,000 in the
three months ended June 30, 1996 compared to $4,099,000 in the three months
ended June 30, 1995 and decreased as a percentage of total revenue to 42.1% from
44.5%. This increase in sales and marketing expenses was primarily due to an
increase in the number of sales and marketing personnel, an increase in the
amount of sales commissions associated with increased revenue and an increase in
promotional spending.
GENERAL AND ADMINISTRATIVE. General and administrative expenses,
consisting primarily of the corporate, finance, and administrative expenses of
the Company, increased 62% to $1,115,000 in the three months ended June 30, 1996
compared to $687,000 in the three months ended June 30, 1995, but decreased as a
percentage of total revenue to 7.2% from 7.5%. This increase in general and
administrative expenses was primarily due to an increase in the number of
financial and administrative personnel required to build and maintain an
infrastructure to support the Company's growth.
DIVIDEND AND INTEREST INCOME. Dividend and interest income, consisting of
dividends and interest earned on the Company's excess cash balances, increased
11% to $449,000 in the three months ended June 30, 1996 compared to $406,000 in
the three months ended June 30, 1995. This increase is due to an increase in the
average cash balance invested during the three months ended June 30, 1996, which
was primarily due to higher cash generated by operations.
PROVISION FOR INCOME TAXES. The provision for income taxes was $1,315,000
in the three months ended June 30, 1996 and $606,000 in the three months ended
June 30, 1995 representing 35% and 30% of pretax income, respectively. The
provision for the three months ended June 30, 1995 was lower than the three
months ended June 30, 1996 due primarily to tax
8
benefits resulting from the utilization of research and development tax credits.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
REVENUE. Total revenue increased 68% to $28,998,000 in the six months
ended June 30, 1996 compared to $17,229,000 in the six months ended June 30,
1995. Revenue growth was affected by expanded sales and marketing activities as
well as expanded product offerings. Approximately 94% of the Company's total
revenue in the six months ended June 30, 1996 was attributable to the Company's
direct sales force compared with approximately 92% in the six months ended June
30, 1995. This increase was primarily due to the expansion of the direct sales
force. Revenue from customers outside North America increased to approximately
22% of total revenue in the six months ended June 30, 1996 compared to
approximately 20% in the six months ended June 30, 1995. This increase is the
result of the Company's continuing penetration of international markets,
primarily in Europe through the efforts of its direct sales force located in the
United Kingdom, France and Germany.
License fee revenue increased 59% to $20,479,000 in the six months ended
June 30, 1996 compared to $12,869,000 in the six months ended June 30, 1995. The
principal reason for this increase was the continued increase in customer
acceptance of the Company's products, which the Company believes was
strengthened by releases of new versions of the Company's Windows products as
well as expansion of platform support for the UNIX-based products. This
increased customer acceptance resulted in an expansion of the customer base as
well as strong repeat orders from existing customers.
Services revenue increased 95% to $8,519,000 in the six months ended June
30, 1996 compared to $4,360,000 in the six months ended June 30, 1995. The
increase in services revenue was primarily attributable to increased software
maintenance, training and consulting revenue that was realized principally as a
result of the growth in the installed base. To date, substantially all of the
Company's direct customers have purchased annual service contracts on initial
sale and have renewed such contracts upon expiration.
COST OF REVENUE. Total cost of revenue increased 81% to $3,213,000 in the
six months ended June 30, 1996 compared to $1,774,000 in the six months ended
June 30, 1995, and increased as a percentage of total revenue to 11.1%
from 10.3%.
Cost of license fee revenue increased 39% to $462,000 in the six months
ended June 30, 1996 compared to $333,000 in the six months ended June 30, 1995
and decreased as a percentage of license fee revenue to 2.3% from 2.6%. This
percentage decrease is primarily due to a decrease in royalty expense offset by
a slight increase in material costs due to variances in product mix and
customers' utilization of camera-ready documentation. Royalty expense as a
percentage of license fee revenue decreased slightly in the six months ended
June 30, 1996 versus the six months ended June 30, 1995. To date, the Company
has not capitalized any software development costs.
Cost of services revenue increased 91% to $2,751,000 in the six months
ended June 30, 1996 compared to $1.441,000 in the six months ended June 30, 1995
and decreased as a percentage of services revenue to 32.3% from 33.1%. The
decrease is the net result of higher costs due primarily to increased staffing
of the Company's customer support and training organizations in the United
States and Germany offset by higher services revenue.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 59%
to $5,413,000 in the six months ended June 30, 1996 compared to $3,405,000 in
the six months ended June 30, 1995 and decreased as a percentage of total
revenue to 18.7% from 19.8%. This increase in research and development expenses
resulted primarily from growth in the research and development staff for the
continued development of new software products, as well as the enhancement and
support of existing products.
SALES AND MARKETING. Sales and marketing increased 60% to $12,243,000 in
the six months ended June 30, 1996 compared to $7,662,000 in the six months
ended June 30, 1995 and decreased as a percentage of total revenue to 42.2% from
44.5%. This increase in sales and marketing expenses was primarily due to an
increase in the number of sales and marketing personnel, an increase in the
amount of sales commissions associated with increased revenue and an increase
in promotional spending.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
62% to $2,083,000 in the six months ended June 30, 1996 compared to $1,287,000
in the six months ended June 30, 1995, but decreased as a percentage of total
9
revenue to 7.2% from 7.4%. This increase in general and administrative expenses
was primarily due to an increase in the number of financial and administrative
personnel required to build and maintain an infrastructure to support the
Company's growth.
DIVIDEND AND INTEREST INCOME. Dividend and interest income increased 27%
to $903,000 in the six months ended June 30, 1996 compared to $711,000 in the
six months ended June 30, 1995. The increase is due to an increase in the
average cash balance invested during the six months ended June 30, 1996, which
was primarily due to higher cash generated by operations.
PROVISION FOR INCOME TAXES. The provision for income taxes was $2,432,000
in the six months ended June 30, 1996 and $1,144,000 in the six months ended
June 30, 1995 representing 35% and 30% of pretax income, respectively. The
provision for the six months ended June 30, 1995 was lower than the six months
ended June 30, 1996 due primarily to tax benefits resulting from the utilization
of research and development tax credits.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently meets its cash requirements through cash provided by
operations. On May 13, 1994, the Company received net proceeds of approximately
$21,402,000 relating to the initial public offering ( the "IPO") of 3,940,000
shares of common stock (adjusted for the two-for-one stock split effective
September 18, 1995). The Company has used the proceeds for general corporate
purposes, including working capital.
The Company's financial position remained strong as its cash position,
consisting of cash, cash equivalents, and short-term investments, was
approximately $47,111,000 at June 30, 1996 versus $41,099,000 at December 31,
1995. Net cash provided by operations totaled $7,457,000 and $3,860,000 for the
six months ended June 30, 1996 and 1995, respectively. Net cash provided by
operations for the six months ended June 30, 1996 consisted principally of net
income, adjusted for the tax benefit derived from the exercise of certain stock
options, increased depreciation and amortization and deferred revenue, offset by
growth in accounts receivable (reflecting a slightly increased Days Sales
Outstanding as well as increased revenue levels) and a decrease in income taxes
payable.
The Company utilized $3,418,000 and $1,854,000 of net cash for investing
activities for the six months ended June 30, 1996 and 1995. Net cash used for
investing activities consists of the amount utilized for the purchase of
available-for-sale securities and for the purchase of property and equipment,
principally computers and related software, offset by the proceeds from the sale
of available-for-sale securities. For the six months ended June 30, 1996, the
Company utilized $2,886,000 for purchases of property and equipment as compared
to $1,237,000 for the six months ended June 30, 1995. The increase is primarily
due to costs related to the increase in the Company's employee base. As of June
30, 1996, the Company had no material commitments for capital expenditures. The
purchase and sale of available-for-sale securities represents the investment of
the Company's excess funds in both taxable and tax-exempt short-term
investments. The investment of excess funds consists mainly of municipal bonds,
money market funds and short-term commercial paper. As of June 30, 1996, all of
these investments have been classified as available-for-sale securities as
defined by Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities".
Net cash provided by financing activities totaled $1,552,000 and $371,000
for the six months ended June 30, 1996 and 1995, consisting of the proceeds from
stock option exercises partially offset by the purchase of treasury stock during
the six months ended June 30, 1995.
As of June 30, 1996, the Company had working capital of $38,940,000
compared with working capital of $32,674,000 at December 31, 1995. The Company
does not have a bank line of credit.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or statements made
by its employees may contain "forward-looking" information which involves risk
and uncertainties. The Company's actual future results may differ significantly
from those stated in any forward-looking statements. Factors that may cause such
differences include, but are not limited to, the factors discussed below as well
as the accuracy of the Company's internal estimates of revenue and operating
expense levels. Each of these factors, and others, are discussed from time to
time in the Company's Securities and
10
Exchange Commission filings, including, with respect to the Risk Factors
relating to the proposed merger transaction with Pure Software Inc., the
Company's Prospectus/Joint Proxy Statement dated July 26, 1996.
The Company's future results are subject to substantial risks and
uncertainties. The Company currently derives substantially all of its revenue
from licenses of ClearCase and related products and services. As a result, any
factor adversely affecting sales of ClearCase would have a material adverse
effect on the Company. In addition, broad market acceptance of the Company's
products, including acceptance in markets characterized by greater usage of the
Windows and Windows NT operating systems, is critical to the Company's future
success. The Company believes that factors affecting the ability of the
Company's products to achieve broad market acceptance include: product
performance, price, ease of adoption and displacement of existing approaches.
The application development software industry is extremely competitive and is
subject to rapid technological change, frequent new product introductions and
evolving domestic and international industry standards that may render existing
products and services obsolete. To be successful in the future, the Company must
respond promptly and effectively to the challenges of technological change and
its competitors' innovations by continually enhancing its current products and
developing new products on a timely basis. The Company expects to confront new
competitors as it introduces new products and expands into the Windows and
Windows NT markets and into new markets. Certain current and potential
competitors of the Company are more established, benefit from greater market
recognition and have substantially greater financial, development and marketing
resources than the Company. Competitive pressures or other factors, including
entry into new markets, may result in significant price erosion that could have
a material adverse effect on the Company's results of operations.
The Company believes that its operating results could vary significantly
from quarter to quarter. The Company's license fee revenue in any quarter is
substantially dependent on orders booked and shipped in that quarter. The timing
of license fee revenue is influenced by a number of factors, including: the
timing of individual orders and shipments of its products, seasonal customer
buying patterns, changes and delays in product development, and the amount and
timing of sales and marketing expenditures. Because the Company's operating
expenses are based on anticipated revenue levels and a high percentage of the
Company's expenses are relatively fixed in the short term, variations in the
timing of recognition of revenue can cause significant fluctuations in operating
results from quarter to quarter and may result in unanticipated quarterly
earnings shortfalls or losses. In such event, the price of the Company's common
stock would likely be materially adversely affected.
11
ATRIA SOFTWARE, INC.
PART II-OTHER INFORMATION
ITEM 4. Submission of Matters to Vote of Securityholders
------------------------------------------------
At the Annual Meeting of Stockholders (the "Annual Meeting") held on May
1, 1996, the stockholders of the Company, entitled to vote thereat,
approved:
(i) the election of two Class II Directors. The following table sets
forth each Class II Director elected at the Annual Meeting (with vote
results) and each Director whose term of office extended beyond the
Annual Meeting:
Year Term
Name Class Will Expire For Withheld
----------------------------------------------------------------------------------------------------------
Paul H. Levine I 1998 -- --
Robert D. Pavey I 1998 -- --
Paul J. Ferri II 1999 10,622,901 78,692
David A. Litwack II 1999 10,631,686 69,907
Gardner C. Hendrie III 1997 -- --
Louis J. Volpe III 1997 -- --
(ii) by vote of 10,350,724 shares of Common Stock in favor, 342,425
shares opposed, 8,444 shares abstaining and 300 broker non-votes, to
amend the Restated Articles of Organization of the Company to increase
the number of authorized shares of Common Stock, par value $.01 per
share, of the Company from 25,000,000 to 50,000,000 shares.
(iii) by vote of 5,723,067 shares of Common Stock in favor, 3,968,906
shares opposed and 11,880 shares abstaining and 998,040 broker non-votes,
to amend the Company's 1994 Stock Plan (the "1994 Plan") to eliminate the
"evergreen" provision from the 1994 Plan effective as of January 2, 1999
rather than January 2, 2004 and to increase the "evergreen" provision of
the 1994 Plan during the applicable period from two percent (2%) to four
percent (4%).
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits:
---------
27. Financial Data Schedule
(b) Current Report on Form 8-K:
---------------------------
June 6, 1996 - Item 5 - Other Events - Reporting that the Company
had entered into an Agreement and Plan of Merger with Pure
Software Inc., a Delaware corporation and CST Acquisition
Corporation, a Massachusetts corporation and wholly-owned
subsidiary of Pure Software Inc.
12
ATRIA SOFTWARE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 9, 1996 Atria Software, Inc.
By: /s/ Paul H. Levine
-------------------------------
President and Chief Executive
Officer
By: /s/ Elliot M. Katzman
-------------------------------
Elliot M. Katzman
Vice President, Finance and
Administration, Chief Financial
Officer and Treasurer (Principal
Financial Officer)
13