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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _______to______
Commission File Number 0-27030
INFINIUM SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2734036
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
25 Communications Way, Hyannis, MA 02601
(Address of principal executive offices, including Zip Code)
(508) 778-2000
(Registrant's telephone number, including area code)
----------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 12 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 the registrant's Common Stock on December
31, 1997 was 12,244,125.
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INFINIUM SOFTWARE, INC.
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet at September 30, 1997 and
December 31, 1997.................................................... 3
Condensed Consolidated Statement of Income for the three months
ended December 31, 1996 and 1997.................................... 4
Condensed Consolidated Statement of Cash Flows for the three months
ended December 31, 1996 and 1997.................................... 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
ITEMS 1. - 5. Not applicable
ITEM 6. Exhibits and Reports on Form 8-K...................................... 15
SIGNATURES............................................................................... 16
EXHIBIT INDEX............................................................................ 17
EXHIBITS................................................................................. 18
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INFINIUM SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1997
---- ----
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash, cash equivalents and marketable securities ............................. $ 48,319 $ 48,195
Accounts receivable, less allowance for doubtful accounts of $1,569
and $1,399 at September 30, 1997 and December 31, 1997,
respectively ............................................................... 18,930 18,882
Deferred income taxes ........................................................ 1,167 1,161
Prepaid expenses and other current assets .................................... 4,946 5,041
-------- --------
Total current assets ................................................. 73,362 73,279
Property and equipment, net .................................................... 6,901 6,836
Capitalized software development costs, net .................................... 6,767 7,018
Goodwill and other intangible assets, net ...................................... 1,835 1,707
Deferred income taxes .......................................................... 471 456
Other assets ................................................................... 1,971 2,209
-------- --------
Total assets ......................................................... $ 91,307 $ 91,505
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................. $ 5,221 $ 4,612
Accrued expenses ............................................................. 9,763 7,659
Income taxes payable ......................................................... 2,394 2,167
Deferred revenue ............................................................. 31,990 33,419
-------- --------
Total current liabilities ............................................ 49,368 47,857
-------- --------
Common stock, $.01 par value; authorized 40,000 shares, issued and outstanding
12,162 and 12,244 shares at September 30, 1997 and December 31, 1997,
respectively ............................................................... 122 122
Additional paid-in capital ................................................... 33,325 34,017
Retained earnings ............................................................ 8,502 9,555
Cumulative translation adjustment ............................................ (10) (46)
-------- --------
Total stockholders' equity ........................................... 41,939 43,648
-------- --------
Total liabilities and stockholders' equity ........................... $ 91,307 $ 91,505
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
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INFINIUM SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
---- ----
<S> <C> <C>
Revenue:
Software license fees .................... $ 5,334 $ 7,718
Service revenue .......................... 12,946 16,516
------- -------
Total revenue ...................... 18,280 24,234
------- -------
Operating costs and expenses:
Cost of software license fees ............ 1,026 1,549
Cost of services ......................... 4,722 6,916
Research and development ................. 3,635 4,026
Sales and marketing ...................... 6,288 8,255
General and administrative ............... 1,703 2,336
------- -------
Total operating costs and expenses.. 17,374 23,082
------- -------
Income from operations ..................... 906 1,152
Other income, net .......................... 526 397
------- -------
Income before provision for income taxes ... 1,432 1,549
Provision for income taxes ................. 501 496
------- -------
Net income ................................. $ 931 $ 1,053
======= =======
Basic earnings per share ................... $ 0.08 $ 0.09
======= =======
Diluted earnings per share ................. $ 0.08 $ 0.08
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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INFINIUM SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................. $ 931 $ 1,053
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................ 1,364 1,672
Allowance for doubtful accounts .......................... 137 380
Deferred income taxes .................................... (33) 21
Changes in operating assets and liabilities:
Accounts receivable ...................................... (3,718) (332)
Prepaid expenses and other current assets ................ (235) (95)
Other assets ............................................. (55) (238)
Accounts payable ......................................... (758) (609)
Accrued expenses ......................................... (677) (2,104)
Income taxes payable ..................................... 494 (217)
Deferred revenue ......................................... 1,711 1,429
-------- --------
Net cash provided by operating activities .............. (839) 960
-------- --------
Cash flows from investing activities:
Purchase of property and equipment ......................... (410) (704)
Capitalization of software development costs ............... (900) (1,036)
-------- --------
Net cash used for investing activities ................... (1,310) (1,740)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock
purchase plan ............................................ 7 692
-------- --------
Net cash provided by financing activities .............. 7 692
-------- --------
Effect of foreign exchange rate changes on cash .............. 21 (36)
-------- --------
Net decrease in cash, cash equivalents and marketable
securities ................................................. (2,121) (124)
Cash, cash equivalents and marketable securities, beginning of
period ..................................................... 43,337 48,319
-------- --------
Cash, cash equivalents and marketable securities, end of
period ..................................................... $41,216 $ 48,195
======= ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
The information at December 31, 1996 and 1997 and for the three-month
periods then ended is unaudited, but includes all adjustments (consisting only
of normal recurring entries) which the Company's management believes to be
necessary for the fair presentation of the financial position, results of
operations, and changes in cash flows for the periods presented. The
accompanying interim financial statements should be read in conjunction with the
financial statements and related notes included in the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1997. Certain information
and notes normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to the Securities and Exchange Commission rules and regulations. Interim results
of operations for the three-month period ended December 31, 1997 are not
necessarily indicative of operating results for the full fiscal year.
2. NET INCOME PER SHARE
In February, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share." This
Statement, which the Company adopted with this quarter ended December 31, 1997,
establishes and simplifies standards for computing and presenting earnings per
share. SFAS 128 requires restatement of all previously reported earnings per
share data that are presented.
Basic earnings per share is determined by dividing net income applicable to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is determined by dividing net
income applicable to common stockholders by the weighted average number of
common shares and common share equivalents outstanding during the period. Common
share equivalents are included in the earnings per share calculation when
dilutive. Common share equivalents consisting of common stock issuable upon
exercise of outstanding common stock options are computed using the treasury
stock method. The computation of basic and diluted earnings per share for the
three months ended December 31, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
PER PER
INCOME SHARES SHARE INCOME SHARES SHARE
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income available to common
stockholders $ 931 11,115 $0.08 $ 1,053 12,210 $ 0.09
===== ===== ======= ======
EFFECT OF DILUTIVE SECURITIES
Stock options 657 1,545
------ ------
DILUTED EARNINGS PER SHARE
Income available to common
stockholders $ 931 11,772 $0.08 $ 1,053 13,755 $ 0.08
===== ====== ===== ======= ====== ======
</TABLE>
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INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
3. OTHER INCOME, NET
Other income, net consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
---- ----
<S> <C> <C>
Interest income................. $ 548 $ 503
Foreign exchange loss........... (22) (106)
----- ------
$ 526 $ 397
===== ======
</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
All statements contained herein that are not historical facts, including
but not limited to, statements regarding anticipated future revenue and expense
levels and capital requirements, the Company's future product development and
marketing plans, the Company's ability to generate cash from operations, and the
Company's ability to attract and retain employees, are based on current
expectations. These statements are forward looking in nature and involve a
number of risks and uncertainties, as more fully described under "Factors
Affecting Future Performance." Actual results may differ materially from those
described in the forward-looking statements.
RESULTS OF OPERATIONS
Founded in 1981, Infinium Software develops, markets and supports
enterprise-level business software applications for mid-sized organizations
(typically companies with revenues of $50 million to $1 billion). The Company
has two primary product lines. One product line, designed for AS/400 computers,
automates the financial management, human resource management and materials
management functions of organizations in a broad range of industries worldwide.
The Company also offers a specialized AS/400 manufacturing system designed to
manage process manufacturing operations. The Company's second product line,
released during fiscal 1997, is designed for use by customers using Microsoft
Windows NT servers. It is designed to automate the financial management
operations of mid-sized organizations. Additional NT applications are under
development and expected to be available during fiscal 1998.
In January 1997, the Company acquired all of the outstanding capital stock of
Time (Open Systems) Ltd. ("Time"), a UK-based privately held software concern
which developed and marketed a suite of client/server financial application
software products. Since the acquisition of Time, the Company continues to
invest in the development of these software products for the Microsoft NT server
platform. Following the introduction of the beta versions of these products in
North America and international markets, the Company released for general
availability Infinium Financials for Microsoft Windows NT servers in September
1997. These products, along with the Microsoft NT server-based Human Resources
Management product currently under development by the Company, form the basis
for the Company's expansion into the market for business applications designed
for Windows NT servers.
The Company's revenue is derived from two sources: software license fees and
service revenue. Software license fees includes revenue from noncancelable
software license agreements entered into between the Company and its customers
with respect to both the Company's products and third party products distributed
by the Company. Software license fee revenue is recognized upon shipment of the
software and when all significant contractual obligations have been satisfied.
The Company's service revenue is comprised of software maintenance fees and fees
for consulting services. Maintenance fees are billed separately and are
recognized ratably over the period of the maintenance agreement, which is
typically one year. Consulting service revenue, which is not essential to the
functionality of the software products, is recognized as the services are
performed. Prior to the introduction of the Microsoft NT Server-based
applications, all software applications were developed, marketed and operated
predominately on the IBM AS/400 hardware platform. Accordingly, substantially
all revenue recognized and associated costs to date was attributed with AS/400
platform transactions.
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The following table sets forth for the periods indicated the Company's
condensed consolidated statement of income data expressed as a percentage of
total revenue and the percentage of dollar increase period over period for the
three months ended December 31, 1996 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
% OF TOTAL % OF $
REVENUE INCREASE
1996 1997 96 TO 97
---- ---- --------
<S> <C> <C> <C>
Revenue:
Software license fees .................. 29% 32% 45%
Service revenue ........................ 71 68 28
--- ---
Total revenue ....................... 100 100 33
--- ---
Operating costs and expenses:
Cost of software license fees .......... 6 6 51
Cost of services ....................... 26 29 46
Research and development ............... 20 17 11
Sales and marketing .................... 34 34 31
General and administrative ............. 9 10 37
--- ---
Total operating costs and expenses.. 95 96 33
--- ---
Income from operations ................... 5 4 27
Other income, net ........................ 3 2 (25)
--- ---
Income before provision for income taxes.. 8 6 8
Provision for income taxes ............... 3 2 (1)
--- ---
Net income ............................... 5% 4% 13%
=== ===
</TABLE>
In addition to traditional AS/400 expenditures, included in fiscal 1998
operating costs and expenses above are those expenditures incurred by the
Company with respect to the development efforts of the Microsoft NT server
products, as well as expenditures attributed to the hiring and training of
personnel to market and service this new product offering.
QUARTER ENDED DECEMBER 31, 1997 COMPARED TO QUARTER ENDED DECEMBER 31, 1996
REVENUE. Total revenue increased 33%, from $18.3 million for the quarter ended
December 31, 1996 to $24.2 million for the quarter ended December 31, 1997. The
increase was due to a greater market acceptance of the company's products
resulting in increased software license fees. In addition, with each license
agreement entered into, generally consulting services and maintenance are
contracted resulting in an increase in service revenue as the contracted
services are delivered.
Revenue in North America (United States and Canada) increased 35%, from $16.6
million for the quarter ended December 31, 1996 to $22.3 million for the quarter
ended December 31, 1997. This is representative of 91% of total revenue for the
first quarter of fiscal year 1997 compared to 92% for the first quarter of
fiscal year 1998. EMEA (Europe, Middle East and Africa) revenue grew 25%, from
$1.4 million for the quarter ended December 31, 1996 to $1.7 million for the
quarter ended December 31, 1997 predominately due to greater market penetration.
Other international regions, including Asia-Pacific and Latin America,
contributed 2% of total revenue for the first quarter of fiscal year 1997
compared to 1% for the first quarter of fiscal year 1998.
Software license fee revenue increased 45%, from $5.3 million for the quarter
ended December 31, 1996 to $7.7 million for the quarter ended December 31, 1997.
The growth was due primarily to continued acceptance of the Company's Infinium
client/server products. For the first quarter of fiscal year 1998, software
license fee revenue derived from Windows NT products was $0.5 million. All other
software license fee revenue was derived from IBM AS/400 hardware platform
transactions.
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Service revenue increased 28%, from $12.9 million for the quarter ended
December 31, 1996 to $16.5 million for the quarter ended December 31, 1997. The
increase was primarily attributable to an increase in the installed base of
customers resulting in an increase in both maintenance and consulting services
revenue. Also attributing to the increase in consulting services revenue was an
increase in larger consulting service engagements, as well as increased service
offerings including greater project management and custom programming demand.
The table below summarizes the composition and growth in the Company's service
revenue.
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
(IN THOUSANDS) % INCREASE
1996 1997 96 TO 97
---- ---- --------
<S> <C> <C> <C>
Maintenance fee revenue $ 8,154 $ 8,936 10%
Consulting services revenue 4,792 7,580 58
------- -------
Total service revenue $12,946 $16,516 28%
======= =======
</TABLE>
COST OF SOFTWARE LICENSE FEES. Cost of software license fees consists
primarily of royalties on the sales of third party products, amortization
expense related to capitalized software development costs and the cost of
product media, manuals and shipping. Cost of software license fees increased
51%, from $1.0 million for the quarter ended December 31, 1996 to $1.5 million
for the quarter ended December 31, 1997. Cost of software license fees as a
percentage of software license fee revenue increased from 19% for the quarter
ended December 31, 1996 to 20% for the quarter ended December 31, 1997. The
increase in the dollar amount and as a percentage of software license fees is
attributed to an increase in royalties on third party product software sales
and, to a lesser extent, an increase of amortization of capitalized software
development costs.
COST OF SERVICES. Cost of services consists of costs to provide product and
technical support, consulting services and training services to licensees of
Infinium Software products. Cost of services increased 46%, from $4.7 million
for the quarter ended December 31, 1996 to $6.9 million for the quarter ended
December 31, 1997. Cost of services as a percentage of service revenue increased
from 37% for the quarter ended December 31, 1996 to 42% for the quarter ended
December 31, 1997. The increase in the cost of services as a percentage of
service revenue is attributed to the relative increase in the amount of
consulting services versus maintenance at a lower gross margin. The increase in
dollar amount of such costs resulted primarily from increased staffing in the
consulting and support organizations in response to increased demand for
consulting services, a continued growth in the customer base and an increase in
payments to third party contractors.
RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily
of engineering personnel and third party contractor costs reduced by capitalized
software development costs and, when applicable, research funding. Research and
development expenses increased 11% from $3.6 million for the quarter ended
December 31, 1996 to $4.0 million for the quarter ended December 31, 1997. The
increase in research and development expenses was due primarily to NT platform
development initiatives during the period. In addition to traditional AS/400
platform development efforts, the Company continues to invest in the development
of its Human Resources Management product line designed exclusively for the
Microsoft NT server market. The Company also continues to invest in the
enhancement of its Microsoft NT server financial management applications. In
addition to $0.1 million of research funding, the Company capitalized $0.9
million of software development costs for the quarter ended December 31, 1996
compared to $1.0 million for the quarter ended December 31, 1997. There was no
research funding offset during the quarter ended December 31, 1997.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions, travel, promotional expenses, facilities, and computers
and communications costs for direct sales offices. Sales and marketing expenses
increased 31% from $6.3 million for the quarter ended December 31, 1996 to $8.3
million for the quarter ended December 31, 1997. The increase was attributable
to increased staffing in the
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direct sales force and additional marketing activities in connection with the
launch of the NT products, as well as an increase in commission expense
associated with higher revenue. Sales and marketing expense as a percentage of
total revenue was 34% for both the first quarter of fiscal year 1997 as well as
the first quarter of fiscal year 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries of executive, administrative, financial and legal
personnel, as well as provisions for doubtful accounts, insurance, investor
relations and outside professional fees. General and administrative expenses
increased 37% from $1.7 million for the quarter ended December 31, 1996 to $2.3
million for the quarter ended December 31, 1997. General and administrative
expenses as a percentage of total revenue increased from 9% for the first
quarter of fiscal year 1997 to 10% for the first quarter of fiscal year 1998.
The increase in dollar amount and as a percent of revenue related primarily to
incremental costs associated with the Time acquisition.
PROVISION FOR INCOME TAXES. The provision for federal, state and foreign
income taxes was $0.5 million on an effective income tax rate of 35% for the
quarter ended December 31, 1996 compared to $0.5 million on an effective income
tax rate of 32% for the quarter ended December 31, 1997. The decrease in the
effective income tax rate for the first quarter of fiscal year 1996 to the first
quarter of fiscal year 1997 is primarily due to the implementation of income tax
reduction strategies.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had cash, cash equivalents and marketable
securities of $48.2 million. During the first quarter of fiscal year 1998, the
Company used a net $0.1 million of cash, cash equivalents and marketable
securities of which $1.6 million was generated from operating and financing
activities while $1.7 million was used to fund software development and to
purchase computers and equipment.
The Company's accounts receivable balance, net of the allowance for doubtful
accounts, was $18.9 million at December 31, 1997 compared to $18.9 million at
September 30, 1997. Days sales outstanding ("DSO") was 70 days at December 31,
1997 compared to 64 days at September 30, 1997. The Company calculates DSO by
dividing the ending accounts receivable balance, net of allowance for doubtful
accounts, by the annualized revenue for the quarter, multiplied by 360. The
Company believes that this method of deriving DSO is indicative of actual
results due to the cyclical nature of software license and service transactions,
which are often consummated nearer the end of the quarter, as well as the
fluctuation of transactions from one quarter to next. The increase in DSO was
primarily attributed to the increase in accounts receivable from software
license and service transactions occurring near the end of the quarter in which
initial cash receipts were received after the balance sheet date.
Deferred revenue increased to $33.4 million at December 31, 1997 from $32.0
million at September 30, 1997. The increase in deferred revenue was primarily
due to an increase in deferred maintenance revenue and consulting services
revenue as a result of continued growth in the customer base and to an increased
demand for consulting services.
On February 9, 1998, the Company announced that it would be initiating a stock
repurchase program of up to $6.0 million of common stock effective immediately.
The Company expects to use the repurchased stock to meet requirements of its
employee stock option and stock purchase plans. No minimum number or value of
shares to be repurchased has been fixed nor has a time limit as to the duration
of the program been established.
The Company is currently contemplating expanding its offering of complimentary
products and technology via third party software relationships and/or
acquisition. Consummation of such agreements may result in the use of cash, cash
equivalents and marketable securities for prepaid royalties, development
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funding, and acquisition. In addition, although there are no current agreements
or negotiations with respect to additional material acquisitions of
complementary businesses, such transactions could, if they were to occur,
require additional sources of financing.
The Company believes that cash, cash equivalents and marketable securities on
hand and cash flows from operations will be sufficient to fund its operations at
least through fiscal 1998. While operating activities may provide cash in
certain periods, to the extent the Company experiences growth in the future, the
Company anticipates that its operating and investing activities may use cash,
and consequently such growth may require the Company to obtain additional
sources of financing.
FACTORS AFFECTING FUTURE PERFORMANCE
The Company's quarterly revenue and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Such fluctuations may result in volatility in the price
of the Company's common stock. Quarterly revenue and operating results may
fluctuate as a result of a variety of factors, including the Company's lengthy
sales cycle, the proportion of revenue attributable to license fees versus
service revenue, changes in the level of operating expenses, demand for the
Company's products, the introduction of new products and product enhancements by
the Company or its competitors, changes in customer budgets, competitive
conditions in the industry and general economic conditions. Further, the
purchase of the Company's products often involves a significant commitment of
capital by its customers with the attendant delays frequently associated with
large capital expenditures and authorization procedures within an organization.
For these and other reasons, the sales cycles for the Company's products are
typically lengthy and subject to a number of significant risks over which the
Company has little or no control. The Company historically has operated with
little software license backlog because its software products are generally
shipped as orders are received. The Company has often recognized a substantial
portion of its revenue in the last month of the quarter and often in the last
week of that month. As a result, license fees in any quarter are substantially
dependent on orders booked and shipped in the last month or last week of that
quarter. Accordingly, a small variation in the timing of recognition of revenue
for specific transactions is likely to adversely and disproportionately affect
the Company's operating results for a quarter because the Company establishes
its expenditure levels on the basis of its expected future revenue and only a
small portion of the Company's expenses vary with its revenue. Accordingly, the
Company believes that period to period comparisons of results of operations are
not necessarily meaningful and should not be relied upon as indicative of future
performance. Although the Company has been profitable in recent quarterly
periods, there can be no assurance that the Company will remain profitable on a
quarterly basis, if at all.
The Company's business has experienced and is expected to continue to
experience significant seasonality. In recent years, the Company has had greater
demand for its products in its fourth fiscal quarter and has experienced lower
revenue in its succeeding first and second fiscal quarters. The fluctuations are
caused primarily by customer purchasing patterns and the Company's sales
recognition programs which reward and recognize sales personnel on the basis of
achievement of annual performance quotas. Due to the foregoing factors and the
factors set forth under "Results of Operations" above, it is likely that in some
future quarter the Company's operating results will be below the expectations of
the Company and public market analysts and investors. In such event, the price
of the Company's common stock would likely be materially adversely affected.
The business applications software market is characterized by rapid
technological change, frequent new product introductions, evolving industry
standards and changes in customer demands. The introduction of products
embodying new technologies and the emergence of new industry standards can
render existing products obsolete and unmarketable. The Company's future success
will depend in part on its ability to enhance products and services and to
develop and introduce new products and services to meet changing customer
requirements. There can be no assurance that the Company will be successful in
developing and marketing product enhancements or new products that respond to
technological change or evolving
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industry standards, that the Company will not experience difficulties that could
delay or prevent the successful development, introduction and marketing of these
products and enhancements, or that any new products and product enhancements it
may introduce will achieve market acceptance. In addition, there can be no
assurance that the Company will not encounter product development delays in the
future or that, despite testing by the Company, errors will not be found in new
products or product enhancements after commencement of commercial shipments,
resulting in loss of market share, delay in market acceptance, or warranty
claims which could have a material adverse effect upon the Company's business,
operating results and financial condition.
As the Company's primary current source of revenue comes from customers using
IBM mid-range computers, future revenue from licenses of present products and
sales of services and recurring maintenance revenue are therefore dependent on
continued widespread use of the AS/400 and the continued support of such
computers by IBM. In addition, because the Company's current AS/400 product line
requires the use of IBM's OS/400 operating system, the Company may be required
to adapt its products to any changes made in such operating system in the
future. The Company's inability to adapt to future changes in the OS/400
operating system, or delays in doing so, could have a material adverse effect on
the Company's business, operating results and financial condition.
Although the Company has recently introduced and is continuing to develop
software applications to operate on the Microsoft Windows NT operating system,
as well as to operate over the Internet and within corporate intranets, there
can be no assurance that the Company will be successful in marketing and
developing these new products. The Company's development and implementation of
versions of its business software applications to run on Microsoft Windows NT
servers involve more intense competition from a larger number of competitors.
There can be no assurance that the Company will be successful in developing
additional products for NT and marketing these products or will be able to
compete successfully against current or future competitors.
The business applications software market is highly competitive and rapidly
changing. A number of companies offer products similar to the Company's products
and target the same customers as the Company. The Company believes its ability
to compete depends upon many factors within and outside its control, including
the timely development and introduction of new products and product
enhancements, product functionality, performance, price, reliability, customer
service and support, sales and marketing efforts and product distribution. The
Company believes that competition in its industry is undergoing rapid change and
that the barriers to competition between market segments that have previously
existed are decreasing. Due to the relatively low barriers to entry in the
software market, the Company expects additional competition from other
established and emerging companies as the client/server business applications
software market continues to develop and expand. Increased competition may
result in price reductions, reduced gross margins and loss of market share, any
of which would have a material adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors or that competitive pressures will not have a material adverse
effect on the Company's business, operating results and financial condition.
Revenue from customers outside North America represented 8.7%, 10.6% and 11.4%
of the Company's total revenue in fiscal 1995, 1996 and 1997, respectively. The
Company believes that its revenue and future operating results will depend, in
part, on its ability to increase sales in international markets. There can be no
assurance that the Company will be able to maintain or increase its current
level of international revenue. An important part of the Company's strategy is
to expand its indirect distribution channels in international markets. There can
be no assurance that the Company will be able to attract and retain
international distributors and resellers that will be able to market the
Company's products effectively and will be qualified to provide timely and
cost-effective customer support and service. The inability to attract and retain
important resellers could materially and adversely affect the Company's
business, operating results and financial condition. Other risks inherent in the
Company's international business activities generally include unexpected changes
in regulatory requirements, tariffs and other trade barriers, costs and
13
<PAGE> 14
difficulties of localizing products for foreign countries, lack of acceptance of
localized products in foreign countries, longer accounts receivable payments
cycles, difficulties in managing international operations, potentially adverse
tax consequences including restrictions on the repatriation of earnings, the
burdens of complying with a wide variety of foreign laws and economic
instability. There can be no assurance that such factors would not have a
material adverse effect on the Company's future international revenue and,
consequently, on the Company's business, operating results and financial
condition.
14
<PAGE> 15
PART II - OTHER INFORMATION
Items 1 - 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K
None
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Infinium
Software, Inc. has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: February 13, 1998
INFINIUM SOFTWARE, INC.
by:
/s/ DANIEL J. KOSSMANN
--------------------------
Daniel J. Kossmann
Chief Financial Officer
16
<PAGE> 17
INFINIUM SOFTWARE, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------ ----------- ----
<S> <C> <C>
27 Financial Data Schedule 18
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,292
<SECURITIES> 42,903
<RECEIVABLES> 20,281
<ALLOWANCES> 1,399
<INVENTORY> 0
<CURRENT-ASSETS> 73,279
<PP&E> 18,266
<DEPRECIATION> 11,430
<TOTAL-ASSETS> 91,505
<CURRENT-LIABILITIES> 47,857
<BONDS> 0
0
0
<COMMON> 122
<OTHER-SE> 43,526
<TOTAL-LIABILITY-AND-EQUITY> 91,505
<SALES> 7,718
<TOTAL-REVENUES> 24,234
<CGS> 1,549
<TOTAL-COSTS> 8,465
<OTHER-EXPENSES> 14,237
<LOSS-PROVISION> 380
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,549
<INCOME-TAX> 496
<INCOME-CONTINUING> 1,053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,503
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.08
</TABLE>
