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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 1997 OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-20059
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VMARK SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2818132
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 WASHINGTON STREET 01581-1021
WESTBORO, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 366-3888
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
The number of shares outstanding of each of the registrant's classes of
common stock as of:
DATE CLASS OUTSTANDING SHARES
September 28, 1997 Common stock, $.01 par value 8,270,919
The index to the Exhibits appears on page 14
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VMARK SOFTWARE, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 28, 1997
TABLE OF CONTENTS
PAGE NUMBERING IN
SEQUENTIAL NUMBERING SYSTEM
---------------------------
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
September 28, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations
for the three and nine months ended September 28, 1997
and September 29, 1996 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 28, 1997 and September 29, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
VMARK SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 28, DECEMBER 31,
1997 1996
------------- ------------
ASSETS
CURRENT ASSETS:
CASH AND EQUIVALENTS $21,038 $14,733
ACCOUNTS RECEIVABLE - NET 8,710 14,860
INCOME TAX RECEIVABLE 955 771
PREPAID EXPENSES, DEFERRED INCOME TAXES AND OTHER
CURRENT ASSETS 4,813 6,049
------- -------
TOTAL CURRENT ASSETS 35,516 36,413
------- -------
PROPERTY AND EQUIPMENT - NET 12,635 14,205
------- -------
LONG-TERM ASSETS:
INTANGIBLE ASSETS - NET 3,469 3,667
OTHER LONG-TERM ASSETS 5,780 5,692
------- -------
TOTAL LONG-TERM ASSETS 9,249 9,359
------- -------
TOTAL ASSETS $57,400 $59,977
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
LINE OF CREDIT $ - $ 1,462
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND CURRENT
PORTION OF LONG-TERM DEBT 7,520 9,385
ACCRUED MERGER AND RESTRUCTURING COSTS 2,044 5,546
DEFERRED REVENUE 7,154 5,738
------- -------
TOTAL CURRENT LIABILITIES 16,718 22,131
------- -------
LONG-TERM LIABILITIES:
OBLIGATIONS UNDER CAPITAL LEASES 8,851 9,015
STOCKHOLDERS' EQUITY:
STOCKHOLDERS' EQUITY 34,787 31,787
COST OF TREASURY STOCK (2,956) (2,956)
------- -------
TOTAL STOCKHOLDERS' EQUITY 31,831 28,831
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $57,400 $59,977
======= =======
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VMARK SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPT. 28, SEPT. 29, SEPT. 28, SEPT. 29,
1997 1996 1997 1996
-----------------------------------------------------
REVENUE:
SOFTWARE $ 7,228 $ 8,150 $23,128 $26,475
SERVICES AND OTHER 6,542 8,538 19,403 25,907
------- ------- ------- -------
TOTAL REVENUE 13,770 16,688 42,531 52,382
------- ------- ------- -------
COSTS AND EXPENSES:
COST OF SOFTWARE 1,003 1,321 2,968 3,657
COST OF SERVICES AND OTHER 2,929 4,628 9,713 13,756
SELLING AND MARKETING 5,452 6,349 17,515 19,640
PRODUCT DEVELOPMENT 1,755 2,216 5,267 6,890
GENERAL AND ADMINISTRATIVE 1,252 1,858 3,986 5,559
RESTRUCTURING COSTS - - - 2,125
------- ------- ------- -------
TOTAL COSTS AND EXPENSES 12,391 16,372 39,449 51,627
------- ------- ------- -------
INCOME FROM OPERATIONS 1,379 316 3,082 755
OTHER INCOME (EXPENSE) - NET 13 (129) (147) (331)
------- ------- ------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,392 187 2,935 424
PROVISION FOR INCOME TAXES 528 56 1,115 459
------- ------- ------- -------
NET INCOME (LOSS) $ 864 $ 131 $ 1,820 $ (35)
======= ======= ======= =======
NET INCOME PER COMMON SHARE $ 0.10 $ 0.02 $ 0.22 $ 0.00
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 8,743 8,363 8,460 8,099
======= ======= ======= =======
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VMARK SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
-----------------
SEPT. 28, SEPT. 29,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 1,820 $ (35)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 3,142 4,621
AMORTIZATION OF RESTRICTED STOCK AWARDS 21 14
DEFERRED INCOME TAXES 374 (120)
INCREASE (DECREASE) IN CASH FROM:
CURRENT ASSETS 7,266 1,900
CURRENT LIABILITIES (3,672) (2,550)
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CASH PROVIDED BY OPERATING ACTIVITIES 8,951 3,830
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
EXPENDITURES FOR PROPERTY AND EQUIPMENT - NET (621) (1,399)
EXPENDITURES FOR CAPITALIZED SOFTWARE COSTS (1,029) (1,525)
DECREASE (INCREASE) IN CASH SURRENDER VALUE OF
OFFICERS' LIFE INSURANCE AND DEPOSITS AND OTHER (461) 81
------- -------
CASH USED IN INVESTING ACTIVITIES (2,111) (2,843)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
BORROWINGS (REPAYMENTS) UNDER LINE-OF-CREDIT (1,462) 1,462
SALE OF COMMON STOCK 1,197 1,496
REPURCHASE OF COMMON STOCK - (2,956)
REPAYMENTS UNDER CAPITAL LEASE AND OTHER OBLIGATIONS (164) (192)
------- -------
CASH USED IN FINANCING ACTIVITIES (429) (190)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (106) (70)
------- -------
INCREASE IN CASH AND EQUIVALENTS 6,305 727
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 14,733 12,267
------- -------
CASH AND EQUIVALENTS, END OF PERIOD $21,038 $12,994
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial reporting.
They should be read in conjunction with the audited financial statements
included in the Company's Annual Report to Stockholders for the year ended
December 31, 1996.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements have been prepared on the same basis as
the audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the interim periods presented. The operating results for
the interim periods presented are not necessarily indicative of the results
which would be expected for the full year.
2. Income Per Common Share
Income per common share is computed using the weighted average number of
common and common equivalent shares outstanding during each period
presented. Common stock equivalents consist of stock options converted
using the treasury stock method and are included in the calculation only if
dilutive.
In March, 1997, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share,"
which the Company will adopt in the fourth quarter of 1997. Had SFAS No.
128 been effective for the quarters ended September 28, 1997 and September
29, 1996, reported earning per share on a pro forma basis would have been
as follows:
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
Basic $0.11 $0.02 $0.22 $0.00
Diluted $0.10 $0.02 $0.21 $0.00
3. Income Taxes
The Company provides for income taxes at the end of each interim period
based on the estimated effective tax rate for the full fiscal year.
Cumulative adjustments to the tax provision are recorded in the interim
period in which a change in the estimated annual effective rate is
determined.
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4. Subsequent Events
On October 7, 1997, the Company entered into a definitive agreement (the
"Merger Agreement") to merge (the "Merger") with Unidata, Inc. ("Unidata").
The Merger is intended to be accounted for as a pooling-of-interests for
financial reporting purposes. Under the terms of the Merger Agreement,
stockholders of Unidata will receive 0.44765 shares of the Company's common
stock for each share of Unidata common stock they own at the time the
Merger is consummated. In connection with the execution of the Merger
Agreement, the Company or Unidata has agreed to pay a termination fee of
$3,000,000 to the other upon the occurrence of certain events involving a
termination of the Merger Agreement. In addition to the termination fee,
the Company has granted to Unidata the right to purchase up to 1,624,988
shares of the Company's common stock, including the associated rights under
the Company's Preferred Share Purchase Rights Plan (the "Plan"), at a price
of $9.87 per share upon the occurrence of certain events giving rise to
Unidata's right to receive a termination fee from the Company. Unidata has
granted to the Company the right to purchase up to 2,310,862 shares of the
Unidata's common stock at a price of $4.42 per share upon the occurrence of
certain events giving rise to the Company's right to receive a termination
fee from Unidata. The Merger is expected to be completed in December, 1997,
subject to adoption of the Merger Agreement and the Merger by the
stockholders of the Company and the stockholders of Unidata as well as the
satisfaction or waiver of certain customary closing conditions. The Company
expects to incur costs associated with the transaction and integration of
the business of approximately $13.0 million ($10.0 million net of related
tax effects). Such costs will be charged to expense upon consummation of
the Merger. Prior to the execution of the Merger Agreement, the Company
amended its Plan to exclude the significant stockholders of Unidata from
the definition of an acquiring person under the Plan, and thus avoiding the
issuance of shares in the Merger from being a triggering event under the
Plan.
5. Litigation
The Company is a defendant, together with certain of its officers, in two
actions initially filed in October 1995 in the U.S. District Court for the
District of Massachusetts. Those actions have been consolidated through the
filing of a Consolidated Amended Complaint (the "Complaint"). The
plaintiffs allege in the Complaint that the Company and certain of its
officers, during July through October 1995, made certain untrue statements
and failed to disclose certain information regarding the Company's
prospective financial performance in violation of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder and that such
statements and omissions artificially inflated the market prices of the
Company's stock. The plaintiffs purport to bring the actions on behalf of
certain classes of stockholders and seek damages in unspecified amounts.
The Company has denied the allegations in its answer to the Complaint and
the proceeding is now in the discovery stage. Based upon its review to
date, management of the Company believes that the actions are without merit
and plans to oppose them vigorously.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
VMARK SOFTWARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
The following table sets forth certain data as a percentage of total revenue for
the three and nine months ended September 28, 1997 and September 29, 1996.
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1997 1996 1997 1996
---- ---- ---- ----
Revenue:
Software 52.5% 48.8% 54.4% 50.5%
Services and other 47.5 51.2 45.6 49.5
----- ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0
----- ----- ----- -----
Costs and expenses:
Costs of software 7.3 7.9 7.0 7.0
Costs of services and other 21.3 27.7 22.8 26.3
Selling and marketing 39.6 38.1 41.2 37.5
Product development 12.7 13.3 12.4 13.2
General and administrative 9.1 11.1 9.4 10.6
Merger integration and
restructuring costs - - - 4.0
----- ----- ----- -----
Total costs and expenses 90.0 98.1 92.8 98.6
----- ----- ----- -----
Income (loss) from operations 10.0% 1.9% 7.2% 1.4%
===== ===== ===== =====
REVENUE
The Company's total revenue decreased 17% to $13,770,000 in the third quarter of
1997 from $16,688,000 in the third quarter of 1996 and decreased 19% to
$42,531,000 in the first nine months of 1997 as compared to $52,382,000 in the
first nine months of 1996. This decrease in revenue is primarily due to the
Company having exited non-strategic and unprofitable businesses in the fourth
quarter of 1996, including the Object Studio product line.
Software revenue decreased 11% to $7,228,000 and 13% to $23,128,000 respectively
for the third quarter and first nine months of 1997 from the comparable periods
in 1996. This decrease is due primarily to the elimination of sales of the
Object Studio product line in connection with the exit of certain businesses
noted above offset by the increase in sales of DataStage, the Company's data
warehouse product. This decrease is also the result of the decline in the value
of overseas revenues due to the strengthening of the US dollar in 1997 as
approximately 40% of software revenue for all periods presented was contributed
from foreign operations. Software revenue increased to 53% and 54% of total
revenue for the three months and nine months ended September 28, 1997 from 49%
and 51% of total revenue for the corresponding periods of 1996.
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Services and other revenue, consisting of consulting, training, and maintenance,
declined 23% and 25% respectively for the quarter and nine months ended
September 28, 1997 from the same periods of the prior year. This decrease is due
to the elimination of Object Studio related consulting and maintenance services,
which represented approximately 45% of consulting revenue in the third quarter
of 1996, and the disposition of the Company's third-party education business.
Services and other revenue decreased as a percentage of total revenue to 48% in
the third quarter of 1997 from 51% in the third quarter of 1996. In the first
nine months of 1997, services and other revenue decreased to 46% of total
revenue compared to 50% in the first nine months of 1996. The decrease in
services and other revenue as a percentage of total revenue in the quarter and
nine-month period was a result of increases in data warehousing software
revenues and the discontinuation of services related to the Object Studio
products somewhat offset by a decrease in the associated product revenue.
COSTS OF SOFTWARE
Costs of software, which consist of amortization of technology licenses and
capitalized software, product royalties, product documentation, packaging, media
and production costs, decreased 24% to $1,003,000 for the third quarter of 1997
from $1,321,000 for the third quarter of 1996 and decreased 19% to $2,968,000
for the nine months ended September 28, 1997 from $3,657,000 for the comparable
period in the prior year. Cost of software as a percentage of license revenue
decreased to 14% for the three months ended September 28, 1997 from 16% in the
third quarter of 1996 and declined slightly from 14% to 13% for the nine-month
periods presented. This decrease in costs of software is due to the write-off of
certain intangible assets in connection with the restructuring and extraordinary
charges recorded in December, 1996.
COSTS OF SERVICES AND OTHER
Costs of services and other, which consist of consulting, training, and other
customer support service costs, decreased 37% to $2,929,000 for the third
quarter and decreased 29% to $9,713,000 for the first nine months of 1997 as
compared to the same periods of the prior year due to the elimination of Object
Studio related consulting and maintenance costs. Costs of services and other as
a percentage of services and other revenue decreased to 45% and 50% for the
quarter and nine months ended September 28, 1997, respectively, compared to 54%
and 53% for the comparable periods in 1996. The profit margin associated with
services and other revenue increased slightly in 1997 due to a change in the mix
of services and other revenue. A higher percentage of services and other revenue
in 1997 is comprised of customer maintenance support revenue which typically has
a higher profit margin than revenue derived from training and consulting
services.
SELLING AND MARKETING
Selling and marketing expenses, which consist primarily of sales organization
costs and marketing programs, increased to 40% of total revenue or $5,452,000
and 41% of total revenue or $9,713,000 in the quarter and nine months ended
September 28, 1997 respectively as compared to 38% of total revenue in the
comparable periods of the prior year. The percentage increase is due to the
increase in DataStage marketing and program activities and the increase in the
data warehouse sales force. These increases were slightly offset by savings
associated with the elimination of Object Studio marketing activities.
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PRODUCT DEVELOPMENT
Product development expenses, which consist primarily of salaries and related
benefits of development personnel and facility costs, decreased 21% to
$1,755,000 in the third quarter of 1997 and decreased 24% to $5,267,000 in the
first nine months of 1997, as compared to the same periods of the prior year.
Product development expenses as a percentage of revenue were 13% and 12% for the
quarter and nine months ended September 28, 1997 compared to 13% of revenue for
the third quarter and the first nine months of 1996. The relative flat levels of
spending in 1997 over 1996 is due to the cost savings associated with the
elimination of development efforts previously dedicated to the Object Studio
product offset by an increase in spending on data warehouse product development.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include the costs of finance, human
resources, legal, information systems, and administrative departments of the
Company. General and administrative expenses decreased 33% in the third quarter
of 1997 to $1,252,000 from $1,858,000 in the comparable period in 1996. General
and administrative expenses decreased 28% to $3,986,000 in the nine months ended
September 28, 1997, as compared to the same periods of 1996. The cost savings in
the comparable periods reflects efficiencies gained from the elimination of
administrative costs associated with the Company's Germany subsidiary, which is
currently inactive as it had previously sold Object Studio products and
services, as well as, a decrease in the bad debt provision. General and
administrative expenses decreased to 9% of revenue for both the third quarter
and first nine months of 1997, compared to 11% of revenue for the comparable
periods of the previous year, respectively.
INCOME TAXES
The Company recorded provisions for income taxes of $528,000 and $1,115,000 for
the third quarter and first nine months of 1997 respectively compared to $56,000
and $459,000 for the same periods in 1996. The Company's effective tax rate of
38% for the third quarter and first nine months of 1997 represents an estimate
of the annual rate based on the anticipated composition of earnings in the
Company's various taxing juridictions.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through sales of equity
securities and positive cash flow from operations. As of September 28, 1997 the
Company had $21,038,000 in cash and cash equivalents and $18,798,000
($25,952,000 excluding deferred revenue, the satisfaction of which will have no
significant cash impact) in working capital. The Company has a working capital
line of credit with a bank under which the Company may borrow up to the lesser
of $10,000,000 or 80% of eligible accounts receivable, conditioned upon meeting
certain financial covenants, including maintaining specified levels of tangible
net worth, working capital and liquidity. The line of credit also limits the
Company's ability to pay dividends. As of September 28, 1997 the Company's
accessible line of credit was $4,600,000 of which no borrowings were
outstanding.
The Company believes that its available cash, anticipated cash generated from
operations based upon its operating plan, and amounts available under its credit
facilities will be sufficient to finance the Company's operations and meet its
foreseeable cash requirements at least for the next twelve months.
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During the quarter, the Company transferred its rights to certain accounts
receivable to a finance company in exchange for cash payments from the finance
company. Total cash received by the company in the three months ended September
28, 1997 under these arrangements totaled approximately $2,400,000.
The Company, together with a third-party leasing company, offers a leasing
program available to current and potential customers. Under the program,
customers are able to purchase VMARK products through operating and capital
leases with a third party lessor. All sales under this program are subject to
the Company's normal revenue recognition policies and are made without recourse
to the Company. Sales under the program in the nine months ended September 28,
1997 totaled approximately $1,536,000.
CAUTIONARY STATEMENT
When used anywhere in the Form 10-Q and in future filings by the Company with
the Securities and Exchange Commission, in the Company's press releases and in
oral statements made with the approval of an authorized executive officer of the
Company, the words or phrases "will likely result", "are expected to", "will
continue", "is anticipated", "estimated", "project", or "outlook" or similar
expressions (including confirmations by an authorized executive officer of the
Company of any such expressions made by a third party with respect to the
Company) are intended to identify "forward-looking statements," which speak only
as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Such risks and
uncertainties are set forth below and in Part 1 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1996. The Company specifically
declines any obligation to release publicly the result of any revisions which
may be made to any forward-looking statements to reflect events or circumstances
occurring after the date of such statements.
FACTORS AFFECTING FUTURE RESULTS
The Company operates in a rapidly changing environment that involves a number of
risks, many of which are beyond the Company's control. The following discussion
highlights some of these risks.
The Company's future operating results may vary substantially from period to
period. The timing and amount of the Company's license fee revenues are subject
to a number of factors that make estimation of revenues and operating results
prior to the end of the quarter extremely uncertain. Quarterly fluctuations may
be caused by several factors including but not limited to timing of customer
orders, adjustments of delivery schedules to accommodate customer or regulatory
requirements, timing and level of international sales, mix of products sold, and
timing of level of expenditures for sales, marketing and new product
development. The Company generally ships its products upon receipt of orders and
maintains no significant backlog. The Company has experienced a pattern of
recording 60 percent to 80 percent of its quarterly revenues in the third month
of the quarter, with a concentration of such revenues in the last two weeks of
that third month. The Company's operating expenses are based on projected annual
and quarterly revenue levels and a substantial portion of the Company's costs
and expenses, including costs of personnel and facilities, cannot be easily
reduced. As a result, if projected revenues are not achieved in the
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expected time frame, the Company's results of operations for that quarter would
be adversely affected. Accordingly, the results of any one period may not be
indicative of the operating results for future periods.
The market price of the Company's common stock is highly volatile. Failure to
achieve revenue, earnings, and other operating and financial results as
forecasted or anticipated by analysts could result in an immediate adverse
effect on the market price of the Company's stock.
The Company currently derives a substantial portion of its total revenue from
its core database product, UniVerse. The Company's future results will depend,
to a significant extent, on continued market acceptance of this product as well
as market acceptance of new products, such as DataStage. Any factor adversely
affecting the market for these products would have a material adverse effect of
the Company's business and financial results.
The market for the Company's products is characterized by ongoing technological
developments and changes in customer requirements and industry standards. If the
Company is unable to develop and introduce new products or enhancements in a
timely manner in response to changing market conditions or customer requirements
or if errors are found in products after commercial shipments, the Company's
business and results of operations will be adversely affected.
Approximately 38% of the Company's total revenue in the quarter ending September
28, 1997 was attributable to international sales made through international
subsidiaries. Because a substantial portion of the Company's total revenue is
derived from such international operations, which are conducted in foreign
currencies, changes in the value of those currencies relative to the United
States dollar may affect the Company's results of operations and financial
position. If, for any reason, exchange or price controls or other restrictions
on the conversion of foreign currencies were imposed, the Company's business
could be adversely affected. Other potential risks inherent in the Company's
international business generally include longer payment cycles, greater
difficulties in accounts receivable collection and the burdens of complying with
a wide variety of foreign laws and regulations.
The market for application development software is intensely competitive. The
Company competes with many companies offering alternative solutions to the needs
addressed by the Company's products. Many of these competitors may have greater
financial, marketing, or technical resources than the Company and may be able to
adapt more quickly to new or emerging technologies and standards or changes in
customer requirements or to devote greater resources to the promotion and sale
of their products than the Company.
The proposed Merger presents certain additional risks which will be described in
detail in the proxy statement that the Company will distribute to the
stockholders in connection with the meeting and vote on the Merger.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant, together with certain of its officers, in two
actions initially filed in October 1995 in the U.S. District Court in the
District of Massachusetts. Those actions have been consolidated through the
filing of a Consolidated Amended Complaint (the "Complaint"). The plaintiffs
allege in the Complaint that the Company and certain of its officers, during
July through October 1995, made certain untrue statements and failed to disclose
certain information regarding the Company's prospective financial performance in
violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder and that such statements and omissions artificially inflated the
market prices of the Company's stock. The plaintiffs purport to bring the
actions on behalf of certain classes of stockholders and seek damages in
unspecified amounts. The Company has denied the allegations in its answer to the
Complaint and the proceeding is now in the discovery stages. Based upon its
review to date, management believes that the actions are without merit and plans
to oppose them vigorously.
ITEM 2. NONE
ITEM 3. NONE
ITEM 4. NONE
ITEM 5. NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger and Reorganization dated as of
October 7, 1997 between the Company and Unidata, Inc.
2.2 Amendment to Agreement and Plan of Merger and Reorganization
Dated as of November 7, 1997 between the Company and
Unidata, Inc.
4.2 First Amendment to Rights Agreement dated as of September
30, 1997 between the Company and State Street Bank and Trust
Company, as Rights Agent.
10.38 Second Loan Modification Agreement to the Loan and Security
Agreement (dated May 3, 1996) and the First Amendment to the
Amended and Restated Promissory Note (dated May 3, 1996),
dated September 9, 1997 between the Company and Silicon
Valley Bank.
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file a report on Form 8-K during the quarter
ended September 28, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VMARK Software, Inc.
(Registrant)
Dated: November 10, 1997 /s/ Peter Gyenes
---------------------------------------
Peter Gyenes
President and Chief Executive Officer
(principal executive officer)
Dated: November 10, 1997 /s/ Charles F. Kane
---------------------------------------
Charles F. Kane
Executive Vice President, Finance,
Chief Financial Officer and Treasurer
(principal finance and accounting
officer)
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