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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM JULY 1, 1996 THROUGH DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-19682
CAYENNE SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2784044
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8 NEW ENGLAND EXECUTIVE PARK
BURLINGTON, MASSACHUSETTS 01803
TELEPHONE NUMBER (617) 273-9003
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE
ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION
12(G) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
NAME OF EACH EXCHANGE ON WHICH REGISTERED: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X. No .
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 the registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes. No X.
As of March 26, 1997, there were 17,741,616 shares outstanding of the
registrant's common stock, $0.01 par value. As of that date, the aggregate
market value of common stock held by non-affiliates of the registrant was
approximately $65,308,796.
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CAYENNE SOFTWARE, INC.
FORM 10-K FOR THE TRANSITION PERIOD ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business................................................................. 3
Item 2. Properties............................................................... 16
Item 3. Legal Proceedings........................................................ 16
Item 4. Submission of Matters to a Vote of Security Holders...................... 16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ... 17
Item 6. Selected Financial Data.................................................. 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 20
Item 8. Financial Statements and Supplementary Data.............................. 36
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...................................... 56
PART III
Item 10. Directors and Executive Officers of the Registrant...................... 56
Item 11. Executive Compensation.................................................. 56
Item 12. Security Ownership of Certain Beneficial Owners and Management ......... 57
Item 13. Certain Relationships and Related Transactions.......................... 57
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ....... 57
Signatures....................................................................... 61
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PART I
ITEM 1. BUSINESS
GENERAL
Cayenne Software, Inc. (formerly Bachman Information Systems, Inc.)
("Cayenne(TM)"or the "Company"), organized as a corporation in 1983, develops,
markets and supports a comprehensive suite of workgroup-to-enterprise analysis
and design solutions for the real-world challenges software developers face
every day. Fortune 1000 companies and government agencies around the world use
Cayenne products as they develop, implement, and maintain enterprise-wide,
business-critical information systems. Cayenne's products are designed around an
innovative open architecture that enables organizations to create applications
that integrate diverse information sources into new high-performance computing
environments, to modify applications as business and technology change, and to
run those applications on a variety of platforms. Cayenne's approach to
reusability and its open architecture directly support mainframe computer aided
software engineering and structured modeling in addition to client/server
modeling and database design and object-oriented modeling and facilitates
technology partnerships with other leading software vendors.
Cayenne targets its products to Fortune 1000 companies, government
agencies, and organizations of similar size throughout the world that use
workstations, mid-range and mainframe computers and relational database
management systems for data-intensive applications.
In July, 1996, the Company acquired Cadre Technologies Inc. ("Cadre")
thereby expanding its product offerings and customer base. Cadre develops,
markets and supports software tools for the creation of complex computer
software. Most of the products sold by Cadre help to automate the process of
requirements analysis and software design by groups of software engineers.
Customers use the tools to capture, traverse, and analyze abstract models of the
system to be built. These models assist users, and sometimes their customers, in
understanding a software system, planning its implementation and making
engineering trade-offs. Additional Cadre products address document generation,
model configuration management, software construction, and the "reverse
engineering" (understanding) of existing software.
Cadre's customers are generally developers of complex software systems, in
both the information system ("IS") and the "technical" sectors. While most of
Cadre's current customers consider themselves in the technical sector, the
Company expects a shift toward IS customers as it concentrates on
"object-oriented" ("OO") technology. The Company's strategy is to maintain
Cadre's position as a leading provider of tools to the technical market, while
introducing new products and enhancements for Cadre's OO product line.
In October 1996, the Company elected to change its year end to December
31st. As a result, the period from July 1, 1996 through December 31, 1996 was
designated as the "Transition Period."
As the Company continues its migration toward providing customers a
more open and flexible set of solutions, it faces many challenges. The Company
has addressed some of these challenges over the past several years by
introducing additional products through internal development and acquisitions
targeted at the client/server and object-oriented markets. The Company plans to
continue to enhance its product offerings through development efforts, strategic
alliances and acquisitions to improve its competitive position. The actions
necessary to execute this transition have had an adverse effect on the Company's
operating results during the transition period from July 1, 1996 through
December 31, 1996 and prior fiscal years ended June 30, 1996, 1995 and 1994,
respectively, and may continue to adversely affect operating results in the
future.
ACQUISITIONS
On July 18, 1996, the Company completed its acquisition of Cadre under an
Agreement and Plan of Merger (the "Merger Agreement") dated as of March 25,
1996. Cadre is now a wholly-owned subsidiary of the Company. The acquisition was
accounted for as a "pooling of interests" during the six-month transition period
ended
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December 31, 1996. Pursuant to the Merger Agreement, the amount of Company
shares of common stock issued was 4,716,442 and the exchange ratio was
determined to be 0.3088 Company share for each outstanding Cadre share. The fair
market value of a share of the Company's common stock at the time of the merger
was $5.625 per share.
INDUSTRY BACKGROUND
Organizations have found in recent years that good information systems
supporting well-designed business processes can provide a substantial
competitive edge. The growth of business process re-engineering is an attempt to
re-think business processes and work flow from the ground up in order to achieve
the dramatic improvements in productivity required to reduce costs, improve
service to customers and gain competitive advantage. This re-thinking of the
business process creates challenges for IS professionals by creating many new
processes to support, and by rendering existing systems partially or completely
obsolete. As a result, there is an increasing demand for new application
development as well as a need for better integration among existing information
resources.
While in the past a majority of information-intensive applications were
built using large, centralized mainframe computers (such as those built by IBM),
with mainframe database management technology and very simple user interaction,
the proliferation of personal computers, networks and related technology over
the last ten to fifteen years has made a variety of new computing configurations
possible. New technologies promise systems that are easier to use and provide
better real-time access to information. After an initial investment, they also
promise a more rational cost structure over time.
Today, several very different types of technology coexist in large
organizations, each serving the needs of specific user constituencies. This
diversity of technology creates serious challenges for information systems
professionals, as they work to build new applications, maintain older mainframe
"legacy" applications, incorporate new client/server and communications
technology, integrate a variety of databases and applications for improved
access, and grow staff skills to meet overall requirements. To alleviate some of
these pressures, recent technology developments have emphasized systems of
hardware and software that are scaleable, meaning they can be sized to meet the
small or large demands of the organizational units they support. Scaleable
systems allow growing organizations to build on the investment they have made in
infrastructure and staff development, adding capacity incrementally, rather than
acquiring an entirely new system that might be very different from its
predecessor.
The primary goal of these changes is to make the organization more
productive by making more information available to the people who need it. This
improves the organization's ability to conduct its business. A related goal is
to create a more flexible infrastructure in which incremental growth results in
incremental cost, not a complete system redesign.
With the acquisition of Cadre, the Company has entered into an additional
industry segment focused on the creation and maintenance of complex software
systems, the problem addressed by Computer Aided Software Engineering ("CASE")
products. During the 1970s, a number of "structured" techniques and methods were
invented to replace earlier ad-hoc approaches to software development. The
analysis and design (as opposed to implementation) techniques emphasize the
building of abstract models to assist in the understanding, planning, and
implementation of a system. The rationale for modeling is the same in software
as it is in any engineering discipline; money and effort are saved if problems
are identified and dealt with early in the engineering process.
STRUCTURED ANALYSIS AND STRUCTURED DESIGN. In the early eighties, networks
of computer workstations made it feasible to partially automate the capture,
traversal, and analysis of engineering models by work groups. This technology
was rapidly adopted in the civil, mechanical, and electrical engineering
domains. The CASE market expanded quickly in the mid-to late-eighties, as did
the number of companies formed to service it. The high end of the market, with
its multi-user networked UNIX engineering workstation solution, found a home in
technically-oriented organizations, such as those in telecommunications,
aerospace and defense. The other end of the market focused on single-user,
personal computer ("PC") based products. These found early success in corporate
IS organizations, where PCs were widely used.
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The IS CASE market declined in the early nineties for a number of reasons.
While the IS software development market is large, commitment to structured
methods (and the attendant engineering discipline) was weak. Some CASE companies
made claims which the products were unable to deliver and soured the market.
Others were slow to respond to technology changes such as the shift to
client/server application development and object orientation (discussed further
below). The decline resulted in a number of market leaders closing or being
acquired. The technical market, where Cadre derived the majority of its
business, was affected by the contraction and consolidation in the defense
industry. Consequently, Cadre diversified its product line into the software
development process, including debugging, measurement and verification tools.
OBJECT ORIENTED TECHNOLOGY. In the meantime, the software development
community began to experiment with "object-oriented" technology, and in
particular, OO analysis, design and implementation techniques. The structured
techniques mentioned previously generally partition a system purely along
functional lines, i.e. in terms of what the system does. The OO approach
partitions a system into "objects," where each object encapsulates information
and those functions that operate on that information. The benefit of the OO
approach is that systems partitioned this way are more robust, more amenable to
change, and the objects are easier to reuse in other systems.
Cadre started selling its first OO analysis and design products (based on
the method of developing software created by Shlaer-Mellor) in 1989. In 1993
when market momentum began to build around a related method called the Object
Modeling Technique ("OMT"), Cadre entered the market by reselling an OMT
product. This was later replaced by the OMT tool developed by Westmount
Technology B.V., acquired by Cadre in 1995. As the structured tools market
matures, the Company expects a transition to the OMT tool and related products.
These products run on both UNIX-based platforms and Windows 95 and NT-based
platforms.
THE TRANSITION TO CLIENT/SERVER COMPUTING
New technology configurations combine personal computers, from which
information or processing is requested by users or "clients", with small,
medium, or large "server" machines that service those requests for information
or processing, and often perform additional tasks that are triggered by these
requests. The desired result is a network of information stores that contains
the knowledge base of the business (sometimes called an "information
warehouse"), and is queried and updated by a variety of applications that serve
specific departments and goals. This type of configuration is loosely referred
to as "client/server" computing.
Centralized IS groups have become accustomed over time to the issues and
strategies which arise when a large amount of data must be managed and a large
number of users supported. Concerns about controlled access, controlled
redundancy, management of application changes, large team development,
application performance and system documentation have been part of the IS
specialist's role for quite some time. Smaller departmental computing groups can
sometimes be unaware of the implications of under managing these issues, and
unaware of the techniques that can help control risk, if they have not had to
confront the problems that can result when such controls are not in place.
Today, forward-thinking organizations seek to combine the best of all
worlds, and apply the new, productive tools that have been created for rapid
development of small applications to larger, more ambitious, mission-critical
projects. At the same time, IS specialists in these organizations want to ensure
that applications, corporate data, and the infrastructure that supports them are
treated as important corporate assets and managed with the necessary controls.
APPLICATION DEVELOPMENT STRATEGIES
In the past, companies that have worked to provide state-of-the art
application development products have seemed to focus on one or the other of
these worlds -- automation of the rapid application development ("code it and
go") approach, or automation of the techniques pioneered by early methodologists
in largely mainframe environments. Again, the trend had been toward diverse
techniques being used in organizations and projects of
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different sizes or technologies. But Cayenne and many of Cayenne's customers see
significant value in creating a scaleable development approach, one that
provides the productivity of rapid, visual development with the reliability of a
robust environment. Some techniques commonly associated with mainframe-oriented
development in the past, such as data and process modeling, automated database
design, and performance analysis, can be applied with equal success to the
development of client/server applications; they need only be adapted to the
characteristics of specific technology environments.
As IS organizations seek productivity tools that will help them make these
difficult transitions, they prefer to work with vendors who understand their
special challenges. In exploring the various tools available to them, they are
confronted by a wide variety of claims, prices, and function. Cayenne believes
it can provide a unique and critical service as a company that understands the
challenges of both the traditional IS environment and the new technologies and
methods.
Many organizations have recently invested heavily in the hardware and
connectivity infrastructures that will form the foundation of their new
client/server systems. Components of these infrastructures include computers,
network-related hardware and software, database management systems, gateways,
and other enabling technologies. These organizations are now turning their
attention to the applications that will be built using this new technology
infrastructure, and which will support the newly-designed business processes.
Applications fall into several different categories, based on their
complexity and on the user constituency they serve. Cayenne focuses on solutions
that enable development, deployment, and maintenance of the more complex
applications that impact multiple departments or the entire enterprise.
Many of these applications are considered to be "business-critical," meaning
that their continued operation and effectiveness is critical to the execution of
day-to-day business. Many other application development tools on the market
today provide productivity benefits for smaller, less complex applications, but
these tools lack the robust features that allow an organization to continue
using those same tools to address more complex requirements for applications
that are central to the business. Cayenne's strategy is to produce solutions to
a number of different problems relating to the development of business-critical
applications in mainframe, structured, object-oriented and client/server
technologies.
As the Company continues its migration toward providing customers a more
open and flexible set of solutions aimed at the growing object-oriented and
client/server markets, it faces many challenges. To address some of these
challenges the Company has introduced a suite of additional products targeted at
the object-oriented and client/server markets. The Company plans to continue to
enhance its product offerings through development efforts, strategic alliances
and acquisitions to improve its competitive position. The actions necessary to
execute this transition have had an adverse effect on the Company's operating
results during the six-month transition period ended December 31, 1996, and
during fiscal years ended June 30, 1996, 1995 and 1994, respectively.
CAYENNE'S APPROACH
CAYENNE PROVIDES PRODUCTS AND SERVICES IN THE FOLLOWING SOLUTION AREAS:
-- Modeling business requirements
-- Designing and re-engineering databases
-- Developing and deploying applications
-- Work group support
-- Leveraging legacy systems
-- Structured analysis and design
-- Object-Oriented technology
Cayenne takes the following unique approach to these areas, which provides a
number of benefits to organizations seeking strategic solutions to their
information systems challenges.
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SEPARATION BETWEEN CONCEPTUAL AND PHYSICAL CONCERNS. Cayenne solutions
enforce a separation between conceptual business requirements, where
organizations capture information about what data needs to be available and what
happens to it, and physical implementation, where technology-specific concerns
are addressed in an implementation design. This separation provides flexibility.
Changes to the business requirements or policies and changes to the technology
environment can be addressed independently, allowing organizations to leverage
investments in each. The technology-independent approach helps organizations
focus on business requirements, increasing the likelihood that the finished
application will meet those requirements.
FLEXIBILITY TO ENTER THE DEVELOPMENT PROCESS AT ANY STAGE. Cayenne solutions
address the entire life cycle of application development, and many of them can
be used at multiple stages of the life cycle. For example, database design
products can capture existing database structures from applications that have
already been developed, allowing database designers to view and optimize the
data structures. Design can begin with a new project or with an existing system
already in production. This flexibility supports an iterative development
process, and allows incorporation of formal analysis and modeling where needed.
INTEGRATION OF PRODUCTS ON MULTIPLE PLATFORMS. Used individually, Cayenne
products provide users with sophisticated solutions to application development
problems. Cayenne enhances their utility by offering total system integration
across products on both Windows and OS/2 platforms. Product integration enhances
communication, efficiency, and productivity, and it increases the return on the
investment in time and effort expended throughout the application development
life cycle. Using Cayenne products, systems analysts, application developers,
and database designers can work in concert, using the same model from the
conceptual phase through to physical database implementation. Over time, this
cycle can be reversed as business requirements change or migration to new
platforms requires redesign.
ABILITY TO ACHIEVE PRODUCTIVITY BY REUSING PREVIOUS WORK. The
technology-independent approach, combined with the use of object-oriented
techniques, allows for the reuse of valuable work -- a very important
contributor to productivity. Cayenne supports reuse by:
- Providing development tools that help build scaleable
applications, minimizing the need for redevelopment.
- Modeling applications at a business level, so that
requirements are implemented consistently across platforms and
applications.
- Employing object-oriented techniques such as inheritance and
encapsulation in application development, business modeling,
and database design.
- Re-engineering legacy systems, so data structures and business
rules can be captured from existing implementations and reused
in models and new implementations.
- Providing open interfaces, so information captured in Cayenne
products can be reused with best-in-class tools or custom
solutions.
STRATEGIC DIRECTION
Cayenne continues to invest in robust solutions that facilitate development of
the most critical applications, are applicable across multiple platforms, can be
used throughout the application development life cycle, and will stand the test
of time, justifying customer investments. These solutions result from a
combination of Cayenne-built software products, joint development efforts with
partners, acquired technology, and services provided by Cayenne's highly
experienced trainers and consultants. Cayenne has invested in its client/server,
object-oriented mainframe and structured analysis solutions, recognizing that
many organizations will need to maintain multiple types of environments for some
time to come. The Company is positioned in the midst of several industry
megatrends. Trends towards data warehousing, the internet and intranet, the use
of the object-oriented software
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development approach, and year 2000 data field initiatives are fueling market
demand for the Company's products that address these trends.
CAYENNE'S SOLUTIONS
Cayenne's diverse solutions, composed of software products and services,
assisted information systems specialists in the following areas: modeling
business requirements; designing and re-engineering databases; developing and
deploying applications; work group support; designing for performance;
leveraging legacy systems; structured analysis and design; and object-oriented
technology. The suite of products and services provided by Cayenne and its
partners allows customers to choose from the wide variety of application
development tools on the market that best meet their needs. Except for designing
for performance, Cayenne offers products and services today in each of the
following solution areas.
MODELING BUSINESS REQUIREMENTS
Cayenne offers tools on both Windows and OS/2 platforms that enable data
analysts, system analysts, and other business analysts to model information
systems more quickly and thoroughly than they can using conventional techniques.
GROUNDWORKS for Windows and GroundWorks for OS/2 (formerly, the BACHMAN/Analyst)
are tools for analysts that incorporate the data, logic, and process
requirements into a unified model. Further, they can be used to generate
implementation components for a variety of database and software environments.
These data modeling tools incorporate a rule-based expert system that places
Cayenne's modeling expertise in the hands of users, helping them to improve the
quality and effectiveness of the resulting models.
GroundWorks integrates process and data models. This integration streamlines the
modeling process, reduces opportunities for error, and promotes an
object-oriented approach to analysis -- all of which facilitate reuse. One
important goal of GroundWorks is to help user teams, analysts, and application
developers communicate business requirements. Models created using one product
are fully compatible with the other, providing organizations with greater
platform flexibility.
DESIGNING AND RE-ENGINEERING DATABASES
Cayenne offers tools on both Windows and OS/2 platforms that allow data
analysts, application developers, and database designers to design, implement,
and maintain high-performance relational databases. TERRAIN is Cayenne's family
of database design tools that offers a comprehensive, scaleable database design
environment for business-critical client/server databases. TERRAIN 500 provides
graphical support for basic design tasks, such as object creation and
maintenance, reporting, and database documentation. Open Connectivity tasks
support Microsoft Open Database Connectivity (ODBC), allowing Terrain 500 users
to import and export designs from over 40 popular Database Management Systems
(DMBSs), including Microsoft and SYBASE SQL Server, ORACLE, Informix, and
DB2/6000.
TERRAIN 1000 was designed specifically for users of Microsoft and SYBASE SQL
Server, with built-in expertise appropriate to users of Version 4.2, 4.9, and
System 10. Terrain 1000 has all the functionality of Terrain 500, but with
greater depth and breadth (version-specific Design task rules to help users
evaluate their designs, advisors for performance optimization, and support for
all SQL Server objects, for example). When used with the optional TERRAIN 100/S
module, users can connect directly to a Microsoft or SYBASE SQL Server catalog
in order to capture existing databases and generate DDL based on their Terrain
designs. Another optional module, TERRAIN 100/O, provides similar functionality
for ORACLE databases. Designs created using Terrain 1000 are compatible with
Terrain 500, and vice versa.
TERRAIN FOR OS/2 (formerly, the BACHMAN/DBA), is optimized through
expert-systems technology for IBM's DB2 database management system. Terrain for
OS/2, in combination with DDL GENERATOR products, allows database administrators
to design relational databases and create data definitions for a number of
different relational databases, including DB2, DB2/6000, SYBASE SQL Server,
Microsoft SQL Server, ORACLE, Ingres,
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INFORMIX, ADABAS, and the OS/2 databases (Extended Services Database Manager
(DBM) and DB2/2). These products also capture existing database designs to
facilitate the re-engineering of database definitions to one or more
technologies.
Organizations seeking an integrated application development solution can use
TERRAINMAP to translate GroundWorks data models into Terrain 1000 designs. Once
in Terrain, the design can be implemented in any ODBC-compliant DBMS. This
integration makes it possible to completely re-engineer existing production
systems, and to maintain a single data model and deploy it across any number of
database platforms. Organizations can start in either place --with an existing
data model or an existing database-- and use TerrainMap to help ensure both
optimal design and optimal performance.
DEVELOPING AND DEPLOYING APPLICATIONS
ELLIPSE provided a comprehensive solution for building and maintaining
business-critical client/server applications. It combined a productive, visual
development environment with a robust production system and integrated life
cycle management. This combination allowed organizations to build reliable and
scaleable multi-platform client/server applications. Teams of developers on the
Sun Solaris platform could use Ellipse to build small or large database
applications, and deploy those applications to one or more production sites.
Ellipse helped organizations take advantage of the special benefits of
client/server computing by automatically partitioning the application between
clients and servers. Ellipse's automatic recovery and restart features ensured
that applications and information would be available when needed by business
users, thereby reducing the risk of bringing run-the-business applications to
new client/server technology. Ellipse was based on a shared object repository
and incorporated configuration management and version control features which
facilitate ease of maintenance and a smooth transition to new software releases.
In July 1996, the Company entered into an agreement with Seer Technologies, Inc.
("Seer") providing for the sale of its Ellipse product in exchange for certain
royalties payable under the terms of the joint development and distribution
agreement described below if the Company's former Ellipse customers migrate to
Seer's HPS product.
GENERATOR FOR POWERBUILDER allows an organization that uses both GroundWorks
or Terrain for DB2 and Powersoft Corporation's PowerBuilder to directly take
advantage of modeling work in designing a new application. The Generator creates
several different types of PowerBuilder application components using information
specified in Groundworks or Terrain for DB2, offering time savings and improved
application consistency and quality.
COMBINED CAYENNE-NETRON SOLUTION. Cayenne's open architecture allows
customers to take advantage of the implementation tools that meet their needs.
Netron Inc.'s CAP/Link provides a link between Groundworks for OS/2 and Netron's
multi-platform COBOL construction product, NETRON/CAP. This combined solution is
used today by a number of organizations who are committed to COBOL development,
want to evolve toward a reusable code base, and want integration with high-level
modeling in order to ensure that new applications meet business requirements.
Cayenne sells Netron's application development products in Italy, Ireland and
the United Kingdom.
WORK GROUP SUPPORT
REPORTS provides over 100 standard reports on CAYENNE model and design
information. Taking advantage of easy-to-use database technology --Microsoft
Access-- Reports provides Windows-based access to GroundWorks
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model information, and to Terrain design information. Reports are standard
across all products, enhancing communication among members of application
development teams.
SHARED WORK MANAGER allows groups of analysts to share models and integrate
the results of their work. Shared Work Manager is the first work group modeling
product that takes an intelligent approach to resolving modeling conflicts that
arise in a multi-user environment. It enables groups to interact in a manner
consistent with their organization's culture and work-flow methods. The product
helps users achieve a shortened development cycle without sacrificing
application quality because it supports parallel development, increases
consistency across applications, streamlines work flow, and simplifies and
encourages teamwork.
MANAGING THE PROCESS
SERVEYOR is a multi-platform client/server product that integrates process
and project management to enable information systems development teams to work
more efficiently and effectively. Organizations that have adopted a development
methodology can use Serveyor to adapt that methodology for specific projects,
assign tasks and deliverables, launch the tool appropriate for performing each
task, track progress, and manage resources within and across projects. Serveyor
incorporates a large knowledge base of information relevant to information
systems processes and tasks, enabling staff members to learn on the job.
Overall, this product serves as an umbrella over the other tools, tasks, and
deliverables that make up the development process. Serveyor is distributed by
Cayenne under the terms of a worldwide technology and marketing agreement with
Rapid Systems Development, Inc. which owns certain rights to the technology for
the product. The Company no longer actively sells and markets Serveyor.
LEVERAGING LEGACY SYSTEMS
BUSINESS RULE CAPTURE lets users exploit the valuable information in legacy
systems --their logic and objects-- and use that information to re-engineer
applications as they migrate from traditional host-based systems to distributed
systems. By enabling organizations to quickly summarize the business logic in
legacy COBOL applications, Business Rule Capture shortens the cycle for
maintenance, system integration, and new development. And once existing business
rules are clearly understood, database managers can better understand how
programs access data and then optimize the supporting data structures
accordingly.
LEGACY CAPTURE products facilitate the re-engineering of IMS data structures
to create an implementation-independent model where they can be reused in new
relational database structures. In addition, flat file data structures from
existing COBOL applications can also be re-engineered using these products.
Reverse engineering products support the needs of IS departments that manage
multiple databases, and they also help accelerate business process
re-engineering projects by allowing organizations to take advantage of business
information that is available in existing systems.
PRODUCTION DBA provides a seamless interface between Cayenne's database
modeling and design products and BMC Software's CHANGE MANAGER, a
mainframe-based product which coordinates data structure changes among multiple
DB2 subsystems.
CAYENNE 2000 is a tool to help diagnose Year 2000 challenges. It can detect
date dependencies in single or across multiple COBOL programs, generate reports
on the changes needed and the impact of those changes, and provide an estimate
of the time required to fix the problems. It can also correct certain date
dependency problems in the COBOL source code.
STRUCTURED ANALYSIS AND DESIGN
TEAMWORK is a family of structured methods products, used by both C++ and
Ada developers, which help software engineers improve software quality,
streamline the software development process, and reduce development costs.
Specific Teamwork tools address aspects of development including requirements
analysis, real-time systems development, dynamic verification, structured
design, testcase generation, and document generation.
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VANTAGETEAM is a family of structured method products that enable relational
database developers to build and maintain enterprise client/server systems. Its
integrated, model-driven environment offers developers a choice of either
structured or object-oriented modeling approach. VantageTeam features extensive
code-generation capabilities for popular 3GLs and 4GLs, and supports the leading
relational database management systems, including CA-Ingres, Informix, Oracle
and Sybase.
OBJECT ORIENTED TECHNOLOGY
OBJECTTEAM FOR OMT automates and manages software construction using the
Object Modeling Technique (OMT). It provides a multi-user repository with
version and configuration management, supports the Rumbaugh et al. Object
Modeling Technique, and generates incremental code. The Company has also
developed a Java code generator for ObjectTeam. In August 1996, the Company
entered into a strategic alliance with Project Technology, Inc., a provider of
Schlaer Mellor based object technology for software development in order to
provide current ObjectTeam for Schlaer Mellor customers an upgrade path to
Project Technology's Bridgepoint tool set.
INTERNATIONAL VERSIONS OF CAYENNE PRODUCTS
The Cayenne product set is available worldwide. Products sold internationally
typically include a hardware security key to prevent or reduce the use of
illegally copied products. (Products for the domestic market use OEM software to
enable concurrent licensing.) Many of Cayenne's products are enabled for
double-byte character sets. This enablement is a prerequisite for translation
into large-character-set languages such as Kanji. Kanji versions of Groundworks
for OS/2, Groundworks Capture for COBOL, Groundworks Capture for IMS and Terrain
for OS/2 have been created.
RISKS OF INTERNATIONAL OPERATIONS
Approximately 51%, 52%, 50% and 48% of Cayenne's revenues during the
six-month transition period ended December 31, 1996 and fiscal 1996, 1995 and
1994, respectively, were attributable to international sales. Cayenne commenced
operations of its German subsidiary, Bachman Information Systems, GmbH, in
November 1990. Cayenne acquired the Cayenne-related business of Pro- Systems
S.A., its distributor in France, in October 1991; all of the stock of its
distributor in the United Kingdom, Bachman Information Systems Limited, in
November 1991; and the Cayenne-related business of Bachman Italia, S.r.1., its
distributor in Italy, in January 1992. The Company also commenced operations of
its Spanish and Singapore subsidiaries in April 1996 and February 1995,
respectively. The future contribution of sales from the foreign subsidiaries to
Cayenne's results of operations depends on Cayenne's success in maintaining
cost-effective marketing and sales operations through these wholly-owned
subsidiaries. In September 1994, as part of a restructuring to reduce expenses,
Cayenne reorganized the operations of its German subsidiary. In connection with
the Cadre merger, the Company has acquired subsidiaries in the Netherlands and
Australia.
Approximately 4%, 7%, 6% and 5%, of Cayenne's revenue during the six-month
transition period ended December 31, 1996 and fiscal 1996, 1995 and 1994,
respectively, was attributable to sales made to independent international
distributors. Sales in countries in which Cayenne continues to use independent
distributors will remain subject to the distributors' financial condition and
success, which cannot be controlled by Cayenne.
Risks inherent in Cayenne's international business generally include
exposure to currency fluctuations, longer payment cycles, greater difficulties
in accounts receivable collection and the requirement of complying with a wide
variety of foreign laws. While Cayenne has not experienced any material delays,
expenditures or other adverse consequences in complying with foreign laws to
date, it has been necessary for Cayenne to take steps to protect its proprietary
rights and license its products under local laws from country to country.
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12
CUSTOMERS AND APPLICATIONS
Cayenne's products are used worldwide by information systems specialists in
a wide variety of business, government, and non-profit organizations. Generally,
the customers are users of computing environments for data-intensive
applications. With the acquisition of Cadre, the Company has expanded its
customer base to include customers that are generally developers of complex
software systems, covering a wide range of applications in the IS and
"technical" sectors. As of December 31, 1996, Cayenne had over 52,000
installations worldwide, and a customer base of nearly 2,000 large enterprises
worldwide that include businesses in a wide variety of industries.
Historically, Cayenne relied significantly on its relationship with IBM for
development and marketing of Cayenne's products. IBM was Cayenne's single
largest customer during the transition period ended December 31, 1996 and in
each of fiscal 1996, 1995 and 1994 when revenue from IBM (including license fees
paid by IBM in connection with its own use of Cayenne products, as well as
amounts paid by IBM as a distributor and systems integrator) accounted for 16%,
15%, 9% and 6% of Cayenne's total revenue, respectively. In January 1993,
Cayenne discontinued its membership in the IBM International Alliances for
AD/Cycle, SystemView, and Information Warehouse. Cayenne and IBM entered into a
settlement and release agreement dated June 30, 1993 (the "IBM Settlement
Agreement") pursuant to which Cayenne and IBM severed certain of their remaining
relationships. Each party released and discharged the other party from all known
and unknown claims occurring on or prior to June 30, 1993. See, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
further information.
CUSTOMER SUPPORT AND SOFTWARE MAINTENANCE
Cayenne believes that high-quality customer service and technical support
are essential competitive factors in its marketplace. Through its training,
consulting, maintenance, and support services, Cayenne listens to its customers'
needs and provides services that will maximize the results achieved by customers
using Cayenne's products. Maintenance, support, and training also provide
valuable feedback that is used to refine, enhance, and develop Cayenne products.
Customers receive maintenance support from a staff of customer specialists
via a telephone "hot line". In the past, software maintenance and support were
generally provided without extra charge for ninety days following the initial
licensing of a product. The Company has changed this practice and generally no
longer provides maintenance and support without charge. Annual maintenance
contracts are available.
The Company offers three types of maintenance support at three price
points. Basic Support provides customers who do not desire "hot line" access
only with periodic product upgrades and feature/function enhancements.
Additionally, Basic Support includes access to all services delivered through
Cayenne's computer bulletin board and internet site. Call Plus, available to
those customers who purchase basic support, provides specified personnel access
to the Company's "Hot Line" for an additional annual fee. In addition to
including all of the benefits of the Company's Basic Support and Call Plus
maintenance, Premium Support subscribers are provided access to Cayenne's "Hot
Line" support and shipment of unscheduled, emergency patches for documented
errors or defects in the latest unmodified release. In addition, Premium Support
customers receive discounts off the list price of Cayenne's annual user
conference, public training courses, and on-site training (based on
availability).
TRAINING AND CONSULTING
Cayenne provides conceptual and product-oriented training courses for
customers at education facilities in the United States in Atlanta, Burlington
(Massachusetts) and New York City as well as in Toronto, Canada;
Boulogne-Billancourt, France; Turin, Italy; Munich and Wiesbaden, Germany;
Delft, Netherlands and Bracknell, England. Cayenne's international distributors
provide training and consulting to customers in their territories.
Courses are also available to be customized and delivered at customer sites.
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13
The Company provides professional services delivered by experienced
consultants. These offerings are designed to promote customer success in the
planning, implementation, and ongoing use of Cayenne's software products.
Cayenne's consultants provide a number of services for organizations making
transitions into client/server technology, including designing relational
databases, establishing a client/server architecture, and facilitating the
creation of productive development processes.
MARKETING AND SALES
Cayenne markets its products to Fortune 1000 companies, government agencies, and
organizations of similar size worldwide that use computers and software for
data-intensive and transaction-intensive applications. Cayenne seeks to promote
acceptance of its products among technical personnel, as well as at the
management level. Cayenne markets its products through a direct sales force in
the United States and through wholly-owned subsidiaries in Australia, Canada,
Germany, Italy, France, the Netherlands, Singapore, Spain and the United
Kingdom. Distributors, agents and other resellers market Cayenne's products in
over 60 other countries.
Cayenne promotes a team selling approach in which telemarketing, corporate
sales, and field sales representatives work together to identify, qualify,
inform, and sell to prospective customers.
In conjunction with its expansion into the client/server and object-oriented
development marketplace and in an effort to promote distribution through
alternate channels, Cayenne has been actively engaged in building alternate
distribution channels such as value-added resellers ("VARs") and system
integrators worldwide.
Cayenne's marketing program includes advertising, public relations,
promotional materials, direct mail, seminars, consultant briefings, user
meetings, trade shows and telemarketing. The focus of these efforts is to
position Cayenne and the value of Cayenne's solutions to customers as well as
industry influencers. Cayenne's senior technical personnel frequently
participate in industry conferences that increase customer awareness of
Cayenne's products and its technological innovations. During the transition
period ended December 31, 1996 and in fiscal 1996 and 1995, Cayenne pursued a
focused marketing campaign to increase awareness of the value of Cayenne's
solutions in client/server and object-oriented environments. Cayenne has also
joined Sybase, Inc.'s Warehouse WORKS data warehouse program and will maintain
compatibility with Sybase data warehouse offerings and participate in joint
marketing activities.
Cayenne regards its customer service and support organization as an integral
complement to its corporate strategy. Cayenne believes that its reputation for
strong after-sale support has helped the Company achieve additional sales, as
well as contributing to a high level of customer satisfaction.
PRODUCT DEVELOPMENT AND MANUFACTURING
To date, a significant majority of Cayenne's software products have been
developed internally by its employees and consultants. As a result of the
Company's acquisition of Cadre in July 1996, Cayenne now supports development
and manufacturing for a family of structured analysis and design and
object-oriented products. In developing new products and enhancements, Cayenne
uses an integrated engineering approach that emphasizes market-driven quality
and customer satisfaction. This approach incorporates the perspectives of
customers and functional experts, as well as personnel in the areas of
marketing, sales, software engineering, quality assurance, documentation, and
customer support.
Cayenne's research and development staff has significant expertise in the
technologies bearing on development of software tools, including personal
workstations, mainframe systems, graphics, expert systems, database design,
enterprise modeling, systems analysis, code generators, interface design,
operating systems, networks, and language/compiler skills. Cayenne uses its
product set in the design of future product enhancements and in the development
and deployment of the Company's own internal information systems. In fiscal
1995, Cayenne entered into an agreement to develop, maintain and enhance certain
of Cayenne's products in India, allowing Cayenne to realize savings in
development costs while maintaining control over the product development
process. In connection with the Cadre acquisition, the Company also supports
development staff in the Netherlands.
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14
The products developed and enhancements added by Cayenne are determined by
Cayenne's assessment of market revenue, growth opportunity, and return on
investment, tempered by the technical feasibility of the innovation, and the
need to maintain the highest levels of product quality and customer
satisfaction. Market opportunity is assessed by a combination of direct market
and customer research, by access to opinion leaders in technology, by working
along side customers to define their most productive development methodologies,
and by working with customer development partners to manage projects involving
substantial innovation and requiring supplementary funding.
The Company's future financial performance will depend in part on the
successful development and introduction of new products and enhancements to
existing products, and customer acceptance of these products. Many software
companies have experienced delays in completing the development of new products
and there can be no assurance that the Company will not encounter difficulties
that could delay or prevent the successful introduction and marketing of new and
enhanced versions of its products.
During the six-month transition period ended December 31, 1996, and in fiscal
1996, 1995, and 1994, Cayenne spent $5.4 million, $14.4 million, $17.1 million
and $20.1 million respectively, on internal product development. Also during
fiscal 1995 and 1994, the Company recorded charges for purchased research and
development of $7.3 million and $1.7 million upon the closing of the
acquisitions of Westmount Technology B.V. and Cooperative Solutions, Inc.,
respectively.
COMPETITION
The market for application design and development products is highly
competitive and characterized by continual change and improvement in technology.
The list of Cayenne's principal competitors in sales situations depends on
several factors including the solution area, whether the focus is mainframe or
client/server development, and whether the customer seeks strategic or tactical
solutions. Cayenne's principal competitors in the modeling and database design
market include LogicWorks, Inc., Intersolv, Inc., and Texas Instruments,
Incorporated. In the process management market, LBMS, Inc. serves similar needs
to the Company's Serveyor product. Cayenne faces additional competition with its
entry into the CASE market occupied by Cadre. The CASE market is characterized
by rapid change and frequent introduction of new products. In the Structured
technical market, Cayenne's primary competitor is Aonix (formerly, Interactive
Development Environments, Inc.) In the object-oriented market, Cayenne's primary
competitors are Rational Software Corp., Platinum Technology, Inc. and Aonix.
Many other companies produce products that compete with Cayenne and still others
might become competitors in the future. As Cayenne expands its product line into
new solution areas it is encountering additional competitors. Many of Cayenne's
existing and potential competitors have substantially greater financial,
marketing, and technological resources than Cayenne.
The principal competitive factors that have affected the market for
Cayenne's products include responsiveness to customer needs, product function,
product reliability, product ease of use, product openness, quality of customer
training and support, vendor reputation, relationships with other vendors, and
price. A variety of external and internal events and circumstances could
adversely affect Cayenne's competitive capacity in the future. Cayenne's ability
to be competitive will depend, to a great extent, on performance in product
development and in sales and marketing. To be successful in the future, Cayenne
must respond promptly and effectively to the challenges of technological change
and its competitors' innovations by continually enhancing its own product
offerings and ensuring that the market is aware of the solutions Cayenne offers.
PROPRIETARY RIGHTS PROTECTION
Cayenne relies on a combination of copyright, trade secret, patent and
trademark laws and license agreements to protect its proprietary rights in
technology. Cayenne distributes its products under signed software license
agreements which grant customers a perpetual, non-exclusive license to Cayenne's
products subject to restrictions on copying, disclosure, usage, decompiling and
transferability. The source code for all of Cayenne's products is protected as a
trade secret and as an unpublished copyrighted work. In addition, Cayenne has
entered into nondisclosure and invention agreements with each of its key
technical employees. All products are delivered as
- 14 -
15
object code. International products are usually delivered with the addition of
an electronic hardware "key" to hinder the use of unauthorized copies.
Charles W. Bachman has assigned to Cayenne a patent on certain technology
used in its products, United States Patent 4,631,664, "Partnership Data Base
Management System and Method." This patent covers the unique internal formats
used to store design information in many of Cayenne's products. Mr. Bachman and
other inventors have also assigned to Cayenne patents with respect to the
systems used in certain Cayenne products for dynamically modeling organizational
information systems (United States Patent 5,146,591, "Dynamic Information
Management System Utilizing Entity-Relationship Information Model in which the
Attribute is Independent of an Entity") and for processing complex information
representative of business transactions (United States Patent 5,179,698, "System
for Transforming User Data in Accordance with an Algorithm Defined by Design
Data and for Evaluating the Transformed Data Against Logical Criteria"). Seven
additional patents have been granted by the United States Patent and Trademark
Office (the "PTO") pertaining to technology used in Cayenne's products. In
addition, patent applications filed in April and December 1991 (derived from
filings under the Patent Cooperation Treaty) are pending before the Canadian,
Japanese and European patent offices. These applications are directed to the
subject matter of all of the above referenced Cayenne patents except U.S. Patent
4,631,664.
Despite the steps taken by Cayenne to protect its proprietary rights, it may
be possible for unauthorized third parties to copy aspects of Cayenne's
products, to develop similar technology independently or to obtain and use
information that Cayenne regards as proprietary. Cayenne believes that, because
of the rapid pace of technological change in the software industry, patent,
trade secret and copyright protection is less significant to Cayenne's
competitive position than factors such as the knowledge, ability and experience
of Cayenne's personnel, new product development, frequent product enhancements,
name recognition and ongoing reliable product maintenance support.
As of the date hereof, Cayenne has not received any claim alleging that any
of Cayenne's products infringes proprietary rights of any third party seeking
indemnification for such an infringement, and Cayenne does not know of any basis
for such a claim. If any such claim were to be asserted, it might involve costly
and protracted litigation. No assurance can be given that Cayenne would be
successful in any such litigation or that, if it were not successful, it would
be able to license the disputed proprietary rights on commercially reasonable
terms.
SEASONALITY AND BACKLOG
The Company's quarterly results are subject to fluctuations resulting from a
variety of factors, including the effects of domestic and international economic
conditions, budgetary considerations and spending patterns of customers, the
Company's sales compensation plan, the timing of large individual orders, new
product introductions, and recognition of fees in connection with license,
development and similar agreements. The Company typically realizes a larger
percentage of its software product license revenues in the second and fourth
quarters of each year, with traditionally its lowest product license revenues
occurring in the third quarter of each year. This seasonality results in part
from budgetary considerations and spending patterns of the Company's customer
base and the Company's sales commission plan, which compensates sales personnel
for achieving or exceeding annual quotas. In addition, a major portion of each
quarter's product license revenues is typically realized in the last month of
the quarter. As a result of the factors discussed above, the Company's operating
results for any one quarter are not necessarily indicative of results for any
future period.
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16
While the length of the sales cycle varies, Cayenne typically does not have
a significant backlog, and substantially all of its product revenues in any
quarter result from sales made in that quarter.
EMPLOYEES
As of February 28, 1997, Cayenne employed 344 people worldwide on a full
time basis. No employees are represented by a labor union. Cayenne has not
experienced any work stoppages and believes its relations with employees are
good. Cayenne believes that its future success will depend in part on its
continued ability to attract and retain highly qualified personnel in a
competitive market for experienced and talented software developers and sales
and marketing personnel.
ITEM 2. PROPERTIES
Cayenne's executive offices, principal research and development facilities, and
principal marketing, customer service and support and production facilities are
located in approximately 62,000 square feet of space in an executive office park
in Burlington, Massachusetts. Cayenne occupies that space under a lease expiring
October 31, 1997. Cayenne maintains its primary sales and support offices in
nine locations in the United States, and its distribution subsidiaries have
offices in Toronto, Canada; Bracknell, England; Boulogne-Billancourt, France;
Wiesbaden and Munich, Germany; Singapore; Madrid, Spain; Delft, Netherlands;
Canberra, Australia; and Florence, Milan, Rome, and Turin, Italy.
Cayenne believes that its current facilities are sufficient for its current
operations and that those facilities will continue to provide adequate space for
Cayenne's operations in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Cayenne is not aware of any material litigation or claim pending or
threatened against Cayenne or any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 20, 1996, the Company held a special meeting of stockholders in lieu
of annual meeting (the "Special Meeting"). The matters to be voted upon at the
Special Meeting included the election of two members of the Board of Directors
to serve as the Class B Directors of the Company and the approval of the
Company's Amended 1996 Incentive and Nonqualified Stock Option Plan. R. John
Fletcher and Peter J. Boni were elected as the Class B Directors at the Special
Meeting. John J. Alexander, Allyn C. Woodward. Charles W. Bachman and William
H.D. Goddard were the Company's other directors whose term of office continued
after the meeting.
Voting on the matters considered by the security-holders was as follows:
Broker Withheld
For Against Abstain Non-Vote Authority
------------------------------------------------------------
Approval of Amended 1996 Incentive and
Non-qualified Stock Option Plan 3,041,297 963,277 40,996 8,105,864 -
Approval of Election of Class B Directors:
Peter J. Boni 11,571,668 - - - 579,766
R. John Fletcher 11,572,953 - - - 578,481
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17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth, for the periods indicated, the range of high
and low sales prices for the Company's common stock, as reported by the NASDAQ
National Market System. The Company's common stock is traded under the NASDAQ
symbol "CAYN" (formerly "BACH") since the Company's initial public offering on
November 26, 1991. These prices reflect interdealer prices, without retail
mark-ups, mark-downs or commissions, and do not necessarily represent actual
transactions. In October 1996, the Company changed its fiscal year from June 30
to December 31. Accordingly, the transition period only includes stock prices
for the first and second quarters.
Transition Period
Ended December 31, 1996 Fiscal Year 1996 Fiscal Year 1995
----------------------- ---------------- ----------------
High Low High Low High Low
---- --- ---- --- ---- ---
First Quarter $7.125 $4.00 $ 7.875 $5.75 $2.75 $1.75
Second Quarter 5.6875 3.8125 10.25 4.625 4.1875 2.00
Third Quarter -- -- 11.875 8.25 5.375 3.50
Fourth Quarter -- -- 10.00 6.50 7.875 4.50
The Company has not declared or paid cash dividends on its common stock and
does not plan to pay cash dividends to its stockholders in the near future. The
Company presently intends to retain any earnings to finance further growth of
its business. As of March 26, 1997, there were 622 stockholders of record of the
Company's common stock.
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18
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in this
Form 10-K:
Statement of Operations Data (in thousands, except per share data)
Transition
period Prior period Year ended June 30,
ended ended
December 31, December 31,
1996 1995 1996 1995 1994 1993 1992
---------------------------------------------------------------------------------
Revenues:
Software license $ 10,131 $ 15,951 $ 26,282 $ 29,849 $ 36,171 $ 39,780 $ 64,729
Consulting and education
services 4,684 5,915 12,367 14,306 13,590 13,473 10,389
Maintenance 13,161 14,366 27,237 28,634 27,317 24,245 19,609
Other -- -- -- -- -- 798 3,807
-------------------------------------------------------------------------------
Total revenues 27,976 36,232 65,886 72,789 77,078 78,296 98,534
Costs and expenses:
Cost of revenues
Cost of software licenses 1,521 2,241 3,999 6,105 5,688 4,464 5,886
Cost of consulting and education
services and maintenance 4,975 7,044 12,910 15,953 13,728 13,219 9,900
Sales and marketing 12,488 16,978 32,614 37,656 41,375 47,055 51,394
Research and development 5,411 7,957 14,448 17,059 20,128 14,790 16,832
General and administrative 3,307 4,370 8,530 8,062 7,783 9,946 9,620
Restructuring and other costs 6,300 1,694 2,819 5,483 -- 9,744 1,495
Charge for purchased
research and development -- 158 158 7,300 1,736 -- --
-------------------------------------------------------------------------------
Total Costs and expenses 34,002 40,442 75,478 97,618 90,438 99,218 95,127
-------------------------------------------------------------------------------
Income (loss) from operations (6,026) (4,210) (9,592) (24,829) (13,360) (20,922) 3,407
Interest income (expense), net (225) (77) (547) 202 485 669 688
Other income (expense), net 282 (111) (84) 34 80 273 (76)
-------------------------------------------------------------------------------
Income (loss) before provision for income
taxes and extraordinary item (5,969) (4,398) (10,223) (24,593) (12,795) (19,980) 4,019
Provision for income taxes 399 404 1,124 297 407 94 1,758
-------------------------------------------------------------------------------
Income (loss) before extraordinary item (6,368) (4,802) (11,347) (24,890) (13,202) (20,074) 2,261
Extraordinary item - reduction of income
taxes due to utilization of prior years' net
operating losses -- -- -- -- -- 41 909
-------------------------------------------------------------------------------
Net income (loss) $ (6,368) $ (4,802) $(11,347) $(24,890) $(13,202) $(20,033) $ 3,170
-------------------------------------------------------------------------------
Income (loss) per common share:
Income (loss) before extraordinary
item $ (0.36) $ (0.32) $ (0.71) $ (1.86) $ (1.06) $ (1.72) $ 0.20
Extraordinary item -- -- -- -- -- -- 0.08
-------------------------------------------------------------------------------
Net income (loss) per common share $ (0.36) $ (0.32) $ (0.71) $ (1.86) $ (1.06) $ (1.72) $ 0.28
===============================================================================
Weighted average number of common
and common equivalent shares
outstanding 17,590 15,103 15,914 13,350 12,484 11,647 11,506
===============================================================================
BALANCE SHEET DATA
(in thousands)
Transition Period
Ended Year Ended June 30,
December 31, ------------------------------------------------------
1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
Working capital $ (3,940) $ 499 $ (1,638) $ 8,193 $21,334 $37,233
Total assets 22,236 34,099 35,384 46,439 62,481 81,094
Long-term obligations 106 2,096 2,534 -- 2,551 3,049
Redeemable Series A
Convertible Preferred Stock -- -- 5,493 -- -- --
Stockholders' equity (deficit) (655) 2,624 (2,753) 17,336 28,229 47,420
- --------------------
- 18 -
19
(1) The above tables reflect the results of the combined company. The Company's
fiscal 1996 results have been combined with Cadre's results for the twelve
months ended June 30, 1996. The Company's results for fiscal 1995, 1994, 1993
and 1992 have been combined with Cadre's calendar year end results for the same
period. In this presentation, Cadre's financial data for the period July 1, 1995
to December 31, 1995 is included in both the periods ended June 30, 1996 and
1995.
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20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cayenne Software, Inc. is one of the largest global suppliers of
analysis and design solutions for commercial and technical application and
database development. Cayenne offers development teams a scaleable,
workgroup-to-enterprise product family for object-oriented, data driven and
structured application development approaches.
On July 18, 1996, the Company completed its acquisition of Cadre
Technologies, Inc. ("Cadre") under an Agreement and Plan of Merger dated March
25, 1996, by and among the Company, Cadre and B.C. Acquisition Corp., whereby
the Company acquired all of the outstanding capital stock of Cadre in exchange
for 4,716,442 shares of Cayenne common stock (the "merger"). The merger was
accounted for as a pooling-of-interests during the transition period ended
December 31, 1996. Additionally, effective upon the merger the Company changed
its name to Cayenne Software, Inc. The Company acquired Cadre to expand its
product offerings to include structured analysis and design and object-oriented
technology as well as to expand its customer base.
In October 1996, the Company changed its fiscal year end from June 30th
to December 31st. As a result the period from July 1, 1996 through December 31,
1996 was designated as "the transition period."
This Annual Report on Form 10-K may contain forward-looking statements.
For this purpose, any statements contained herein that are not statements of
historical fact may be deemed forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by such forward-looking statements. These
factors include without limitation, those set forth below under the caption
"Factors That May Affect Future Results."
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21
RESULTS OF OPERATIONS
Cayenne's operating results for the transition period ended December
31, 1996 and prior fiscal periods ended June 30 1996, 1995 and 1994,
respectively, were significantly adversely affected by the market trends of the
Company's customers moving from mainframe development and structured analysis
towards client/server and object-oriented solutions, together with Cayenne's
efforts to respond to those trends. Additionally, the contraction of federal
defense programs has led to industry consolidation thereby reducing the
Company's customer base for its technical embedded products.
In particular, Cayenne's business operations in fiscal 1994 were
significantly adversely affected by the severing of substantially all of its
relationships with IBM. Cayenne historically relied heavily on its relationship
with IBM for development and marketing of its products. Prior to fiscal 1993,
Cayenne's products were designed primarily for organizations that employed IBM
and IBM-compatible mainframe computers, MVS operating system and the DB2
relational database management system. As a result, the market for Cayenne's
products has been directly affected by declines in the acceptance of those IBM
and IBM-compatible products. Prior to January 1993, Cayenne was a member of
IBM's International Alliances for AD/Cycle, SystemView and Information
Warehouse. Cayenne also maintained a close technical relationship with IBM,
which provided Cayenne with access to technical information concerning certain
current and planned developments in IBM products and systems. IBM marketed
Cayenne's products in the United States, Canada, Puerto Rico, and Austria prior
to July 1993, and continues to be a non-exclusive distributor of Cayenne's
products in certain Asia-Pacific countries and Switzerland.
IBM was Cayenne's single largest customer during the transition period ended
December 31, 1996 and in the previous fiscal years ended June 30, 1996, 1995 and
1994 when revenue from IBM (including license and maintenance fees paid by IBM
in connection with its own use of Cayenne products, as well as amounts paid by
IBM as a distributor and systems integrator) accounted for 16%, 15%, 9%, and 6%
of Cayenne's total revenue, respectively.
While Cayenne expects its broadened focus will benefit Cayenne in the long-term,
there can be no assurance that the foregoing trends will not materially
adversely affect either the success with which Cayenne develops, supports, and
sells products for use with IBM and IBM-compatible computers and systems or the
extent to which IBM continues to be a customer of Cayenne. The foregoing events
may limit Cayenne's ability to compete as effectively in the IBM and
IBM-compatible market, particularly with companies that continue to be members
of IBM's International Alliances.
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22
REVENUES
As the Company continues its migration to providing customers a more
open and flexible set of solutions aimed at the growing client/server and
object-oriented market, it faces many challenges. The Company has addressed some
of these challenges through the acquisition of Cadre which provides the Company
with broader product offerings and a significantly larger customer base from
which to solicit new and additional business. Additionally, the Company has
introduced several new products during the past three years through both
internal development and acquisitions that are targeted at the client/server and
object-oriented markets. The Company plans to continue to enhance its product
offerings through development efforts, strategic alliances and acquisitions to
improve its competitive position. The actions necessary to execute this
transition have had an adverse effect on the Company's operating performance
during the six month transition period ended December 31, 1996 and fiscal years
ended June 30, 1996, 1995 and 1994, respectively.
The Company's revenues are currently derived from three sources: (i)
fees for the perpetual license of the company's proprietary software products,
(ii) fees from sales of consulting and education services, and (iii) maintenance
fees for maintaining, supporting and providing periodic upgrades of the
Company's software products.
THE SIX MONTH TRANSITION PERIOD ENDED DECEMBER 31, 1996 COMPARED TO 1995
SOFTWARE LICENSES. Software license revenue during the six month
transition period ended December 31, 1996 amounted to $10.1 million compared to
$16.0 million for the comparable period of 1995. The $5.9 million or 36%
decrease in license revenues during the transition period resulted primarily
from migration by the Company's customers from structured analysis and mainframe
solutions toward object-
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23
oriented and client/server solutions. This migration resulted in a reduction of
revenues from the Company's Analyst and Teamwork products. Additionally,
contraction of federal defense programs led to industry consolidation,
contributing to a reduction in the Company's technical embedded customer base
and specifically reduced revenues from the Company's Teamwork and
Teamwork-related products. As a result, the Company's worldwide revenue
decreased from the comparable six months of the prior year. Also, a series of
significant orders were received in the quarter ended December 31, 1995 from a
major Italian systems integrator for the Company's mainframe based products.
These orders accounted for approximately 15% of total software license revenue
for the six months ended December 31, 1995 and were not duplicated during the
transition period.
Client/server and object-oriented products accounted for 50% of new
license revenue during the six month transition period ended December 31, 1996,
compared to 24% for the comparable period of the prior year. The Company expects
this trend to continue during 1997 as both client/server and object-oriented
solutions continue to gain global acceptance and installed customers elect to
follow market trends and migrate from mainframe and structured tools to
client/server and object-oriented solutions. Total license revenues in the
United States and the United Kingdom declined 14% and 31%, respectively, due to
the aforementioned migration trends. Total license revenue in Italy declined 59%
during the period primarily due to a series of significant orders booked in the
comparable period of 1995. No similar orders were booked during the transition
period.
CONSULTING AND EDUCATION SERVICES. Consulting and education services
revenue during the six month transition period ended December 31, 1996 amounted
to $4.7 million compared to $5.9 million for the comparable period of the prior
year. The $1.2 million or 21% decrease in consulting and education service
revenues is attributable to reduced software license revenue, lower customer
demand and reduced staffing in this area. Consulting and education revenue in
Italy increased by $0.2 million or 5%, while United States and United Kingdom
revenues declined by $1.2 million or 57% and $0.2 million or 40% , respectively.
Training courses are offered for each of Cayenne's major products. Typically,
consulting and education revenue follows the trend of software license revenue
and, therefore, consulting and education revenue during the transition period as
compared to the same period ended 1995 has followed the decline in license
revenue experienced in the United States and United Kingdom. The increase in
consulting and education revenue in Italy is attributable to several long-term
consulting contracts signed during fiscal 1996.
MAINTENANCE. Maintenance revenue for annual maintenance contracts is
deferred and recognized ratably over the term of the agreement. Maintenance
revenue for the six month transition period ended December 31, 1996 amounted to
$13.2 million compared to $14.4 million for the comparable period of the prior
year. Maintenance revenue in Italy and the United Kingdom increased by $0.5
million and $0.2 million or 54% and 10%, respectively. Increased maintenance
revenue in Italy and the United Kingdom resulted from increased penetration of
international markets in the prior year combined with an increased portion of
the customer base that renewed maintenance contracts. Maintenance revenue in the
United States declined $1.4 million or 17% due to industry consolidation in the
technical embedded market place, and the aforementioned market place migration
to client/server and object-oriented tools and fewer
- 23 -
24
customers renewing their maintenance contracts on mainframe and structured
analysis tools. Although maintenance revenue from the Company's client/server
and object-oriented tools has not fully offset the decline in maintenance
revenue from its mainframe and structured analysis and design tools to date,
maintenance revenue from those products has grown in the transition period ended
December 31, 1996 as compared to the comparable period of the prior year and the
renewal rate has remained relatively constant.
COST OF REVENUES. The Company's cost of software licenses includes
product packaging, documentation, media and royalties to third parties, as well
as the amortization of capitalized software development costs. Costs of
consulting and education services and maintenance includes personnel, travel and
occupancy costs connected with providing such services.
Cost of software licenses were $1.5 million or 5% of revenue during the
six month transition period ended December 31, 1996 compared with $2.2 million
or 6% of revenue in the comparable period of 1995. The $.7 million decrease in
1996 expenses reflects reduced sales of third party product for which the
Company pays a royalty to resell as well as reduced manufacturing costs
consistent with lower revenues. Additionally, amortization related to WindTunnel
was $0 in the transition period compared to $.2 million in the same period of
the prior year. This reduction is directly related to the Company's
determination in June 1996 that the WindTunnel product was no longer consistent
with the Company's objectives.
Cost of consulting, education and maintenance were $5.0 million or 18%
of revenue during the six month transition period ended December 31, 1996
compared with $7.0 million or 19% of revenue in the comparable period of 1995.
The $2.0 million decrease in 1996 expenses generally reflects reduced staffing
levels as a result of company efforts to better align staffing with demand,
attrition and the merger.
SALES AND MARKETING. Sales and marketing expenses were $12.5 million or
45% of revenue during the six month transition period ended December 31, 1996
compared with $17.0 million or 47% of revenue in the comparable period of 1995.
The $4.5 million decrease in expenses during the transition period primarily
reflects reduced marketing expenses including trade show attendance and
advertising together with reduced staffing in North America and international
subsidiary operations as a result of attrition and the merger.
- 24 -
25
RESEARCH AND DEVELOPMENT. Cayenne's belief that product and technical
leadership are critical to its success has resulted in a high level of
expenditures for research and development. During the transition period ended
December 31, 1996, the Company focused the majority of its research and
development efforts on the release of new products and the refreshing of the
existing product lines to prolong their lives. Research and development expenses
were $5.4 million or 19% of revenue during the six month transition period ended
December 31, 1996 compared with $8.0 million or 22% of revenue in the comparable
period of 1995. The $2.6 million decrease in expenses during the transition
period primarily reflects reduced staffing as a result of attrition and the
merger. Additionally, during the quarter ended June 30, 1996, and in conjunction
with the merger, the Company reviewed its product strategy and determined that
several products including WindTunnel were no longer consistent with the
Company's objectives. These efforts shifted resources toward developing and or
refining client/server and object-oriented products consistent with the
Company's objectives.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$3.3 million or 12% of revenue during the six month transition period ended
December 31, 1996 compared with $4.4 million or 12% of revenue in the comparable
period of 1995. The $1.1 million decrease in expenses during the transition
period primarily reflects lower levels of staffing which were the result of the
merger and the elimination of redundant positions.
RESTRUCTURING AND OTHER COSTS. On July 18, 1996, the Company acquired
Rhode Island-based Cadre in a merger transaction accounted for as a pooling of
interests. The Company acquired all of the outstanding capital stock of Cadre in
exchange for 4,716,442 shares of its common stock. In conjunction with the
merger, and to reflect costs associated with combining the operations of the two
companies, transaction fees, and other costs, the Company recorded a
restructuring charge of $6.3 million during the six month transition period
ended December 31, 1996. Included in the charge is $1.6 million of employee
related termination expenses, $1.3 million of legal, accounting, investment
banking and other professional fees, $1.4 million of facility closure and
consolidation expenses, and $2.0 million of other miscellaneous expenses
associated with the consolidation of the two companies and the company name
change. This compares to a $1.7 million charge recorded in the comparable period
of 1995 related to the Company's acquisition of Westmount Technologies B.V.
("Westmount") which included primarily employee related termination expenses.
EFFECT OF INTERNATIONAL OPERATIONS ON INCOME (LOSS) FROM OPERATIONS
Transition Prior Period
Period Ended Ended Year Ended
December 31, December 31, June 30,
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
INCOME (LOSS) FROM OPERATIONS
United States $(1,239) $(3,308) $ (3,497) $ (9,419) $ (8,771)
Italy 113 1,317 336 (540) (452)
United Kingdom (1,194) (481) (1,096) (2,044) (1,274)
Rest of World (3,706) (1,738) (5,335) (12,826) (2,863)
----------------------------------------------------------------------
$(6,026) $(4,210) $ (9,592) $(24,829) $(13,360)
======================================================================
In addition to the factors listed above, the operations of the
Company's international subsidiaries significantly affected results of
operations during the six month transition period ended December 31, 1996 and
the comparable period of 1995.
- 25 -
26
The loss from operations -- United States and Rest of World --remained
relatively flat during the transition period at $4.9 million compared to the
corresponding period of the prior year due to reduced spending in the sales and
marketing, research and development and general and administrative areas. These
savings were offset by the aforementioned restructuring charge of approximately
$5.6 million in the United States and $0.2 million in Rest of World. A similar
charge of $1.7 million was recorded in the comparable period of 1995.
The Company's Italian subsidiary reported income from operations of
$0.1 million during the transition period compared to $1.3 million in the
corresponding period in the prior year. The lower net income is principally due
to a series of significant orders received from a large systems integrator
during December 1995 which were not duplicated during the transition period.
The loss from operations in the Company's United Kingdom subsidiary
increased 148% during the six month transition period ended December 31, 1996 to
$1.2 million compared to the corresponding period in the prior year principally
due to lower software license, and consulting and education revenues during the
period. Additionally, the United Kingdom recorded a restructuring charge of
approximately $0.4 million during the transition period.
OTHER INCOME (EXPENSE), NET. Other income during the six-month
transition period ended December 31, 1996 increased slightly compared to the
same period of the prior year primarily due to lower debt levels combined with
reduced interest rates on outstanding balances.
PROVISION FOR INCOME TAXES. Due to operating losses during the
transition period ended December 31, 1996 and the comparable period of 1995, the
tax provision for those periods is composed primarily of foreign withholding
taxes and income taxes related to the profitability of certain foreign
subsidiaries. At December 31, 1996, the Company has a deferred tax asset of
approximately $39.0 million composed principally of net operating loss
carryforwards, which was offset fully by a valuation allowance due to the
uncertainty of realization.
1996 COMPARED TO 1995
SOFTWARE LICENSES. Software license revenue for fiscal 1996 amounted to
$26.3 million compared to $29.8 million for fiscal 1995. The $3.5 million or 12%
decrease resulted primarily from migration by the Company's customers from
structured analysis and mainframe solutions toward object-oriented and
client/server solutions. This migration resulted in a reduction of revenues from
the Company's Analyst and Analyst related products. Additionally, contraction of
federal defense programs led to industry consolidation, contributing to a
reduction in the Company's technical embedded customer base, and specifically
reducing revenues from the Company's Teamwork and related products. The decline
was partially offset by a series of significant orders received in the quarter
ended December 31, 1995 from a major Italian systems integrator for the
Company's mainframe based products. These orders accounted for approximately 9%
of total software license revenue for the fiscal year ended June 30, 1996.
Client/server and object-oriented product license revenue accounted for 28%
of license revenue for the year ended June 30, 1996, compared to 16% for the
year ended June 30, 1995. These results reflect the continued market trend in
the United States to migrate from structured and mainframe environments to
object-oriented and client/server environments. The Company's suite of
client/server products was available during the fourth quarter of fiscal 1995
and its own object-oriented products were introduced when the Company acquired
Westmount in May 1995. Total license revenues in the United States and United
Kingdom declined 24% and 36%, respectively due to the aforementioned migration
trends. Total license revenue in Italy increased by 100% during fiscal 1996 due
to a series of significant orders from a major systems integrator and increased
market penetration.
- 26 -
27
CONSULTING AND EDUCATION SERVICES. Total consulting and education revenue in
fiscal 1996 amounted to $12.4 million compared to $14.3 million for the
comparable period of the prior year. The $1.9 million or 14% decrease in
consulting and education service revenue is attributable to reduced software
license sales, lower customer demand and reduced staffing. Consulting and
education revenue in Italy increased by $1.0 million or 19%, while United States
and United Kingdom revenues declined by approximately $1.0 million and $1.1
million or 18% and 44%, respectively, for the year ended June 30, 1996 compared
to the prior fiscal year. Training courses are offered for each of Cayenne's
major products. Typically, consulting and education revenue follows the trend of
software license revenue and, therefore, the decline in license revenue
experienced in the United States and United Kingdom has caused the consulting
and education revenue also to decline in fiscal 1996 from fiscal 1995. The
increase in consulting and education revenue in Italy is attributable to
increased demand for the Company's consulting services from its increased
customer base and mainframe sales.
MAINTENANCE. Maintenance revenue for annual maintenance contracts is
deferred and recognized ratably over the term of the agreement. Maintenance
revenue amounted to $27.2 million compared to $28.6 million for the comparable
period of the prior fiscal year. Maintenance revenue in Italy and the United
Kingdom increased by $0.5 million and $0.1 million or 42% and 2%, respectively.
The increase in maintenance revenue in Italy and United Kingdom resulted from
increased penetration of the international markets along with an increase in the
portion of the customer base that renewed maintenance contracts. Maintenance
revenue in the United States declined by $0.3 million or 2% primarily from the
aforementioned market place migration to client/server and object-oriented tools
and fewer customers renewing their maintenance contracts on mainframe and
structured analysis based tools. Maintenance revenue, rest of world, declined
$1.7 million or 22% due to a decrease in the portion of customers renewing
maintenance contracts and a decline in new license revenues. The aggressive
migration from mainframe and structured products to client/server and
object-oriented products has resulted in an increased number of customers not
renewing their maintenance contracts. The Company's client/server and
object-oriented products were introduced late in fiscal 1995 and have not offset
the declines in mainframe and structured revenues.
COST OF REVENUE. Costs of software licenses were $4.0 million or 6% of
revenue during fiscal 1996 compared with $6.1 million or 8% of revenue in the
comparable period of fiscal 1995. The $2.1 million decrease in expenses reflects
reduced sales of third party products for which the Company pays a royalty to
sell as well as reduced manufacturing costs consistent with lower revenues. Cost
of software licenses as a percentage of related software license revenue was 15%
and 20% for fiscal 1996 and 1995, respectively.
The cost of consulting, education and maintenance were $12.9 million or 20%
of revenue during fiscal 1996 compared with $16.0 million or 22% of revenue in
the comparable period of fiscal 1995. The $3.1 million decrease in the cost of
consulting, education and maintenance was principally caused by decreased costs
in North America as the Company adjusted staffing levels to more closely align
with demand.
SALES AND MARKETING. Sales and marketing expenses were $32.6 million or 50%
of revenue during fiscal 1996 compared with $37.7 million or 52% of revenue in
the comparable period of 1995. The $5.1 million decrease in sales and marketing
expenses during the year resulted primarily because of reduced marketing
activities and reduced headcount. During the fourth quarter of fiscal 1996, the
Company had increased marketing costs of approximately $0.6 million principally
related to advertising and promotion of the Company's new name and
- 27 -
28
product strategy. This compares to $0.6 million of costs incurred in fiscal 1995
related to the launch of the Company's new products together with the Company's
user conference held in September 1994.
RESEARCH AND DEVELOPMENT. In fiscal 1996, the Company focused the majority
of its research and development resources on porting its current products to new
platforms and development of new products targeted at the client/server and
object-oriented markets. Research and development expenses were $14.4 million or
22% of revenue during fiscal 1996 compared with $17.1 million or 23% in the
comparable period of 1995. The $2.7 million decrease in research and development
expenses is due primarily to the restructuring taken by the company in fiscal
1995 to reduce headcount and consolidate facilities. Additionally, reduced
spending on the Company's Paradigm Plus product, which was replaced by
ObjectTeam together with reduced spending on Ellipse and WindTunnel products,
which are no longer considered strategic to the Company, contributed to lower
expenses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $8.5
million or 13% or revenue during fiscal 1996 compared with $8.1 million or 11%
or revenue in the comparable period of 1995.
RESTRUCTURING AND OTHER COSTS. During fiscal 1996, and in conjunction with
the contemplated merger between Cayenne and Cadre, the Company reviewed its
product strategy and determined that several products including WindTunnel were
no longer consistent with the Company's objectives. Accordingly, the Company
evaluated the net realizable value of the related intangible assets and recorded
a charge of approximately $1.1 million principally related to the write-off of
the intangible asset acquired as part of its acquisition of WindTunnel Software,
Inc. ("WindTunnel"). (See, also, Note 13 to Notes to Consolidated Financial
Statements.)
In the quarter ended December 31, 1995, formal plans were adopted and
approved by executive management to restructure operations related to the
absence of Windows-based object-oriented products. After the Westmount
acquisition, the Company had planned to introduce and sell object-oriented
Windows 95 and NT-based products during the quarter ended December 31, 1995.
When it became apparent that the product was not going to become available
during the quarter, and as a result revenues would be less than expected, the
Company needed to reduce expenses to an appropriate level. A charge of $1.7
million principally related to a reduction in force (approximately 47 employees)
was recorded in December 1995. At December 31, 1996 the Company has met
substantially all obligations with regard to this restructuring.
Following the completion of certain significant development efforts and
associated product introductions, the Company effected a restructuring on
September 29, 1994 to streamline its operations and better align expenses with
revenue. The Company recorded a restructuring charge of $2.0 million during the
three months ended September 30, 1994. The restructuring included a charge of
approximately $1.5 million in termination charges resulting from a 20% reduction
in staff (approximately 70 employees). Prior to the execution of this
restructuring, the Board of Directors of the Company approved a plan to
terminate certain specified employees and close certain facilities. Such plan
was communicated to the employees of the Company prior to the end of the quarter
and such employees were specifically identified and terminated. The termination
benefits to such employees were consistent with the Company's written severance
policy and agreements. The restructuring also included approximately $0.3
million in related facilities expense associated with the closure of the
Company's San Jose, California development facility. The Company also
reorganized the operations of its German subsidiary by reducing its facilities
and staff. As part of the restructuring, the Company also evaluated the value of
certain contracts based on a number of factors including business plans,
budgets, economic projections and market analysis. Based on a review of these
factors, the Company determined to cancel certain contracts. The termination
costs associated with those contracts amounted to approximately $0.2 million and
are included in the restructuring charge. At December 31, 1996, the Company
believes it has met all obligations with regard to the restructuring.
- 28 -
29
During the quarter ended June 1995, formal plans were adopted and approved
by executive management to restructure operations thereby eliminating redundant
capitalized software development costs and reducing company-wide expenses. The
purpose of the Westmount acquisition was to acquire Westmount's object-oriented
technology, which essentially replaced the Company's existing object-oriented
product line. The redundant software development cost write-off was $0.9 million
and consisted of internally developed and capitalized costs related to the
Company's old product. Additionally, the Company reduced expenses to better
align them with revenues. Restructuring costs during the quarter ended June 1995
amounted to $1.8 million and included the previously mentioned $0.9 million
write off of capitalized software development costs, $0.8 million of employee
related costs and $0.1 million for other costs related to the restructuring. At
December 31, 1996 the Company believes that it has met all obligations with
regard to the restructuring.
CHARGE FOR PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. On May 1, 1995, the
Company acquired Westmount Technology, B.V. ("Westmount") in a transaction
accounted for as a purchase for approximately 679,000 shares of common stock and
185,000 warrants to purchase additional shares. The purchase price was allocated
to assets and liabilities based on their estimated fair values as of the date of
acquisition. The cost in excess of net assets acquired of $8.1 million was
identified as purchased research and development. The software technology was
valued at $0.8 million and the technology in process was valued at $7.3 million.
This technology had not reached technological feasibility and had no future
alternative use, as a result, the technology in process was charged to earnings
during the fourth quarter of fiscal 1995.
EFFECT OF INTERNATIONAL OPERATIONS ON INCOME (LOSS) FROM OPERATIONS
In addition to the factors listed above, the operations of Cayenne's
international subsidiaries significantly affected its results of operations in
fiscal 1996 and 1995.
The loss from United States and Rest of World operations decreased by $13.4
million or 60% to $8.8 million primarily due to charges related to the 1995
acquisition of Westmount combined with reduced headcount and other cost control
measures implemented by the Company. The loss from operations in the United
Kingdom decreased by $0.9 million during fiscal 1996 to $1.1 million primarily
due to headcount reductions and other cost control measures. For fiscal 1996,
Italian operations reported a $0.3 million profit compared to a loss of $0.5
million in fiscal 1995. This increase in profitability of the Italian subsidiary
is attributable to a series of significant orders from a large systems
integrator received during the second quarter of fiscal year 1996.
Included in income (loss) from operations in 1996 are $2.8 million of
restructuring and other costs, $2.3 million in the United States and $0.5
million in rest of world. Results for 1995 include $5.5 million of restructuring
and $7.3 million of in-process R&D charges, $4.1 million in the United States,
$0.1 million in Italy, $0.1 million in United Kingdom and $8.5 million in Rest
of World (primarily Netherlands).
OTHER INCOME (EXPENSE), NET
Interest expense, net increased in fiscal 1996 compared to fiscal 1995
primarily due to increased borrowings under a factoring agreement which was
terminated at the time of the merger and lower levels of average invested cash.
PROVISION FOR INCOME TAXES
Because of the operating losses for fiscal 1996 and 1995, the tax provision
for those periods are composed mostly of foreign withholding taxes and income
taxes related to the profitability of certain foreign subsidiaries.
1995 COMPARED TO 1994
SOFTWARE LICENSES. Software license revenue during fiscal 1995 amounted to
$29.8 million compared to $36.2 during the comparable period of 1994. The $6.4
million or 17% decrease in license revenues during fiscal
- 29 -
30
1995 resulted primarily from migration by the Company's customers from
structured analysis and mainframe solutions toward object-oriented and
client/server solutions. The Company's suite of client/server solutions was
available in late fiscal 1995 and was not a significant portion of the Company's
revenue in 1995. The lack of a set of client/server solutions impacted the
Company's ability to attract new customers and retain existing customers
contributing to the decline. Additionally, during 1995, the Company's transition
from selling third party object-oriented tools to internally developed tools was
delayed and resulted in the Company's inability to offer certain object-oriented
solutions for several months.
Client/server and object-oriented product license revenue accounted for 16%
of license revenue for the year ended June 30, 1995, compared to 8% for the year
ended June 30, 1994. The increase in Client/server and object-oriented product
license revenue is primarily attributable to the release in late 1995 of the
Company's client/server products. Total license revenues in the United States
and United Kingdom declined 13% and 25% , respectively, due to the
aforementioned market trends. Total license revenue in Italy declined 16% due to
lower than expected revenues from large customers.
CONSULTING AND EDUCATION SERVICES. Total consulting and education services
revenue in fiscal 1995 amounted to $14.3 million compared to $13.6 million for
the comparable period of the prior fiscal year. The $0.7 million or 5% increase
in consulting and education service revenue is primarily attributable to the
increased number and use of courses and services available to Cayenne's large
customer base in the Company's international subsidiaries combined with the
addition of several long-term consulting contracts. Consulting and education
revenue in Italy and the United Kingdom increased by $1.7 million and $1.1
million or 45% and 84%, respectively while United States revenues declined $1.5
million or 22% during the fiscal year. Typically, consulting and education
revenue follows the trend of software license revenue and, therefore, the
decline in the consulting and education revenue in fiscal 1995 from fiscal 1994
has followed the decline in software license revenue during such periods.
MAINTENANCE. Maintenance revenue for annual maintenance contracts is
deferred and recognized ratably over the term of the agreement. Maintenance
revenue for fiscal year 1995 amounted to $28.6 million compared to $27.3 million
for the comparable period of 1994. Maintenance revenue in Italy and United
Kingdom increased $0.5 million and $0.7 million or 60% and 23% , respectively.
These increases resulted from increased penetration of the international markets
along with an increase in the portion of the customer base that renewed
maintenance contracts. Maintenance revenue in the United States remained flat
due to an increased customer base which was offset by a reduction in the
percentage of customers renewing maintenance contracts.
COST OF REVENUE. Costs of software licenses were $6.1 million or 8% of
revenue during fiscal 1995 compared with $5.7 million or 7% of revenue in the
comparable period of 1994. The $0.4 million increase in Fiscal 1995 expenses
reflects increased sales of third party products for which the Company pays a
royalty to resell. Included in the cost of licenses during fiscal 1995 and 1994
is amortization of approximately $0.5 million and $0.4 million of purchased
software related to the September 1993 acquisition of WindTunnel. Fiscal 1994,
included the write-off of $0.3 million of certain prepaid software royalties.
Included in cost of software licenses was amortization of capitalized software
development costs of $0.7 million and $1.0 million for fiscal 1995 and 1994,
respectively. Cost of software licenses as a percentage of related software
license revenue was 20% and 16% for fiscal 1995 and 1994, respectively.
- 30 -
31
The cost of consulting, education and maintenance were $16.0 million or 22%
of revenue during the fiscal year ended June 1995 compared with $13.7 million or
18% of revenue in the comparable period of 1994. The $2.3 million increase in
expenses was principally caused by increased international costs as the
international subsidiaries increased staff and the use of third party
consultants to meet the demand from several long-term consulting contracts.
SALES AND MARKETING. Sales and marketing expenses were $37.7 million or 52%
of revenue during fiscal 1995 compared with $41.4 million or 54% in the
comparable period of 1994. The $3.7 million decrease in sales and marketing
expenses during the year was due principally to reduced headcount effected
through the restructuring in the first quarter of fiscal 1995 along with a move
in North America towards telesales and away from direct field sales efforts. In
fiscal 1995 and 1994, Cayenne began promoting a team selling approach in which
telemarketing, corporate sales, and field sales representatives work together to
identify, qualify, inform, and sell to prospective customers.
RESEARCH AND DEVELOPMENT. In fiscal 1995, the Company focused its research
and development resources on porting its current products to new platforms,
continued development of the WindTunnel and Ellipse products and development of
new products targeted at the object-oriented and client/server markets. Research
and development expense were $17.1 million or 23% of revenue during fiscal 1995
compared with $20.1 million or 26% of revenue in the comparable period of 1994.
The $3.0 million decrease is due primarily to actions taken by the Company to
reduce the value of capitalized software development costs associated with a
technology license. This action resulted in a $1.1 million charge to research
and development expense in fiscal 1994. No similar charge was recorded in
fiscal 1995. In addition, the Company reduced spending on the Ellipse product,
and entered into agreements with certain development partners whose funding
offset approximately $0.5 million of development expense. During fiscal 1995,
the Company closed its San Jose facility and consolidated all research and
development in Burlington, Massachusetts. Expenses were also reduced in other
areas of research and development effected through the restructuring in
September 1994.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $8.1
million or 11% of revenue during fiscal 1995 compared with $7.8 million or 10%
of revenue during the comparable period of 1994. The increase is due primarily
to additional staffing from the Westmount transaction. These expenses have been
partially offset by a decrease in goodwill amortization of approximately $0.4
million, along with expense controls in the Company's administrative areas.
RESTRUCTURING AND OTHER COSTS. Following the completion of certain
significant development efforts and associated product introductions, the
Company effected a restructuring on September 29, 1994 to streamline its
operations and better align expenses with revenue. The Company recorded a
restructuring charge of $2 million during the three months ended September 30,
1994. The restructuring included a charge of approximately $1.5 million in
termination charges resulting from a 20% reduction in staff (approximately 70
employees). Prior to the execution of this restructuring, the Board of Directors
of the Company approved a plan to terminate certain specified employees and
close certain facilities. Such plan was communicated to the employees of the
Company prior to the end of the quarter and such employees were specifically
identified and terminated. The termination benefits to such employees were
consistent with the Company's written severance policy and agreements. The
restructuring also included approximately $0.3 million in related facilities
expense associated with the closure of the Company's San Jose, California
development facility. The Company also reorganized the operations of its German
subsidiary by reducing its facilities and staff. As part of the restructuring,
the Company also evaluated the value of certain contracts based on a number of
factors including business plans, budgets, economic projections and market
analysis. Based on a review of these factors, the Company determined to cancel
certain contracts. The termination costs associated with those contracts
amounted to approximately $0.2 million and are included in the restructuring
charge.
During the quarter ended June 1995, formal plans were adopted and approved
by executive management to restructure operations thereby eliminating redundant
capitalized software development costs and reducing company-wide expenses. The
purpose of the Westmount acquisition was to acquire Westmount's object-oriented
technology, which essentially replaced the Company's existing object-oriented
product line. The redundant software development cost write-off was $0.9 million
and consisted of internally developed and capitalized costs related to the
Company's old product. Additionally, the Company reduced expenses to better
align them with revenues. Restructuring costs during the quarter ended June 1995
amounted to $1.8 million and included the previously mentioned $0.9 million
write-off of capitalized software development costs, $0.8 million of
- 31 -
32
employee related costs and $0.1 million for other costs related to the
restructuring.
In the quarter ended December 31, 1995, formal plans were adopted and
approved by executive management to restructure operations related to the
absence of Windows-based object-oriented products. After the Westmount
acquisition, the Company had planned to introduce and sell object-oriented
Windows 95 and NT-based products during the quarter ended December 31, 1995.
When it became apparent that the product was not going to become available
during the quarter, and as a result revenues would be less than expected, the
Company needed to reduce expenses to an appropriate level. A charge of $1.7
million principally related to a reduction in force (approximately 47 employees)
was recorded in December 1995.
CHARGE FOR PURCHASED RESEARCH AND DEVELOPMENT. In November 1993, the Company
acquired substantially all the assets of Cooperative Solutions, Inc. ("CSI") of
San Jose, California, including its product line, research and development
efforts, and employee and customer bases in exchange for assuming certain
liabilities. The purchase price, which was equal to the liabilities assumed, was
approximately $2.2 million. The acquisition was accounted for as a purchase. The
purchase price first was allocated to tangible assets based on their fair market
values. The remaining purchase price was allocated to purchased research and
development for software which has not reached technological feasibility and has
no alternative future use. A charge for purchased research and development of
$1.7 million was recorded upon the closing of the acquisition in the Company's
fiscal quarter ended December 31, 1993.
EFFECT OF INTERNATIONAL OPERATIONS ON INCOME (LOSS) FROM OPERATIONS
In addition to the factors listed above, the operations of Cayenne's
international subsidiaries significantly affected its results of operations in
fiscal 1995 and 1994.
The loss from operations -- United States and Rest of World increased by
approximately 91% to $22.2 million compared to the corresponding period of the
prior year. The $10.6 million increase in loss from operations is primarily due
to costs associated with the acquisition of Westmount and various restructuring
actions taken by the Company during fiscal 1995. The loss from Italian
operations increased by $0.1 million to $0.5 million during fiscal 1995. This
increase is attributable to reduced software license revenue and start up costs
associated with several long-term consulting contracts. The loss from operations
in the United Kingdom increased by $0.7 million to $2.0 million during fiscal
1995. This increase is attributable to among other things increased sales and
marketing expenses.
Included in income (loss) from operations in 1995 are $5.5 million of
restructuring and $7.3 million of in-process R&D charges, $4.1 million in the
United States, $0.1 million in Italy, $0.1 million in United Kingdom, and $8.5
million in Rest of World (primarily in Netherlands). Results for 1994 include a
$1.7 million in-process research and development charge.
OTHER INCOME (EXPENSE), NET
Interest income, net decreased in fiscal 1995 compared to fiscal 1994 due
primarily to increased borrowings. These costs were somewhat offset by higher
rates earned on balances available for investment.
PROVISION FOR INCOME TAXES
Because of the operating losses for fiscal 1995 and 1994, the tax provision
for those periods are composed mostly of foreign withholding taxes and income
taxes related to the profitability of certain subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996 the Company's principal sources of liquidity
included cash and cash equivalents aggregating $4.2 million and a secured bank
line of credit in the amount of $5.0 million discussed below. At December 31,
1996, cash and cash equivalents decreased by $10.5 million from the end of
fiscal 1996. During the six month transition period ended December 31, 1996,
cash flows were principally affected by the loss from
- 32 -
33
operations and a decline in the number of maintenance contracts renewed. The
Company's principal long-term cash commitments are for office space operating
leases.
On December 31, 1996, Cayenne had no material commitments for capital
expenditures.
On November 6, 1996, the Company amended and restated its revolving credit
agreement with a bank to borrow up to $5.0 million. The Company extended the
term of such agreement through October 4, 1997 and revised certain of the
financial and operating covenants as well as the borrowing base thereunder. In
connection with the amendment, the Company issued the bank a three-year warrant
to purchase 25,000 shares of the Company's Common Stock at an exercise price of
$4.25 per share. The loan is contingent upon meeting certain financial and
operating covenants at the time of any borrowing and over the life of the loan,
including profitability of $0.25 million during the quarter ended December 31,
1996 and $1.0 million during the quarter ending June 30, 1997. The loan is
secured by all of the assets of the Company and any borrowing amounts are tied
to a percentage of qualified accounts receivable outstanding at the time of any
borrowing. The financial covenants include the attainment of certain specified
levels of consolidated net income (loss) at the end of each quarter, tangible
net worth (generally defined as the excess of tangible net assets of the Company
over total liabilities (excluding any outstanding redeemable preferred stock))
at the end of each quarter and month, and liquidity (generally defined as cash
and cash equivalents plus eligible domestic accounts receivable and eligible
international accounts receivable less any indebtedness to the bank) at the end
of each month. The Company was in compliance with all covenants as amended at
December 31, 1996. At December 31, 1996, the borrowing base under the revolving
credit agreement was approximately $4.5 million.
On July 18, 1996, the Company completed its merger with Cadre of Providence,
Rhode Island. In connection with the merger the Company issued 4,716,442 shares
of Cayenne common stock for all of the outstanding capital stock of Cadre. The
transaction was accounted for as a pooling-of-interests for accounting purposes
beginning in the transition period. The Company recorded charges to operations
of $6.3 million during the transition period to reflect costs associated with
combining the operations of the two companies, transaction fees and other costs
incident to the merger.
Cash expenditures for restructuring activities were approximately $5.2
million during the six-month transition period ended December 31, 1996,
including $0.5 million related to restructurings effected by Cadre prior to the
merger. The Company currently estimates that cash expenditures for restructuring
actions for 1997 will be approximately $1.4 million. The Company believes that
it has adequately provided for all restructuring actions taken to date.
On January 2, 1997, the Company raised approximately $3.0 million in a
private placement of 150,000 shares of Redeemable Series B Convertible Preferred
Stock and issuance of warrants. Each share of Series B Convertible Preferred
Stock is convertible into shares of common stock at a rate determined by the
lower of the average quoted market price of the common stock for either (i) the
ten trading days preceding the date of issuance or (ii) any five trading days
during any period of thirty days before the conversion. In conjunction with the
closing of the private placement, the Company issued the investors warrants to
purchase 350,000 shares of the Company's common stock at exercise prices ranging
from 120% to 150% of the price set forth in clause (i) above and having varying
expiration dates from three to five years.
With the additional $3.0 million the Company raised in its January 1997
private placement and its revolving credit agreement, the Company anticipates
that existing cash balances and funds generated from operations will provide
sufficient cash resources to finance its current operations, and projected
capital expenditures through 1997. Thereafter, the Company's cash requirements
will depend upon the results of future operations, which cannot be foreseen.
There can be no assurance that the Company will be able to meet its loan
covenants, achieve its operating plan and return to profitability, and the
failure to do so may have a material adverse impact on the Company's business
and operations.
- 33 -
34
FOREIGN CURRENCY
All of Cayenne's foreign sales, other than those of its foreign
subsidiaries, are invoiced and collected in United States dollars. Cayenne
experienced no significant gains or losses on foreign currency transactions or
translations during the six month transition period ended December 31, 1996 or
in fiscal 1996, 1995 or 1994. No assurance can be given, however, that it will
not experience such material affects subsequent to December 31, 1996.
INFLATION
To date, inflation has not had a material impact on Cayenne's revenues or
income.
QUARTERLY PERFORMANCE
Cayenne's revenues vary from quarter to quarter; historically, the largest
portion of Cayenne's revenue has been recognized during the December quarter.
The September quarter is traditionally Cayenne's slowest. In the normal course
of events, Cayenne may realize lower revenue in the September quarter than in
the preceding quarter and also could realize lower revenue in the March quarter
than in the preceding quarter. Cayenne has also frequently recognized more
revenue in the last month of each quarter than in either of the preceding two
months. Cayenne believes these quarterly and monthly patterns have been partly
attributable to Cayenne's sales commission policies, which compensate sales
personnel for meeting or exceeding annual quotas, and to the budgeting and
purchasing cycles of customers. In addition, Cayenne's revenue and earnings have
fluctuated historically, and may fluctuate in the future, due to the timing of
large individual orders. In the second quarter of fiscal 1996, the Company had a
series of significant orders from a major systems integrator totaling $2.4
million. The Company completed an order for approximately $1.1 million from an
international customer in the third quarter of fiscal 1995.
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, as that term is defined
in the Private Securities Litigation Reform Act of 1995 (the "Act"). The Company
cautions investors that there can be no assurance that actual results or
business conditions will not differ materially from those projected or suggested
in such forward-looking statements as a result of various factors, including but
not limited to the following:
The Company's future operating results are dependent on its ability to
develop product and market new and innovative products and services. There are
numerous risks inherent in this complex process, including rapid technological
change and the requirement that the Company bring to market in a timely fashion
new products and services which meet customers' changing needs.
Historically, the Company has generated a disproportionate amount of its
operating revenues toward the end of each quarter, making precise prediction of
revenues and earnings particularly difficult and resulting in risk of variance
of actual results from those forecast at any time. In addition, the Company's
operating results historically have varied from fiscal period to fiscal period;
accordingly, the Company's financial results in any particular fiscal period are
not necessarily indicative of results for future periods.
The Company operates in a highly competitive environment and in a highly
competitive industry, which include significant pricing pressures and intense
competition for skilled employees. From time to time, the Company may experience
unanticipated intense competitive pressure, possibly causing operating results
to vary from those expected.
- 34 -
35
The Company offers its products and services directly and through indirect
distribution channels. Changes in the financial condition of, or the Company's
relationship with, distributors and other indirect channel partners could cause
actual operating results to vary from those expected.
The Company does business worldwide. Global and/or regional economic factors
and potential changes in laws and regulations affecting the Company's business,
including without limitation, currency fluctuations, changes in monetary policy
and tariffs, and federal, state and international laws could impact the
Company's financial condition or future results of operations.
The market price of the Company's securities could be subject to
fluctuations in response to quarter to quarter variations in operating results,
changes in analysts' earnings estimates, market conditions in the information
technology industry, as well as general economic conditions and other factors
external to the Company.
- 35 -
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CAYENNE SOFTWARE, INC.
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants ..................................... 37
Report of Independent Accountants ..................................... 38
Consolidated Balance Sheets as of December 31, 1996 and June 30,
1996 and 1995 ......................................................... 39
Consolidated Statements of Operations for the transition period
from July 1, 1996 to December 31, 1996, the six-month period ended
December 31, 1995 and for the years ended June 30, 1996, 1995 and
1994 .................................................................. 40
Consolidated Statements of Stockholders' Equity (Deficit) for the
transition period from July 1, 1996 to December 31, 1996, and for
the years ended June 30, 1996, 1995 and 1994 .......................... 41
Consolidated Statements of Cash Flows for the transition period
from July 1, 1996 to December 31, 1996, the six-month period ended
December 31, 1995 and for the years ended June 30, 1996, 1995 and
1994 .................................................................. 42
Notes to Consolidated Financial Statements ............................ 43
- 36 -
37
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Cayenne Software, Inc.:
We have audited the accompanying consolidated balance sheets of Cayenne
Software, Inc. (formerly Bachman Information Systems, Inc.) as of December 31,
1996 and June 30, 1996 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the six month period ended
December 31, 1996 and the year ended June 30, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cayenne
Software, Inc. as of December 31, 1996 and June 30, 1996 and the consolidated
results of its operations and its cash flows for the six month period ended
December 31, 1996 and the year ended June 30, 1996 in conformity with generally
accepted accounting principles.
The financial statements give retroactive effect to the merger of Cayenne
Software, Inc. and Cadre Technologies Inc. on July 18, 1996, which has been
accounted for as a pooling of interests as described in Note 2 of notes to the
consolidated financial statements. We previously audited and reported on the
consolidated balance sheet of Cayenne Software, Inc. as of June 30, 1995 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the years ended June 30, 1995 and 1994, prior to their
restatement for the 1996 pooling of interests. The contribution of Cayenne
Software, Inc. to total assets represented 60 percent of the restated total as
of June 30, 1995 and to total revenues represented 46 percent and 47 percent and
to net loss represented 41 percent and 87 percent of the respective restated
totals for the years ended June 30, 1995 and 1994. Separate financial statements
of Cadre Technologies Inc. included in the restated consolidated balance sheet
as of June 30, 1995 and the restated consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years ended June 30, 1995
and 1994 were audited and reported on separately by other auditors. We also
audited the combination of the accompanying consolidated balance sheet as of
June 30, 1995 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years ended June 30, 1995
and 1994, after restatement for the 1996 pooling of interests, and, in our
opinion, such consolidated statements have been properly combined on the basis
described in Note 2 of notes to the consolidated financial statements.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 25, 1997
- 37 -
38
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders' of
Cadre Technologies Inc.:
We have audited the consolidated balance sheets of Cadre Technologies Inc. and
its subsidiaries (the "Company") as of December 31, 1995 and the related
consolidated statements of operations, stockholders' (deficiency) equity, and
cash flows for each of the two years in the period ended December 31, 1995 (none
of which are presented herein). 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Cadre Technologies Inc. and its
subsidiaries at December 31, 1995 and the results of their operations
and their cash flows for each of the two years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company's recurring losses from
operations, cash used in operating activities, deficiency in working capital and
stockholders' deficiency raise substantial doubt about its ability to continue
as a going concern. Management's plans concerning these matters are outlined in
Note 16. The financial statements do not include any adjustments that might
result from the outcome on this uncertainty.
Boston, Massachusetts DELOITTE & TOUCHE LLP
February 2, 1996
- 38 -
39
CAYENNE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, 1996 JUNE 30, 1996 JUNE 30, 1995
----------------- ------------- -------------
ASSETS
Current assets:
Cash and cash equivalents (including securities purchased under
agreements to resell of $700, $699 and $2,148 at December 31, 1996,
June 30, 1996 and 1995, respectively) $ 4,150 $ 14,690 $11,170
Trade accounts receivable, less allowance for sales returns and
doubtful accounts of $820, $868 and $942 at December 31, 1996 and
June 30, 1996 and 1995, respectively 13,320 12,445 15,299
Prepaid expenses and other current assets 1,375 2,743 2,003
---------------------------------------
Total current assets 18,845 29,878 28,472
Property and equipment, less accumulated depreciation and amortization 2,256 2,723 3,916
Capitalized software costs, less accumulated amortization of $266, $186
and $3,265 at December 31, 1996 and June 30, 1996 and 1995,
respectively 534 614 2,134
Other assets 601 884 862
---------------------------------------
Total assets $ 22,236 $ 34,099 $35,384
=======================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short term debt $ 2,820 $ 3,852 $ 3,000
Accounts payable 2,363 3,093 3,804
Accrued expenses 1,422 2,077 2,202
Accrued compensation and benefits 3,415 3,317 3,747
Accrued restructuring costs (Note 13) 1,703 779 1,580
Income and other taxes payable 909 1,967 1,113
Obligations under capital lease 561 580 490
Deferred revenue 9,592 13,714 14,070
---------------------------------------
Total current liabilities 22,785 29,379 30,006
Convertible long term debt -- 1,789 2,110
Redeemable Series A Convertible Preferred Stock, $1.00 par value;
5.000 shares authorized; 0,0, and 1.787 shares outstanding at
December 31, 1996, June 30, 1996 and 1995, respectively (aggregate
liquidation preference of $5,493 at June 30, 1995) -- -- 5,493
Obligations under capital lease 106 307 528
Commitments and contingencies (Note 7)
Stockholders' equity (deficit):
Common stock, $.01 par value 52,400 shares authorized; 17,695, 17,225
and 13,812 shares issued and outstanding at December 31 and June 30, 1996
and 1995, respectively 177 172 138
Additional paid-in capital 102,935 100,301 86,972
Accumulated deficit (103,706) (97,338) (89,151)
Accumulated translation adjustments (61) (511) (712)
--------------------------------------
Stockholders' equity (deficit) (655) 2,624 (2,753)
--------------------------------------
Total liabilities and stockholders' equity (deficit) $ 22,236 $ 34,099 $ 35,384
======================================
The accompanying notes are an integral part of
the consolidated financial statements.
- 39 -
40
CAYENNE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
Transition
Period Prior Period
Ended Ended Year Ended June 30,
December 31, December 31, -------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
Revenues:
Software license $10,131 $15,951 $ 26,282 $ 29,849 $ 36,171
Consulting and education
services 4,684 5,915 12,367 14,306 13,590
Maintenance 13,161 14,366 27,237 28,634 27,317
----------------------------------------------------------------------
Total revenues 27,976 36,232 65,886 72,789 77,078
Costs and expenses:
Cost of revenues
Cost of software licenses 1,521 2,241 3,999 6,105 5,688
Cost of consulting and education
services and maintenance 4,975 7,044 12,910 15,953 13,728
Sales and marketing 12,488 16,978 32,614 37,656 41,375
Research and development 5,411 7,957 14,448 17,059 20,128
General and administrative 3,307 4,370 8,530 8,062 7,783
Restructuring and other costs (Note 13) 6,300 1,694 2,819 5,483 --
Charge for purchased research and
development (Note 2) -- 158 158 7,300 1,736
----------------------------------------------------------------------
Total costs and expenses 34,002 40,442 75,478 97,618 90,438
----------------------------------------------------------------------
Loss from operations (6,026) (4,210) (9,592) (24,829) (13,360)
Interest income 71 212 596 758 809
Other income (expense) 282 (111) (84) 34 80
Interest expense 296 289 1,143 556 324
----------------------------------------------------------------------
Loss before provision for income taxes (5,969) (4,398) (10,223) (24,593) (12,795)
Provision for income taxes 399 404 1,124 297 407
----------------------------------------------------------------------
Net loss $(6,368) $(4,802) $(11,347) $(24,890) $(13,202)
======================================================================
Loss per common share (Note 1) $ (0.36) $ (0.32) $ (0.71) $ (1.86) $ (1.06)
----------------------------------------------------------------------
Weighted average number of common and
common equivalent shares outstanding 17,590 15,103 15,914 13,350 12,484
======================================================================
The accompanying notes are an integral part of
the consolidated financial statements
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41
CAYENNE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE TRANSITION PERIOD ENDED DECEMBER 31, 1996
AND THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
Additional Accumulated
Common Stock Paid-In Translation Accumulated Stockholders'
Shares Amount Capital Adjustments Deficit Equity (Deficit)
--------------------------------------------------------------------------------------
Balance, June 30, 1993 11,798 $ 118 $ 79,317 $ (147) $ (51,059) $28,229
Stock options exercised 288 3 295 298
Issuance of common stock under
Employee Stock Purchase Plan 39 97 97
Issuance of common stock in
acquisition of business 650 7 2,268 2,275
Currency translation adjustment (361) (361)
Net loss for the year (13,202) (13,202)
--------------------------------------------------------------------------------
Balance, June 30, 1994 12,775 128 81,977 (508) (64,261) 17,336
Stock options exercised 331 3 888 891
Issuance of common stock under
Employee Stock Purchase Plan 35 76 76
Issuance of warrants in conjunction
with the preferred stock 348 348
Proceeds from Section 16(b) profits 352 352
Repurchase of stock/warrants (8) (42) (42)
Issuance of common stock in
acquisition of business 679 7 3,373 3,380
Currency translation adjustment (204) (204)
Net loss for the year (24,890) (24,890)
--------------------------------------------------------------------------------
Balance, June 30, 1995 13,812 138 86,972 (712) (89,151) (2,753)
Stock options exercised 311 3 1,509 1,512
Issuance of common stock under
Employee Stock Purchase Plan 14 82 82
Conversion of Series A Preferred Stock 1,787 18 5,475 5,493
Exercise of warrants 187 2 498 500
Issuance of common stock through
private placement 1,114 11 5,765 5,776
Pooling adjustment (Note 2) 3,160 3,160
Currency translation adjustment 201 201
Net loss for the year (11,347) (11,347)
--------------------------------------------------------------------------------
Balance, June 30, 1996 17,225 172 100,301 (511) (97,338) 2,624
Stock options exercised 95 1 342 343
Issuance of common stock under
Employee Stock Purchase Plan 9 35 35
Exercise of warrants 144 2 470 472
Conversion of convertible long
term debt 222 2 1,787 1,789
Currency translation adjustment 450 450
Net loss for the year (6,368) (6,368)
--------------------------------------------------------------------------------
Balance, December 31, 1996 17,695 $ 177 $102,935 $ (61) $(103,706) $ (655)
================================================================================
The accompanying notes are an integral part of
the consolidated financial statements
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42
CAYENNE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Transition Period Prior Period
Ended Ended
December 31, December 31, Year Ended June 30,
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
Cash flows from operating activities:
Net loss $ (6,368) $(4,802) $(11,347) $(24,890) $(13,202)
Adjustments to reconcile net
loss to net cash used in operating
activities:
Charge for purchased research
and development -- 158 158 7,300 1,736
Depreciation and amortization 1,262 1,552 3,142 4,431 6,001
Write-down of intangible asset -- -- 986 945 1,150
Loss on disposal of equipment 201 -- 10 -- 14
Change in operating assets
and liabilities, net of effects of
acquisitions,
Trade accounts receivable (875) (1,318) 3,831 900 1,367
Prepaid expenses and other current assets 1,368 (164) (762) 590 227
Accrued expenses (655) (188) (442) (2,387) (750)
Accrued restructuring costs 924 601 (333) 255 (4,354)
Accounts payable (730) (1,384) (1,978) (1,849) 1,672
Accrued compensation and benefits 98 (496) (102) (639) 349
Income and other taxes payable (1,058) 377 806 397 (306)
Deferred revenue (4,122) (2,896) (2,261) 61 (2,402)
-----------------------------------------------------------------------
Net cash used in operating activities (9,955) (8,560) (8,292) (14,886) (8,498)
Cash flows from investing activities:
Purchases of property and equipment (777) (330) (786) (1,392) (3,105)
Proceeds from sale of property -- -- 56 -- --
Acquisition of businesses -- -- -- (508) (1,511)
Software development costs -- -- -- (420) (1,025)
Other, net -- -- -- (114) (160)
-----------------------------------------------------------------------
Net cash used in investing activities (777) (330) (730) (2,434) (5,801)
Cash flows from financing activities:
Proceeds from issuance of common stock, net 850 6,896 7,925 925 395
Proceeds from issuance of preferred stock and
warrants (net of issuance costs) -- -- -- 5,812 --
Proceeds from Section 16(b) profits -- -- -- 352 --
Proceeds from line of credit facility 1,321 600 2,100 3,200 --
Proceeds from sale-leaseback transaction -- 933 987 -- --
Proceeds from factoring agreement 82 -- 9,195 -- --
Proceeds from repayment of employee loans 200 -- -- -- --
Payments under factoring agreement (2,431) -- (7,471) -- --
Payment under line of credit facility -- -- (2,480) (720) --
Payments under capital lease obligations (280) (30) (169) (174) (356)
-----------------------------------------------------------------------
Net cash provided by (used in) financing activities (258) 8,399 10,087 9,395 39
Effect of foreign exchange rates on cash
and cash equivalents 450 108 353 93 110
-----------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (10,540) (383) 1,418 (7,832) (14,150)
Adjustment to conform fiscal year of Cadre -- 2,102 2,102 -- --
Cash and cash equivalents at beginning of period 14,690 11,170 11,170 19,002 33,152
-----------------------------------------------------------------------
Cash and cash equivalents at end of period $ 4,150 $12,889 $ 14,690 $ 11,170 $ 19,002
=======================================================================
The accompanying notes are an integral part of
the consolidated financial statements
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43
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS OPERATIONS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
Cayenne Software, Inc. (formerly Bachman Information Systems, Inc.) ("the
Company" or "Cayenne") and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated from the
consolidated financial statements. The consolidated financial statements and all
financial data contained herein include the accounts of Cadre Technologies Inc.
("Cadre") for all periods presented (Note 2).
In October 1996, the Company changed its fiscal year end from June 30th to
December 31st. As a result the period from July 1, 1996 through December 31,
1996 was designated as "the transition period."
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(s) of the financial
statements and the reported amounts of revenues and expenses during the
reporting period(s). Actual results could differ from those estimates.
The Company develops, markets and supports an integrated suite of software
products and services. Many Fortune 1000 companies and government agencies
around the world use Cayenne products as they develop, implement, and maintain
business-critical information systems. Cayenne's products are designed around an
innovative open architecture that enables organizations to create applications
that integrate diverse information sources into new high-performance computing
environments, to modify applications as business and technology change, and to
run those applications on a variety of platforms. Cayenne's approach to
reusability and its open architecture directly support client/server initiatives
and partnerships with other leading software vendors.
TRANSLATION OF FOREIGN CURRENCIES
The local currencies of the Company's foreign subsidiaries are predominantly
determined to be the functional currencies. Assets and liabilities of all
foreign subsidiaries are translated at period-end rates of exchange, and income
statement accounts are translated at average rates of exchange. Resulting
translation adjustments are recorded as a separate component of stockholders'
equity, "Accumulated Translation Adjustments." Transaction gains and losses,
primarily related to foreign currency denominated intercompany payables and
receivables recorded in the financial statements of the Company's foreign
subsidiaries, are reflected in income.
Gains and losses resulting from foreign currency transactions were
immaterial for all periods presented.
REVENUE RECOGNITION
Revenue from product license fees is recognized upon shipment. At the time
the Company recognizes revenue from the sale of software products, no
significant vendor obligations remain and the costs of insignificant support
obligations are accrued. The Company typically does not grant to its customers a
contractual right to return software products. Accordingly, no provision for
estimated returns is generally recorded at the time of the sale. When approved
by management, however, the Company has accepted returns of certain software
products and has provided an allowance for those specific products. Maintenance
revenue for annual maintenance contracts is deferred and recognized ratably over
the term of agreement. Revenue from consulting and education services is
recognized as the related services are performed.
ACCOUNTS RECEIVABLE
Accounts receivable are presented net of an allowance for doubtful accounts
and sales returns of approximately $820,000, $868,000 and $942,000 at December
31, 1996 and June 30, 1996 and 1995, respectively. The provisions charged to the
statement of operations were $0, $350,000, $122,000 and $232,000 in the six
month transition period ended December 31, 1996 and the fiscal years ended June
30, 1996, 1995 and 1994, respectively, and deductions against the allowances
were $48,000, $424,000, $839,000 and $360,000 in the six month transition period
ended December 31, 1996 and the fiscal years ended June 30, 1996, 1995 and 1994,
respectively.
COST OF REVENUE
Cost of software licenses includes capitalized software amortization expense
and other costs principally related to the duplication and distribution of
licensed software products. Cost of consulting and education services and
maintenance includes personnel, travel and occupancy costs connected with
providing such services.
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CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
DEFERRED REVENUE
Maintenance revenue which is not yet earned is included in deferred revenue.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with maturities of
less than ninety days when acquired. These investments are stated at cost plus
accrued interest, which approximates market value. Included in cash and cash
equivalents at December 31, 1996, and June 30, 1996 and 1995, respectively, are
$700,000, $699,000 and $2,148,000 in United States Treasury Securities under
agreement to resell in January 1997, and July 1996 and 1995, respectively.
Treasury securities purchased under agreements to resell are held in
safekeeping by the Company's bank.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. At disposition, the cost of
property and related accumulated depreciation are removed from the balance sheet
and any gain or loss is included in the statement of operations. Depreciation
and amortization are provided on the straight-line method over the estimated
useful life of the related assets as follows:
Computer and related equipment.. 3 to 5 years
Equipment under capital lease... Shorter of life of lease or useful life
Office furniture and fixtures... 5 to 7 years
Leasehold improvements.......... Shorter of life of lease or useful life
SOFTWARE COSTS AND OTHER INTANGIBLE ASSETS
In accordance with Statement of Financial Accounting Standards No. 86 ("SFAS
86"), "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," the Company capitalizes certain software costs after
technological feasibility of the product has been established. Costs incurred
prior to the establishment of technological feasibility are charged to research
and development expense. Software costs are amortized, on a product by product
basis, ratably over the estimated economic life of the product (generally two
years, five years in the case of WindTunnel), or the ratio of current gross
revenues to total current and expected future gross revenues of the product,
whichever is greater.
The Company evaluates the net realizable value of capitalized software costs
in accordance with paragraph 10 of SFAS 86. The Company evaluates the net
realizable value of capitalized software and other intangible assets on an
ongoing basis relying on a number of factors including operating results,
business plans, budgets and economic projections and undiscounted cash flows. In
addition, the Company's evaluation considers non-financial data such as market
trends, product development cycles and changes in management's market emphasis.
Costs in excess of net assets of acquired companies are amortized on a
straight-line basis over a ten-year period. Goodwill totaled $581,000 before
accumulated amortization of approximately $275,000, $246,000 and $188,000 at
December 31, 1996, and June 30, 1996 and 1995, respectively.
-44-
45
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
INCOME TAXES
Deferred tax assets and liabilities are recognized based on temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
temporary differences are expected to reverse. A valuation reserve against
deferred assets is required if based upon weighted available evidence, it is
more likely than not that some or all of the deferred tax assets will not be
realized.
INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share is computed based on the weighted average
number of common shares and dilutive common equivalent shares outstanding during
each period except in loss years. Dilutive common equivalent shares consist of
preferred stock, warrants and stock options (calculated using the treasury stock
method). For the transition period ended December 31, 1996, prior period ended
December 31, 1995 and fiscal years ended June 30, 1996, 1995 and 1994, common
equivalent shares are excluded from the primary earnings per share calculation
as they are antidilutive.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of temporary cash investments and trade
receivables.
The Company invests its cash in deposits with major banks and in money
market investments and obligations of the United States Government and Federal
agencies. The Company has not experienced any significant losses on its
investments.
Concentrations of credit risk with respect to trade receivables include
receivables from a significant customer (see, also, Note 8.) and are otherwise
limited due to the large number of customers comprising the Company's customer
base and their dispersion across many different industries and geographies. The
Company performs ongoing credit evaluations of its customers and maintains
reserves for potential credit losses. Such losses to date have been within
management's expectations.
2. BUSINESS COMBINATIONS
On July 18, 1996, the Company completed its acquisition of Cadre
Technologies Inc. ("Cadre") under an Agreement and Plan of Merger dated March
25, 1996, by and among the Company, Cadre and B.C. Acquisition Corp., whereby
the Company agreed to acquire all of the outstanding capital stock of Cadre in
exchange for 4,716,442 shares of Cayenne common stock (the "merger"). The merger
has been accounted for as a pooling-of-interests beginning in the first quarter
of the transition period ended December 31, 1996. Accordingly, all financial
data contained herein include the accounts of Cadre for all periods presented.
The Company's fiscal 1996 results have been combined with Cadre's results for
the twelve months ended June 30, 1996. The Company's results for fiscal 1995 and
1994 have been combined with Cadre's calendar year end results for the same
period. In this presentation, Cadre's financial data for the period July 1, 1995
to December 31, 1995 is included in both the periods ended June 30, 1996 and
1995. The six month period includes a net loss of $3,160,000. Additionally,
effective upon the merger, the Company changed its name to Cayenne Software,
Inc. The Company acquired Cadre to expand its product offerings to include
structured analysis and design and object-oriented technology and to expand its
customer base.
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46
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
During the transition period ended December 31, 1996 the Company incurred a
$6.3 million charge to operations to reflect costs associated with combining the
operations of the two companies, transaction fees, and other costs. The Board of
Directors of the Company approved a restructuring plan to terminate certain
specified employees and close certain facilities. Such plan was communicated to
the employees prior to the end of the quarter and such employees were
specifically identified and terminated. Included in the charge is $1.6 million
of employee related termination expenses, $1.3 million of legal, accounting,
investment banking and other professional fees, $1.4 million of facility closure
and consolidation expenses, and $2.0 million of other expenses associated with
the consolidation of the two companies and the name change.
On May 1, 1995, the Company acquired Westmount Technology, B.V.
("Westmount") in a transaction accounted for as a purchase. The Company acquired
Westmount for approximately 679,000 shares of common stock and a warrant to
purchase an additional 185,000 shares. The purchase price for Westmount was
approximately $3.8 million. In conjunction with this transaction, the Company
recorded assets purchased of approximately $8.1 million and liabilities assumed
of $4.3 million. $7.3 million of the recorded assets were attributed to
in-process research and development and was charged to operations during 1995.
The software had not reached technological feasibility and had no future
alternative use. In connection with the purchase of Westmount, a shareholder
trust of former Westmount shareholders granted the Company a $1.6 million
subordinated, convertible loan. The note accrued interest at a simple rate of
10%, payable annually in arrears. Effective upon the merger and resulting
change of control, the debt and accrued interest were automatically converted
into 220,000 common shares of the Company.
On November 16, 1993, the Company acquired substantially all the assets of
Cooperative Solutions, Inc. ("CSI") of San Jose, California, including its
product line, research and development efforts, and employee and customer bases
in exchange for assuming certain liabilities. The acquisition was accounted for
as a purchase. The purchase price, which was equal to the liabilities assumed,
was approximately $2.2 million. The purchase price was first allocated to
tangible assets based on their fair market values. The remaining purchase price
was allocated to the fair value of purchased research and development for
software which had not reached technological feasibility and had no alternative
future use. A charge for purchased research and development of $1.7 million was
recorded upon the closing of the acquisition in the Company's fiscal quarter
ended December 31, 1993.
On September 10, 1993, the Company acquired Chicago-based WindTunnel
Software, Inc. ("WindTunnel") in a merger transaction accounted for as a
purchase. The Company acquired WindTunnel in exchange for 650,000 shares of the
Company's common stock. The purchase price of WindTunnel was approximately
$2.5 million, based upon a stock price of $3.50 (which approximated the fair
market value of the Company's common stock at the time of the merger) for each
of the 650,000 shares of the Company's common stock issued in the merger and the
direct costs of the acquisition. The net tangible assets of WindTunnel acquired
by the Company were insignificant. The purchase price was allocated to the fair
value of WindTunnel's software, and is being amortized over five years. (See,
also, Note 13.)
-46-
47
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31 JUNE 30 JUNE 30
1996 1996 1995
---- ---- ----
Property and Equipment
Computer and related equipment $12,415 $16,642 $24,565
Equipment under capital leases 1,241 1,179 97
Office furniture and fixtures 2,838 2,745 3,321
Leasehold improvements 507 506 713
------- ------- -------
Total 17,001 21,072 28,696
Less accumulated depreciation and amortization 14,745 18,349 24,780
------- ------- -------
$ 2,256 $ 2,723 $ 3,916
======= ======= =======
Accumulated amortization for equipment under capital leases was $0.6
million, $0.4 million and $0 as of December 31, 1996, June 30, 1996 and 1995,
respectively. During the transition period ended December 31, 1996 and fiscal
1996, the Company wrote-off $4.4 million and $8 million of fully depreciated
assets.
4. CAPITALIZED SOFTWARE COSTS
Amortization expenses for previously capitalized software costs for the
transition period ended December 31, 1996, and the fiscal years ended June 30,
1996, 1995, and 1994 was approximately $80,000, $160,000 $723,000 and
$1.0 million respectively. The Company also amortized $0, $456,000,
$456,000 and $379,000 of purchased software acquired in the WindTunnel
transaction.
5. INCOME TAXES
The components of net deferred tax assets were as follows:
December 31 June 30,
1996 1996
----------- --------
Deferred tax assets:
Net operating loss carryforwards $ 29,979 $ 27,953
Tax credit carryforwards 3,789 3,619
Other 5,290 5,050
--------- --------
Gross deferred tax asset 39,058 36,622
Valuation allowance (39,058) (36,622)
--------- --------
Net deferred tax asset $ 0 $ 0
--------- --------
The entire deferred tax asset has been fully reserved with a valuation
allowance due to the uncertainty of realization. The Company has historically
not generated taxable income sufficient to ensure usage of the deferred tax
asset.
At December 31, 1996, the Company had remaining tax net operating loss
("NOL") carryforwards of approximately $76,000,000, including approximately
$5,800,000 for international operations, currently available
-47-
48
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
to offset future taxable income and unused federal tax credits of approximately
$3,800,000. If not utilized, these credits and carryforwards will expire between
the years 2001 and 2011. Due to the Company's issuances of stock, the Tax Reform
Act of 1986 has restricted the Company's use of approximately $19,300,000 of its
existing NOL carryforwards.
The provision for income taxes recorded in the transition period ended
December 31, 1996, and the years ended June 30, 1996, 1995 and 1994 consists of
the following:
TRANSITION
PERIOD
ENDED YEAR ENDED JUNE 30,
DEC. 31, 1996 1996 1995 1994
------------- ---- ---- ----
Federal-current -- -- -- --
State -- $ 120 -- --
Foreign taxes $399 1,004 $297 $407
---- ------ ---- ----
Total provision $399 $1,124 $297 $407
==== ====== ==== ====
The effective tax rates for the transition period ended December 31, 1996 and
fiscal years ended June 30, 1996, 1995 and 1994 are not meaningful, as the
Company was in a net loss position.
6. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) defined contribution plan which is available to all
U.S. employees. The Company made no contributions to the plan during the
transition period ended December 31, 1996 or in the years ended June 30, 1996,
1995, and 1994. Cadre also had a qualified defined contribution plan and made
matching contributions of $213,000, $213,000 and $290,000 in the years ended
June 30, 1996, 1995 and 1994.
The Company's 1992 Employee Stock Purchase Plan (the "Plan") permits
eligible employees to purchase up to a maximum of 625 shares of stock quarterly
on October 31, January 31, April 30, and July 31 at a purchase price equal to
85% of the market price of the Company's common stock on either the first or
last day of each quarterly period, whichever price is lower, through
accumulation of payroll deductions of up to 20% of each participating employee's
qualifying compensation during such quarterly period. The Plan commenced
operations on May 1, 1992. At December 31, 1996, 400,000 shares were reserved
for issuance under the Plan of which approximately 191,000 shares have been
purchased by employees.
7. COMMITMENTS AND CONTINGENCIES
The Company leases office space under cancelable and non-cancelable
operating leases. Rent expense in the transition period ended December 31, 1996
and the fiscal years ended June 30, 1996, 1995 and 1994 under such arrangements
totaled $1,483,000, $4,664,000, $4,848,000, and $4,466,000, respectively.
-48-
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CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
The Company also leases certain equipment under long-term leases. At
December 31, 1996, long-term lease commitments were as follows:
EQUIPMENT
OPERATING CAPITAL
LEASES LEASES
------ ------
Year ended December 31, 1997......... $2,846 $691
Year ended December 31, 1998......... 1,243 72
Year ended December 31, 1999......... 537 44
Year ended December 31, 2000......... 235 17
Year ended December 31, 2001......... 114 --
------ ----
Total........................... $4,975 824
Less amount representing interest.... 157
----
Present value of minimum lease
payments............................. 667
Less current portion................. 561
----
Long-term portion.................... $106
----
8. BUSINESS SEGMENT AND GEOGRAPHIC DATA
The Company operates in one business segment: development, marketing and
support of an integrated suite of software products and services. The Company
markets and services its products in the United States and in foreign countries
through its direct sales organization and distributors (which are independent
representatives). The Company's foreign operations include a research and
development center together with numerous sales and customer service
organizations. Geographic information for the transition period ended December
31, 1996, and fiscal years ended June 30, 1996, 1995 and 1994 is as follows:
TRANSITION
PERIOD YEAR ENDED JUNE 30,
ENDED -------------------
DECEMBER 31, 1996 1996 1995 1994
----------------- ---- ---- ----
SALES TO UNAFFILIATED CUSTOMERS
United States $13,641 $ 31,696 $36,634 $ 40,198
Italy 6,118 13,937 9,519 7,913
United Kingdom 3,108 7,748 10,224 9,801
Rest of World 3,879 7,802 12,274 14,943
Export sales from United States 1,230 4,703 4,138 4,223
Intra-company transfers 2,649 10,278 9,603 10,715
Intra-company eliminations (2,649) (10,278) (9,603) (10,715)
------------------------------------------------------
$27,976 $ 65,886 $72,789 $ 77,078
======================================================
-49-
50
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
TRANSITION PERIOD
ENDED DECEMBER 31, YEAR ENDED JUNE 30,
1996 1996 1995 1994
---- ---- ---- ----
INCOME (LOSS) FROM OPERATIONS
United States $(1,239) $(3,497) $ (9,419) $ (8,771)
Italy 113 336 (540) (452)
United Kingdom (1,194) (1,096) (2,044) (1,274)
Rest of World (3,706) (5,335) (12,826) (2,863)
------------------------------------------------------
$(6,026) $(9,592) $(24,829) $(13,360)
======================================================
DECEMBER 31, JUNE 30,
1996 1996 1995 1994
---- ---- ---- ----
IDENTIFIABLE ASSETS
United States $ 23,655 $ 36,797 $ 34,449 $ 46,390
Italy 6,645 7,894 7,502 5,895
United Kingdom 3,528 4,428 4,537 4,247
Rest of World 6,159 4,438 3,989 4,723
Eliminations (17,751) (19,458) (15,093) (14,816)
--------------------------------------------------------
$ 22,236 $ 34,099 $ 35,384 $ 46,439
========================================================
Revenues from a major customer as a percentage of total revenue for the
transition period ended December 31, 1996, and in fiscal years ended June 30,
1996, 1995 and 1994 were 16%, 15%, 9% and 6%, respectively. Included in the
results of operations for the transition period ended December 31, 1996 is $6.3
million of merger and other costs, approximately $5.6 million in the United
States, $0.1 million in Italy, $0.5 million in the United Kingdom, and $0.1
million in rest of world. Additional restructurings during fiscal 1996 and 1995
together with a $7.3 million write-off of in-process research and development
related to the Westmount purchase adversely impacted the results of operations.
Fiscal 1996 results include charges of $2.8 million allocated primarily to the
United States. Fiscal 1995 results include charges of $5.5 million of which
approximately $4.1 million was allocated to the United States, $0.1 million to
the United Kingdom, $0.1 million to Italy and $1.2 million to rest of world. The
$7.3 million write-off related to Westmount was charged to rest of world
operations during 1995.
9. CAPITAL STOCK
The Company has 1,600,000 shares of $1.00 par value "blank check" preferred
stock authorized. Such shares may be issued in one or more future series by the
Board of Directors and, subject to certain limitations so as not to adversely
effect other holders of preferred stock, if any, are to have such rights and
preferences as the Board of Directors establishes before issuance. On November
21, 1994, the Company issued 1,787.073 shares of redeemable Series A Convertible
Preferred Stock. Each share of Series A Convertible Preferred Stock is initially
convertible into 1,000 shares of common stock and is entitled to cast votes
equal to the number of shares of common stock into which such preferred stock is
convertible. In connection with the issuance of the Series A preferred stock,
the Company issued to the Series A preferred stockholders three-year warrants to
purchase 357,415 shares of the Company common stock (with Registration Rights)
at an exercise price of $3.28 per share. These warrants were valued at $319,000
and are included in additional paid in capital. As of December 31, 1996, all
shares of Series A Convertible Preferred Stock have been converted to common
stock. During the transition period ended December 31, 1996 and in fiscal year
1996, the Company received $472,000 and $500,000 in connection with the exercise
of warrants. Warrants for 60,976 shares of common stock remain outstanding at
December 31, 1996.
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51
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
10. STOCK OPTIONS
Under the Company's amended 1996 incentive and nonqualified stock option
plan (the "1996 Plan"), incentive stock options can be granted to employees and
consultants entitling them to purchase shares of common stock within one to ten
years from the date of grant at option prices equal to the fair market value at
the date of grant. Nonqualified stock options are generally granted under the
same terms. The vesting period for stock options is generally four years. The
exercise price for incentive stock options may not be less than the fair market
value of the common stock on the date of the grant (or 110% of fair market value
in the case of employees or officers holding 10% or more of the total combined
voting power of all classes of stock of the Company). At December 31, 1996, the
number of shares issuable under the 1996 Plan is 2,000,000.
Employees of the Company currently hold stock options under three additional
plans: the Amended and Restated 1986 Incentive and Non Qualified Stock Option
Plan, the Cadre 1988 Incentive and Non-Statutory Stock Option Plan, and the
Cadre 1989 Non-Statutory Stock Option Plan. For the future, the Company expects
to grant additional options only under the 1996 Plan.
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation." SFAS 123 is effective for periods beginning after December 15,
1995. SFAS 123 requires that companies either recognize compensation expense for
grants of stock, stock options, and other equity instruments based on fair
value, or provide pro forma disclosure of net income and earnings per share in
the notes to the financial statements. The Company adopted the disclosure
provisions of SFAS 123 in 1996 and has continued to apply APB Opinion 25 and
related Interpretations in accounting for its plans. Had compensation cost for
the Company's stock-based compensation plans been determined based on the fair
value at the grant dates as calculated in accordance with SFAS 123, the
Company's net loss and earnings per share for the transition period ended
December 31, 1996 and the fiscal year ended June 30, 1996 would have been
reduced to the pro forma amounts indicated below:
TRANSITION PERIOD 1996
----------------- ----
EARNINGS EARNINGS
NET LOSS PER SHARE NET LOSS PER SHARE
-------- --------- -------- ---------
As Reported $(6,368) $(0.36) $(11,347) $(0.71)
Pro Forma $(6,975) $(0.40) $(11,568) $(0.73)
The effects of applying SFAS 123 in this pro forma disclosure are not
likely to be representative of effects on reported net income for future years.
SFAS 123 does not apply to awards prior to 1996 and additional awards in future
years are anticipated.
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: an expected life of five years, expected volatility of 67%, a
dividend yield of 0% and a risk-free interest rate between 5.2% and 7.6%.
In management's opinion existing stock option valuation models do not
provide a reliable single measure of the fair value of employee stock options
that have vesting provisions and are not transferable. In addition, option
pricing models require the input of highly subjective assumptions, including
expected stock price volatility. Management has elected to project expected
volatility based upon the stock's actual historical performance to date.
-51-
52
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
A summary of the status of the Company's stock option plans as of
December 31, 1996 and June 30, 1996, 1995 and 1994 and changes during the years
ending on those dates is presented below:
WEIGHTED
AVERAGE
NUMBER PRICE
OF SHARES PER SHARE
--------- ---------
Options outstanding on June 30, 1993 2,023,651 $2.89
---------- -----
Options granted ............... 2,025,869 3.66
Options exercised ............. (288,414) 1.43
Options canceled .............. (879,500) 5.84
---------- -----
Options outstanding on June 30, 1994 2,881,606 2.68
Options granted ............... 662,052 4.62
Options exercised ............. (330,518) 2.77
Options canceled .............. (641,519) 3.18
---------- -----
Options outstanding on June 30, 1995 2,571,621 3.04
Options granted ............... 810,973 6.32
Options exercised ............. (310,870) 3.60
Options canceled .............. (454,803) 4.50
---------- -----
Options outstanding on June 30, 1996 2,616,921 3.73
Options granted ............... 1,239,424 5.51
Options exercised ............. (95,270) 3.69
Options canceled .............. (550,803) 5.27
---------- -----
Options outstanding on Dec. 31, 1996 3,210,272 4.90
Shares exercisable at Dec. 31, 1996 1,326,910 4.16
The weighted-average fair value of options granted during the six month
transition period ended December 31, 1996 and the fiscal year ended June 30,
1996 was $3.39 and $3.94, respectively.
The following summarizes information about stock options outstanding at
December 31, 1996:
Options Outstanding Options Exercisable
----------------------------------------------- --------------------------------
Weighted Average
Remaining
Range of Number Contractual Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ----------- ---------------- ----------- ----------------
$1.20 - $3.00 185,588 4.18 $1.81 150,217 $1.70
$3.25 - $5.18 1,338,646 4.95 4.07 953,059 4.00
$5.625 - $7.75 1,662,314 9.13 5.86 221,534 6.34
$8.75 - $9.19 23,724 9.16 9.05 2,100 8.75
- -------------- --------- ---- ---- --------- ----
$1.20 - $9.19 3,210,272 7.10 $4.90 1,326,910 $4.16
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53
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
TRANSITION PRIOR
PERIOD PERIOD
ENDED ENDED YEAR ENDED JUNE 30,
DEC. 31, 1996 DEC. 31, 1995 1996 1995 1994
------------- ------------- ---- ---- ----
Cash Paid For:
Interest $ 276 $269 $1,121 $402 $237
Income Taxes 1,457 -- 395 432 350
Non Cash Investing and Financing Activity:
Increase in capital lease obligations 61 -- 81 97 --
Conversion of Redeemable Series A
Preferred Stock -- -- 5,493 -- --
Disposal of Property included in
restructuring accrual -- -- -- -- 222
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54
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
TRANSITION PERIOD
ENDED
DECEMBER 31, 1996
--------------------
FIRST SECOND
QUARTER QUARTER
--------------------
Revenues $13,198 $14,778
Cost of Revenues 3,279 3,217
Income (loss) from operations (6,746) 720
Net income (loss) (6,860) 492
Net income (loss) per
common share $(0.39) $0.03
FISCAL YEAR
1996
----------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------------------------------------------------
Revenues $16,437 $19,795 $14,832 $14,822
Cost of Revenues 4,790 4,495 4,031 3,593
Income (loss) from operations (3,220) (990) (2,731) (2,651)
Net income (loss) (3,471) (1,331) (3,131) (3,414)
Net income (loss) per
common share $(0.24) $(0.08) $(0.19) $(0.20)
FISCAL YEAR 1995
-----------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-----------------------------------------------------
Revenues $16,139 19,410 18,128 19,112
Cost of Revenues 5,474 5,933 5,284 5,367
Income (loss) from operations (8,822) (11,542) (2,257) (2,208)
Net income (loss) (8,702) (11,572) (2,309) (2,307)
Net income (loss) per
common share (0.68) (0.87) (0.17) (0.17)
13. RESTRUCTURING AND OTHER COSTS
On July 18, 1996, the Company completed its acquisition of Cadre
Technologies, Inc. ("Cadre") and effective upon the merger, the Company changed
its name to Cayenne Software, Inc.
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CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
During the transition period ended December 31, 1996, the Company incurred
a $6.3 million charge to operations to reflect costs associated with combining
the operations of the two companies, transactions fees, and other costs. The
Board of Directors of the Company approved a restructuring plan to terminate
certain specified employees and close certain facilities. Such a plan was
communicated to the employees prior to the end of the quarter and such employees
we specifically identified and terminated. Included in the charge is $1.6
million of employee related termination expenses, $1.3 million of legal,
accounting, investment banking and other professional fees, $1.4 million of
facility closure and consolidation expenses, and $2.0 million of other expenses
associated with the consolidation of the two companies and the name change.
Based on the results of fiscal 1996 and in conjunction with the
contemplated merger with Cadre, the Company reviewed its product strategy and
determined that several products including WindTunnel were no longer consistent
with the Company's objectives. Accordingly, the Company evaluated the net
realizable value of the related intangible assets and recorded a charge of
approximately $1.1 million principally related to the write-off of the
intangible asset acquired as part of its acquisition of WindTunnel. Also during
fiscal 1996, the Company restructured its operations to reduce costs and utilize
resources more effectively.
During 1995, following the Westmount Technology, B.V. acquisition and the
completion of certain significant development efforts and associated product
introduction, the Company restructured its operations and wrote off redundant
software investments. The Company recorded restructuring charges of $2.0
million, $1.8 million and $1.7 million during the quarters ended September 30,
1994, June 30, 1995 and December 31, 1995. The aggregate $5.5 million charge to
operations reflects costs associated with termination benefits, the write off of
redundant software investments and facility restructuring. Prior to the
execution of this restructuring, the Board of Directors of the Company approved
a restructuring plan to terminate certain specified employees and close certain
facilities. Such a plan was communicated to the employees prior to the end of
the quarter and such employees we specifically identified and terminated.
Included in the charge is $3.9 million of employee related termination expenses,
$0.9 million of redundant software investments and $0.7 million of facilities
and other expenses associated with the restructurings.
At December 31, 1996, the Company believes that it has adequately provided
for all restructuring actions taken to date. Additionally, except for the Cadre
merger, for which the Company maintains a $1.7 million obligation at December
31, 1996, the Company has met substantially all obligations with regard to the
restructurings.
14. BORROWINGS
On November 6, 1996, the Company amended and restated its revolving credit
agreement with a bank to borrow up to $5.0 million, to extend its term through
October 4, 1997 and to amend certain of the financial and operating covenants
and other provisions thereunder. In connection with the amendment, the Company
issued to the bank a three-year warrant to purchase 25,000 shares of the
Company's Common Stock at an exercise price of $4.25 per share. The loan is
contingent upon meeting certain financial and operating covenants at the time of
any borrowing and over the life of the loan. The loan is secured by all of the
assets of the Company and any borrowing amounts are tied to a percentage of
qualified accounts receivable outstanding at the time of any borrowing. The
financial covenants include the attainment of certain specified levels of
consolidated net income at the end of each quarter including profitability of
$1.0 million for the quarter ending June 30, 1997, and liquidity (generally
defined as cash and cash equivalents plus eligible domestic and international
accounts receivable less any indebtedness to the bank) at the end of each month.
The Company was in compliance with all covenants as amended at December 31,
1996. At December 31, 1996, the borrowing base under the revolving credit
agreement was approximately $4.5 million. The Company had approximately $2.8
million and $1.5 million outstanding against the line of credit at December 31,
1996 and June 30, 1996, respectively.
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CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
The Company also had a bank agreement that consisted of a $3.0 million
revolving line loan which was outstanding at June 30, 1995. The loan was
collateralized by general intangibles, accounts receivable and inventory. A new
financing arrangement ("Factoring Agreement") was used to repay the loan of $3.0
million in 1996. The factoring agreement had a financing limit of $5.6 million
based on qualified accounts receivable. At June 30, 1996, the Company had
approximately $2.4 million outstanding under the factoring agreement. The
Company repaid the entire amount during the transition period and terminated the
agreement.
15. SUBSEQUENT EVENTS
On January 2, 1997, the Company raised approximately $3.0 million in a
private placement of 150,000 shares of Redeemable Series B Convertible Preferred
Stock and issuance of warrants. Each share of Series B Convertible Preferred
Stock is entitled to earn dividends at a rate of 5% per annum, payable upon
conversion, in cash or stock, at the option of the Company. Each share of Series
B Convertible Preferred Stock is convertible into shares of Common Stock at a
rate determined by the lower of the average quoted market price of the common
stock for either (i) the ten trading days preceding the date of issuance or (ii)
any five trading days during any period of thirty days before the conversion. In
conjunction with the closing of the private placement, the Company issued the
investors warrants to purchase 350,000 shares of the Company's Common Stock at
exercise prices ranging from 120% to 150% of the price set forth in clause (i)
above and having varying expiration dates from three to five years. The shares
of Common Stock underlying the Series B Convertible Preferred stock and warrants
are entitled to registration rights under terms of the registration rights
agreement dated January 3, 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information will either be incorporated by reference to a proxy
statement filed by the Company not later than 120 days after December 31, 1996
or be included in an amendment to this form 10-K within such period.
ITEM 11. EXECUTIVE COMPENSATION
This information will either be incorporated by reference to a proxy
statement filed by the Company not later than 120 days after December 31, 1996
or be included in an amendment to this form 10-K within such period.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information will either be incorporated by reference to a proxy
statement filed by the Company not later than 120 days after December 31, 1996
or be included in an amendment to this form 10-K within such period.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information will either be incorporated by reference to a proxy
statement filed by the Company not later than 120 days after December 31, 1996
or be included in an amendment to this form 10-K within such period.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The financial statements filed as part of this report are listed on the
Index to Consolidated Financial Statements on page 36.
(2) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted as they are either not required, not
applicable or otherwise included in this Form 10-K.
(3) EXHIBITS
Documents listed below, except for documents identified by footnotes,
are being filed as exhibits herewith. Documents identified by asterisks
are not being filed herewith and, pursuant to Rule 12b-32 of the
General Rules and Regulations promulgated by the Commission under the
Securities Exchange Act of 1934 (the "Act") reference is made to such
documents as previously filed as exhibits with the Commission. The
Company's file number under the Act is 0-19682.
2.1(4) Asset Purchase Agreement among CSI Acquisition
Corporation, Cayenne and Cooperative Solutions, Inc.
dated November 16, 1993
2.2(5) Agreement and Plan of Merger by and among Cayenne, BI
Acquisition Corp. and WindTunnel Software, Inc. dated
April 27, 1993
2.3(11) Agreement and Plan of Merger among Cayenne, B.C.
Acquisition Corp. and Cadre Technologies Inc. dated as
of March 25, 1996
3.1(1)2 Amendment to Restated Articles of Organization of
Cayenne
3.2(2) Restated Articles of Organization of Cayenne
3.3(1) Amended and Restated By-Laws of Cayenne
3.4 Statement of Rights and Preferences of Series B
Convertible Preferred Stock
4.1(1) Specimen Certificate for Common Stock of Cayenne
4.2(8) Statement of Rights and Preferences of Series A
Convertible Preferred Stock
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58
4.3(8) Form of Warrant Agreement dated as of November 21, 1994
by and among Cayenne and purchasers of Series A
Convertible Preferred Stock
4.4(7) Warrant Agreement dated as of October 28, 1994 by and
between Cayenne and Silicon Valley Bank
4.5 Convertible Preferred Stock Purchase Agreement dated as
of January 2, 1997 between the Company and Southbrook
International Investments, Ltd.
4.6 Registration Rights Agreement dated as of January 2,
1997
4.7 Form of Warrant Agreement dated as of January 2, 1997
4.8 Warrant Agreement dated as of December 20, 1996 between
the Company and Silicon Valley Bank
10.1(1) General License and Maintenance Agreement dated January
30, 1987 between Cayenne and American Telephone &
Telegraph Communications, Inc.
10.2(1) Lease with New England Mutual Life Insurance Company
10.3(3) Lease dated August 12, 1992 between Cayenne and
Spaulding Investment Co.
10.4(2) Agreement for Partial Sale of Going Concern dated as of
October 25, 1992 between Pro Systems and Cayenne France
10.5(2) Sale and Purchase Agreement relating to Cayenne
Information Systems Limited, dated November 16, 1991,
among Abacus Trustees (Jersey) Limited, Cayenne and
others, as amended by Amendment Consent dated February
18, 1992
10.6(2) Agreement dated as of November 1, 1991, between Cayenne
and Cayenne Italia S.r.l., as amended by letter dated
December 9, 1991 and as further amended by amendment
dated December 31, 1991
10.7(3) Fiscal Year 1993 Bonus Pool Plan
10.8(1) Amended and Restated 1986 Incentive and Nonqualified
Stock Option Plan of Cayenne 10.92 1992 Employee Stock
Purchase Plan
10.10(1) Savings/Retirement Plan and Trust of Cayenne 10.116
Employment agreement dated as of January 1, 1994 by and
between Cayenne and Charles W. Bachman
10.12(6) Employment Agreement dated as of August 4, 1993 by and
between Cayenne and Peter J. Boni
10.13(6) 1994 Bonus Pool Plan of Cayenne, as amended
10.14(7) 1995 Bonus Pool Plan of Cayenne, as amended.
10.15(7) Revolving Credit Agreement and Warrant Agreement dated
as of October 28, 1994 by and between Cayenne and
Silicon Valley Bank
10.16(8) Series A Convertible Preferred Stock Purchase Agreement
dated as of November 21, 1994 by and among Cayenne and
purchasers of Series A Convertible Preferred Stock
10.17(8) Registration Rights Agreement dated as of November 21,
1994 by and among Cayenne and purchasers of Series A
Convertible Preferred Stock
10.18(9) Form of Common Stock Purchase Agreement dated as of
September 15, 1995 by and among Cayenne and certain
purchasers of Common Stock
10.19(9) Form of Registration Rights Agreement dated as of
September 15, 1995 by and among Cayenne and certain
purchasers of Common Stock
10.20(10) 1996 Bonus Pool Plan of Cayenne
10.21(12) Amendment No. 1 to Employment Agreement dated as of
August 4, 1993 by and between Cayenne and Peter J. Boni
10.22(12) Amended and Restated Revolving Credit Agreement dated as
of June 6, 1996 by and between Cayenne and Silicon
Valley Bank
10.23 1997 Bonus Plan of Cayenne
10.24(13) Amended 1996 Incentive and Nonqualified Stock Option
Plan
21.1 List of Subsidiaries of Cayenne
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedules
- -----------------
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59
(1) Incorporated by reference to the exhibits filed with Cayenne's
Registration Statement on Form S-1, File No. 33-43401, as amended.
(2) Incorporated by reference to the exhibits filed with Cayenne's
Registration Statement on Form S-1, File No. 33-45841, as amended.
(3) Incorporated by reference to the exhibits filed with Cayenne's Annual
Report on Form 10-K for the year ended June 30, 1992, File No. 0-19682.
(4) Incorporated by reference to the exhibit filed with Cayenne's Current
Report on Form 8-K dated November 16, 1993, as amended.
(5) Incorporated by reference to Cayenne's Registration Statement on Form S-4,
File No. 33-62650, as amended.
(6) Incorporated by reference to the exhibits filed with Cayenne's Quarterly
Report on Form 10-Q dated May 13, 1994.
(7) Incorporated by reference to the exhibits filed with Cayenne's Quarterly
Report on Form 10-Q dated November 11, 1994.
(8) Incorporated by reference to the exhibits filed with Cayenne's Quarterly
Report on Form 10-Q dated February 13, 1995, as amended.
(9) Incorporated by reference to the exhibits filed with Cayenne's Annual
Report on Form 10-K, as amended, for the year ended June 30, 1995, File
No. 0-19682
(10) Incorporated by reference to the exhibits filed with Cayenne's Quarterly
Report on Form 10-Q dated February 13, 1996.
(11) Incorporated by reference to exhibits filed with Cayenne's Registration
Statement on Form S-4, File No. 333-6087, as amended.
(12) Incorporated by reference to exhibits filed with Cayenne's Annual Report
on Form 10-K dated September 27, 1996.
(13) Incorporated by reference to Cayenne's Proxy Statement dated November 20,
1996.
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(b) REPORTS ON FORM 8-K:
A Current Report on Form 8-K was filed by the Company on October 23, 1996. The
Company reported that its Board of Directors approved a change in its fiscal
year from June 30 to December 31.
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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, in the Town of Burlington,
Commonwealth of Massachusetts on the 29 day of March, 1997.
CAYENNE SOFTWARE, INC.
By: /s/ Peter J. Boni
---------------------------------
Peter J. Boni
President and Chief Executive Officer
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.
Signature Title Date
- --------- ----- ----
/s/ Peter J. Boni President, Chief Executive March 29, 1997
- -------------------------- Office and Director
Peter J. Boni
/s/ Frederick H. Phillips Vice President, Finance and March 29, 1997
- -------------------------- Administration, Treasurer
Frederick H. Phillips and Chief Financial and
Accounting Officer
/s/ Charles W. Bachman Chairman of the Board March 23, 1997
- -------------------------- of Directors
Charles W. Bachman
* Director March , 1997
- --------------------------
John J. Alexander
* Director March , 1997
- --------------------------
R. John Fletcher
/s/ William H.D. Goddard Director March 21, 1997
- --------------------------
William H.D. Goddard
/s/ Roland D. Pampel Director March 23, 1997
- --------------------------
Roland D. Pampel
/s/ Allyn C. Woodward, Jr. Director March 29, 1997
- --------------------------
Allyn C. Woodward, Jr.
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