<PAGE> 1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 June 30, 1999
[ ] 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 June 30,
1999 was 12,377,486.
- --------------------------------------------------------------------------------
<PAGE> 2
INFINIUM SOFTWARE, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet
at September 30, 1998 and June 30, 1999................................... 3
Condensed Consolidated Statement of Operations
for the three and nine months ended June 30, 1998 and 1999................ 4
Condensed Consolidated Statement of Cash Flows
for the nine months ended June 30, 1998 and 1999.......................... 5
Notes to Condensed Consolidated Financial Statements....................... 6-8
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 9-19
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk............... 19
PART II - OTHER INFORMATION
ITEMS 1. - 4. Not applicable........................................................... 20
ITEM 5. Other Information........................................................ 20
ITEM 6. Exhibits and Reports on Form 8-K......................................... 20
SIGNATURES................................................................................. 21
EXHIBIT INDEX.............................................................................. 22
EXHIBITS................................................................................... 23
</TABLE>
2
<PAGE> 3
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, JUNE 30,
1998 1999
------------- --------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................. $ 12,708 $ 17,612
Marketable securities at fair market value............................. 33,585 26,857
Accounts receivable, less allowance for doubtful accounts of $1,650 and
$1,828 at September 30, 1998 and June 30, 1999,
respectively......................................................... 27,383 20,824
Deferred income taxes.................................................. 2,482 2,482
Prepaid expenses and other current assets.............................. 6,103 7,103
-------- --------
Total current assets........................................... 82,261 74,878
-------- --------
Property and equipment, net.............................................. 7,442 9,763
Capitalized software development costs, net.............................. 9,643 10,766
Goodwill and other intangible assets, net................................ 2,245 1,648
Deferred income taxes.................................................... 1,731 1,731
Other assets............................................................. 3,093 2,318
-------- --------
Total assets................................................... $106,415 $101,104
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 8,136 $ 6,568
Accrued expenses....................................................... 14,672 13,090
Income taxes payable................................................... 3,068 2,313
Deferred revenue....................................................... 35,991 32,685
-------- --------
Total current liabilities...................................... 61,867 54,656
-------- --------
Deferred revenue......................................................... 1,586 2,237
-------- --------
Total liabilities.............................................. 63,453 56,893
-------- --------
Common stock, $.01 par value; authorized 40,000 shares, issued
and outstanding 12,517 and 12,377 shares at September 30, 1998 and
June 30, 1999, respectively............................................ 126 126
Additional paid-in capital............................................... 36,644 36,306
Retained earnings........................................................ 7,804 9,213
Unrealized gain on marketable equity securities.......................... - 115
Cumulative translation adjustment........................................ (319) (343)
-------- --------
44,255 45,417
Less: treasury stock at cost, 89 and 229 shares at September 30,
1998 and June 30, 1999, respectively................................. (1,293) (1,206)
-------- --------
Total stockholders' equity..................................... 42,962 44,211
-------- --------
Total liabilities and stockholders' equity..................... $106,415 $101,104
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
3
<PAGE> 4
INFINIUM SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
JUNE 30, JUNE 30,
-------- --------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Software license fees............................ $11,409 $ 7,036 $28,005 $24,811
Service revenue.................................. 19,062 22,205 52,818 65,878
------- ------- ------- -------
Total revenue............................ 30,471 29,241 80,823 90,689
------- ------- ------- -------
Operating costs and expenses:
Cost of software license fees.................... 2,014 1,824 5,050 6,104
Cost of services................................. 8,144 10,252 22,939 29,964
Research and development......................... 5,302 5,019 13,812 15,232
Sales and marketing.............................. 9,582 10,117 26,396 30,299
General and administrative....................... 2,019 2,922 6,476 8,260
Write-off of in-process research and
development acquired............................. 7,796 - 7,796 -
Write-off acquired technology.................... 3,400 - 3,400 -
------- ------- ------- -------
Total operating costs and expenses....... 38,257 30,134 85,869 89,859
------- ------- ------- -------
Income (loss) from operations...................... (7,786) (893) (5,046) 830
Other income, net.................................. 472 1,484 1,317 2,226
------- ------- ------- -------
Income (loss) before provision (benefit) for income
taxes.............................................. (7,314) 591 (3,729) 3,056
Provision (benefit) for income taxes............... (2,341) 189 (1,194) 978
------- ------- ------- -------
Net income (loss).................................. $(4,973) $ 402 $(2,535) $ 2,078
======= ======= ======= =======
Basic earnings (loss) per share.................... $ (0.40) $ 0.03 $ (0.21) $ 0.17
======= ======= ======= =======
Diluted earnings (loss) per share.................. $ (0.40) $ 0.03 $ (0.21) $ 0.16
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE> 5
INFINIUM SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
JUNE 30,
--------
1998 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................................... $ (2,535) $ 2,078
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization...................................... 4,995 6,639
Allowance for doubtful accounts.................................... 514 275
Deferred income taxes.............................................. 45 -
Write-off of in-process research and development acquired.......... 7,796
Changes in operating assets and liabilities, net of effects from the
acquisition of Cort Directions, Inc in 1998:
Accounts receivable............................................ (5,158) 6,163
Prepaid expenses and other current assets...................... (1,795) (1,045)
Other assets................................................... (322) 887
Accounts payable............................................... 1,936 (1,555)
Accrued expenses............................................... (2,047) (1,528)
Income taxes payable........................................... 2,557 (1,021)
Deferred revenue............................................... 1,716 (2,461)
-------- --------
Net cash provided by operating activities.................... 7,702 8,432
-------- --------
Cash flows from investing activities:
Purchase of marketable securities..................................... (38,575) (15,882)
Sale of marketable securities......................................... 37,976 22,610
Purchase of property and equipment.................................... (2,532) (5,020)
Capitalization of software development costs.......................... (3,808) (4,560)
Corporate acquisitions, net of cash acquired.......................... (5,971) -
Investment in unaffiliated entities................................... (850) -
-------- --------
Net cash used in investing activities......................... (13,760) (2,852)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock
purchase plan....................................................... 2,297 359
Purchase of treasury stock............................................ (1,417) (941)
-------- --------
Net cash provided by (used in) financing activities........... 880 (582)
-------- --------
Effect of foreign exchange rate changes on cash......................... (102) (94)
-------- --------
Net increase (decrease) in cash and cash equivalents.................... (5,280) 4,904
-------- --------
Cash and cash equivalents, beginning of period.......................... 9,779 12,708
-------- --------
Cash and cash equivalents, end of period................................ $ 4,499 $ 17,612
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE> 6
INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
The information at June 30, 1998 and 1999 and for the three and nine 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 condensed consolidated 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,
1998. 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 and nine month
periods ended June 30, 1999 are not necessarily indicative of operating results
for the full fiscal year.
2. STOCK REPURCHASE PROGRAM
In February 1998, the Company announced that it would be initiating a stock
repurchase program of up to $6,000 of common stock to use 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 repurchased 191 shares at
a cost of $2,944 and reissued 102 shares during the year ended September 30,
1998. The Company repurchased 210 shares at a cost of $941 for the nine months
ended June 30, 1999 and reissued 70 shares during that same nine month period.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information. This statement is effective
for fiscal years beginning after December 15, 1997 (October 1, 1998 for the
Company). The Company will implement this statement as required. The future
adoption of SFAS 131 is not expected to have a material effect on the Company's
consolidated financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, (collectively referred to as derivatives) and for hedging
activities. The Company will adopt SFAS No. 133 as required by SFAS No. 137,
"Deferral of the effective date of the FASB Statement No. 133," in fiscal year
2001. The adoption of SFAS No. 133 is not expected to have an impact on the
Company's results of operations or its financial position.
4. COMPREHENSIVE INCOME
In the first quarter of fiscal 1999, the Company adopted SFAS No. 130
Reporting Comprehensive Income. This statement requires disclosure of
comprehensive income and its components in interim and annual reports.
Comprehensive income includes all changes in stockholders' equity during a
period except those resulting from investments by stockholders and distributions
to stockholders. Accordingly, the components of comprehensive income include net
income, cumulative translation adjustments, and unrealized gains and losses on
available-for-sale securities. Foreign currency translation adjustments
6
<PAGE> 7
INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
4. COMPREHENSIVE INCOME...CONTINUED
resulted in losses of $104 and $16 for the three months ended June 30, 1998 and
1999, respectively, with losses of $186 and $24 for the nine months ended June
30, 1998 and 1999, respectively. There were no unrealized gains or losses on
available-for-sale securities for the three and nine months ended June 30, 1998
and there was an unrealized gain on available-for-sale securities of $115 for
the three and nine months ended June 30, 1999.
5. WRITE-OFF OF CAPITALIZED SOFTWARE COSTS
During the second fiscal quarter of 1999, the Company wrote-off $430 of
capitalized third party developed software costs related to a product the
Company no longer plans to market and which had no alternative future use.
6. LEGAL SETTLEMENT
During the second fiscal quarter of 1999, the Company settled a dispute
with a former business partner for $350. The payment is classified within
general and administrative expense.
7. GAIN ON INVESTMENT IN CONDUIT SOFTWARE, INC.
During the third quarter of 1998, the Company made a $750 equity investment
in Conduit Software, Inc ("Conduit"), a developer of employee self service
software. During the third quarter of 1999, Conduit was acquired in a stock for
stock transaction by ProBusiness Services, Inc. ("ProBusiness") and the Company
was granted ProBusiness shares in exchange for its Conduit shares. Subsequently,
the Company sold 90% of its ProBusiness stock for $1,863. This resulted in a
realized gain of $1,188 that is included in other income. The remaining 10% of
the stock is included in marketable securities at fair market value and an
unrealized gain on marketable equity securities of $115, related to the
remaining 10%, is included in stockholders' equity.
8. NET INCOME PER COMMON SHARE
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 diluted 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.
7
<PAGE> 8
INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
8. NET INCOME PER COMMON SHARE...CONTINUED
The computation of basic and diluted earnings per share for the three and
nine months ended June 30, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30, 1998 JUNE 30, 1999
------------- -------------
PER PER
INCOME SHARES SHARE INCOME SHARES SHARE
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income available to
Common stockholders $ (4,973) 12,509 $ (0.40) $ 402 12,413 $ 0.03
======== ======= ====== =======
EFFECT OF DILUTIVE SECURITIES:
Stock options n/a 124
------ ------
DILUTED EARNINGS PER SHARE:
Income available to
Common stockholders $ (4,973) 12,509 $ (0.40) $402 12,537 $ 0.03
======== ====== ======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
JUNE 30, 1998 JUNE 30, 1999
------------- -------------
PER PER
INCOME SHARES SHARE INCOME SHARES SHARE
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income available to
Common stockholders $ (2,535) 12,361 $ (0.21) $2,078 12,481 $ 0.17
======== ======= ====== =======
EFFECT OF DILUTIVE SECURITIES:
Stock options n/a 195
------ ------
DILUTED EARNINGS PER SHARE:
Income available to
Common stockholders $ (2,535) 12,361 $ (0.21) $2,078 12,676 $ 0.16
======== ====== ======= ====== ====== =======
</TABLE>
8
<PAGE> 9
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, involve a number
of risks and uncertainties, as more fully described under "Factors Affecting
Future Performance" and are made pursuant to the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those described in
the forward-looking statements.
OVERVIEW
Founded in 1981, Infinium Software develops, markets and supports
enterprise-level business software applications for, and provides consulting and
other services to, growing organizations (typically companies with revenue of
$25 million to $5 billion). The Company has two primary product lines. One
product line, designed for AS/400 servers, 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 is designed for use by customers using
Microsoft Windows NT servers. These products also automate the financial
management and human resource management operations of customer organizations.
The Company's revenue is derived from two sources: software license fees
and service revenue. Software license fees include revenue from non-cancelable
software license agreements entered into between the Company and its customers
with respect to both the Company's products and third party products marketed
and/or distributed by the Company. Software license fee revenue is recognized in
accordance with Statement of Position 97-2, Software Revenue Recognition, which
requires evidence of an arrangement, shipment of the software, that fees be
fixed and determinable, and that collection be considered probable.
The Company's service revenue is comprised of software maintenance fees and
fees for consulting and training 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.
9
<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth the Company's condensed consolidated
statement of operations data expressed as a percentage of total revenue and the
percentage of dollar increase period over period for the three and nine months
ended June 30, 1998 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
--------------------------- --------------------------
% OF TOTAL % OF $ % OF TOTAL % OF $
REVENUE INCREASE REVENUE INCREASE
---------- -------- ---------- --------
1998 1999 98 TO 99 1998 1999 98 TO 99
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Software license fees.......... 37% 24% (38)% 35% 27% (11)%
Service revenue................ 63 76 16 65 73 25
--- --- --- ---
Total revenue............... 100 100 (4) 100 100 12
--- --- --- ---
Operating costs and expenses:
Cost of software license fees.. 7 6 (9) 6 7 21
Cost of services............... 27 35 26 28 33 31
Research and development....... 17 17 (5) 17 17 10
Sales and marketing............ 31 35 6 33 33 15
General and administrative..... 7 10 45 8 9 28
Write-off of in-process
research and development
acquired..................... 26 -- -- 10 -- --
Write-off of acquired
technology................... 11 -- -- 4 -- --
--- --- --- ---
Total operating costs and
Expenses................. 126 103 (21) 106 99 5
--- --- --- ---
Income (loss) from operations.... (26) (3) 89 (6) 1 116
--- --- --- ---
Other income, net................ 2 5 214 1 2 69
--- --- --- ---
Income (loss) before provision
(benefit) for income taxes....... (24) 2 108 (5) 3 182
Provision (benefit) for income
taxes............................ (8) 1 108 (2) 1 182
--- --- --- ---
Net income (loss)................ (16)% 1% 108 (3)% 2% 182
=== === === ===
</TABLE>
Included in operating costs and expenses are charges of $7.8 million for
the three and nine months ended June 30, 1998 as a result of the write-off of
in-process research and development acquired in connection with corporate
acquisitions. Also included in operating costs and expenses for the three and
nine months ended June 30, 1998 is a charge of $3.4 million as a result of the
write-off of acquired technology.
10
<PAGE> 11
On a pro forma basis, exclusive of the write-off of in-process research and
development acquired and the write-off of acquired technology, results of
operations would be comparatively reported as follows (in thousands except per
share and percentage data).
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED % OF TOTAL % OF $
JUNE 30, REVENUE INCREASE
-------- ---------- --------
1998 1999 1998 1999 98 TO 99
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Total revenue..................................... $30,471 $29,241 100% 100% (4)%
Operating costs and expenses...................... 27,061 30,134 89 103 11
------- ------- --- ---
Income (loss) from operations................ 3,410 (893) 11 (3) (126)
------- ------- --- ---
Other income, net: 472 1,484 2 5 214
------- ------- --- ---
Income before provision for income taxes........ 3,882 591 13 2 (85)
Provision for income taxes........................ 1,242 189 4 1 (85)
------- ------- --- ---
Net income...................................... $ 2,640 $ 402 9% 1% (85)
======= ======= === ===
Earnings per share - basic...................... $ 0.21 $ 0.03 (86)
======= =======
Weighted average shares outstanding - basic..... 12,509 12,413 (1)
======= =======
Earnings per share - diluted..................... $ 0.19 $ 0.03 (84)
======= =======
Weighted average shares outstanding - diluted.... 13,866 12,537 (10)
======= =======
</TABLE>
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED % OF TOTAL % OF $
JUNE 30, REVENUE INCREASE
-------- ---------- --------
1998 1999 1998 1999 98 TO 99
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Total revenue..................................... $80,823 $90,689 100% 100% 12%
Operating costs and expenses...................... 74,673 89,859 92 99 20
------- ------- --- ---
Income from operations....................... 6,150 830 8 1 (87)
------- ------- --- ---
Other income, net: 1,317 2,226 1 3 69
------- ------- --- ---
Income before provision for income taxes........ 7,467 3,056 9 3 (59)
Provision for income taxes........................ 2,389 978 3 1 (59)
------- ------- --- ---
Net income...................................... $ 5,078 $ 2,078 6% 2% (59)
======= ======= === ===
Earnings per share - basic...................... $ 0.41 $ 0.17 (59)
======= =======
Weighted average shares outstanding - basic..... 12,361 12,481 1
======= =======
Earnings per share - diluted..................... $ 0.37 $ 0.16 (57)
======= =======
Weighted average shares outstanding - diluted.... 13,831 12,676 (8)
======= =======
</TABLE>
QUARTER ENDED JUNE 30, 1999 COMPARED TO QUARTER ENDED JUNE 30, 1998
REVENUE. Total revenue decreased 4%, from $30.5 million for the quarter
ended June 30, 1998 to $29.2 million for the quarter ended June 30, 1999. The
Company believes the decrease was primarily due to potential customers deciding
to postpone software acquisitions and implementations to focus on Year 2000
compliance issues.
Revenue in North America (United States and Canada) decreased 7%, from
$28.3 million for the quarter ended June 30, 1998 to $26.4 million for the
quarter ended June 30, 1999. This represents 93% of total revenue for the third
quarter of fiscal year 1998 and 90% of total revenue for the third quarter of
fiscal year 1999. EMEA (Europe, Middle East and Africa) revenue increased 50%
from $1.6 million for the quarter ended June 30, 1998 to $2.4 million for the
quarter ended June 30, 1999, representing 5% of total
11
<PAGE> 12
revenue for the third quarter of fiscal year 1998 and 8% of total revenue for
the third quarter of fiscal year 1999. Other international regions, including
Asia-Pacific and Latin America, contributed 2% of total revenue in the third
quarters of both fiscal year 1998 and 1999. Revenue derived from the IBM AS/400
platform represented 90% of total revenue while revenue derived from the Windows
NT platform represented 10% for the third quarter ended June 30, 1999 compared
to 92% and 8%, respectively, for the third quarter ended June 30, 1998.
Software license fee revenue decreased 38%, from $11.4 million for the
quarter ended June 30, 1998 to $7.0 million for the quarter ended June 30, 1999.
The Company believes the decrease was primarily due to potential customers
deciding to postpone software acquisitions and implementations to focus on Year
2000 compliance issues. For the third quarter of fiscal year 1999, software
license fee revenue derived from Windows NT products was $1.1 million or 15% of
total software license fees compared to $1.8 million or 16% of software license
fees from the third quarter of fiscal year 1998. All other software license fee
revenue was derived from IBM AS/400 transactions.
Service revenue increased 16%, from $19.1 million for the quarter ended
June 30, 1998 to $22.2 million for the quarter ended June 30, 1999. The increase
was primarily attributable to additional services offerings and an increase in
the Company's installed base. Also contributing to the increase in consulting
services revenue was an increase in larger consulting service engagements.
The table below summarizes the composition and growth in the Company's
service revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
(in thousands) % INCREASE
----------
1998 1999 98 TO 99
---- ---- --------
<S> <C> <C> <C>
Maintenance fee revenue $10,049 $10,398 3%
Consulting services revenue 9,013 11,807 31
------- -------
Total service revenue $19,062 $22,205 16%
======= =======
</TABLE>
COST OF SOFTWARE LICENSE FEES. Cost of software license fees consists
primarily of royalties from the sale of third party products, amortization
expense related to capitalized software and the cost of product media, manuals
and shipping. Cost of software license fees decreased 9%, from $2.0 million for
the quarter ended June 30, 1998 to $1.8 million for the quarter ended June 30,
1999. Cost of software license fees as a percentage of software license fee
revenue increased from 18% for the quarter ended June 30, 1998 to 26% for the
quarter ended June 30, 1999. The decrease in dollar amount is attributed to
lower royalties from the sales of third party products which is associated with
the decrease in software license fee revenue. The increase as a percentage of
software license fees revenue is attributed primarily to an increase in
amortization of capitalized software related to the release of new NT products.
COST OF SERVICES. Cost of services consists of costs to provide product and
technical support, consulting services and training services to licensees of the
Company's products. Cost of services increased 26%, from $8.1 million for the
quarter ended June 30, 1998 to $10.3 million for the quarter ended June 30,
1999. Cost of services as a percentage of service revenue increased from 43% for
the quarter ended June 30, 1998 to 46% for the quarter ended June 30, 1999. The
increase in dollar amount and as a percentage 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 the use of third party contractors.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of engineering personnel, related facilities and computer and
communications overhead, and third party contractor costs reduced by capitalized
software development costs and, when applicable, research funding. Research and
development expenses decreased 5% from $5.3 million for the quarter ended June
30, 1998 to $5.0 million for the quarter ended June 30, 1999. Research and
development expense as a percentage of total revenue was 17% for the quarters
ended June 30, 1998 and June 30, 1999. The decrease in research and development
expenses was due primarily to decreased staffing. The Company capitalized $1.2
million of software development costs for the quarters ended June 30, 1998 and
1999.
12
<PAGE> 13
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 6% from $9.6 million for the quarter ended June 30, 1998 to $10.1
million for the quarter ended June 30, 1999. Sales and marketing expense as a
percentage of total revenue increased from 31% for the quarter ended June 30,
1998 to 35% for the quarter ended June 30, 1999. The increase in dollar amount
and as a percentage was due to increased investments in corporate image and
brand awareness marketing including an advertising campaign.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries of executive and administrative personnel and related
facilities and computers and communication overhead, as well as provisions for
doubtful accounts, insurance, investor relations and outside professional fees.
General and administrative expenses increased 45% from $2.0 million for the
quarter ended June 30, 1998 to $2.9 million for the quarter ended June 30, 1999.
General and administrative expense as a percentage of total revenue was 7% and
10% for the third quarter of fiscal year 1998 and fiscal year 1999,
respectively. The increase in dollar amount and as a percentage was primarily
due to expenses related to a potential acquisition that was not consummated,
employee severance costs and to a lesser extent increased staffing costs.
PROVISION (BENEFIT) FOR INCOME TAXES. The provision for federal, state and
foreign income taxes was $(2.3) million for the quarter ended June 30, 1998 and
$0.2 million for the quarter ended June 30, 1999. The effective income tax rate
was 32% for both the quarter ended June 30, 1998 and 1999.
NINE MONTHS ENDED JUNE 30, 1999 COMPARED TO NINE MONTHS ENDED JUNE 30, 1998
REVENUE. Total revenue increased 12%, from $80.8 million for the nine
months ended June 30, 1998 to $90.7 million for the nine months ended June 30,
1999. Software license fee revenue decreased 11%, from $28.0 million for the
nine months ended June 30, 1998 to $24.8 million for the nine months ended June
30, 1999. The Company believes the decrease was primarily due to potential
customers deciding to postpone software acquisitions and implementations to
focus on Year 2000 compliance issues. Service revenue increased 25%, from $52.8
million for the nine months ended June 30, 1998 to $65.9 million for the nine
months ended June 30, 1999. The increase was primarily attributable to an
increase in the installed base of customers resulting in an increase in both
maintenance revenue and consulting service revenue. Additionally, revenue from
consulting services continued to grow due to increased service offerings and
larger consulting service engagements.
The following table sets forth a comparative breakout of the components of
service revenue.
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
--------------------------
(IN THOUSANDS) %
-
INCREASE
--------
1998 1999 98 TO 99
---- ---- --------
<S> <C> <C> <C>
Maintenance fee revenue $ 28,314 $ 31,246 10%
Consulting services revenue 24,504 34,632 41
-------- --------
Total service revenue $ 52,818 $ 65,878 25%
======== ========
</TABLE>
COST OF SOFTWARE LICENSE FEES. Cost of software license fees increased 21%,
from $5.1 million for the nine months ended June 30, 1998 to $6.1 million for
the nine months ended June 30, 1999. Cost of software license fees as a
percentage of software license fee revenue increased from 18% for the nine
months ended June 30, 1998 to 25% for the nine months ended June 30, 1999. The
increase in the dollar amount and as a percentage of software license fee
revenue is due to an increase in amortization of capitalized software costs
related to the release of new NT products as well as to the write-off of a
product the Company no longer plans to sell.
COST OF SERVICES. Cost of services increased 31%, from $22.9 million for
the nine months ended June 30, 1998 to $30.0 million for the nine months ended
June 30, 1999. Cost of services as a percentage of
13
<PAGE> 14
service revenue increased from 43% for the nine months ended June 30, 1998 to
45% for the nine months ended June 30, 1999. The increase in dollar amount and
as a percentage 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 the use of third party
contractors.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 10%,
from $13.8 million for the nine months ended June 30, 1998 to $15.2 million for
the nine months ended June 30, 1999. The increase in research and development
expense was due primarily to increased spending related to NT platform
development initiatives during the current fiscal year. The Company capitalized
$3.1 million of software development costs for the nine months ended June 30,
1998 compared to $4.5 million of software development costs for the nine months
ended June 30, 1999.
SALES AND MARKETING. Sales and marketing expenses increased 15%, from $26.4
million for the nine months ended June 30, 1998 to $30.3 million for the nine
months ended June 30, 1999. Sales and marketing expense as a percentage of total
revenue was 33% for the first nine months of both fiscal year 1998 and 1999. The
increase in dollar amount was due to increased marketing activities, increased
staffing in the direct sales force and an increase in commission expense
associated with higher revenue.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
28%, from $6.5 million for the nine months ended June 30, 1998 to $8.3 million
for the nine months ended June 30, 1999. General and administrative expenses as
a percentage of total revenue were 8% for the nine months ended June 30, 1998
and 9% for the nine months ended June 30, 1999. The increase in dollar amount
was primarily due to expenses relating to the handling and resolution of a
dispute with a former business partner, expenses relating to a potential
acquisition that was not consummated and to a lesser extent increased staffing
costs.
PROVISION (BENEFIT) FOR INCOME TAXES. The provision (benefit) for federal,
state and foreign income taxes was $(1.2) million and $1.0 million for the nine
months ended June 30, 1998 and June 30, 1999, respectively. The effective tax
rate was 32% for both the nine months ended June 30, 1998 and June 30, 1999,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had cash, cash equivalents and marketable
securities of $44.5 million resulting from a net use of cash, cash equivalents
and marketable securities of $1.8 million during the first nine months of fiscal
year 1999. Operating activities provided approximately $8.4 million and stock
option and employee stock purchase plan exercises provided $0.4 million while
investments in fixed assets used $5.0 million, $4.6 million was used to fund
capitalized software and purchases of treasury stock consumed $0.9 million.
Days sales outstanding ("DSO") was 64 days as of June 30, 1999 compared to
73 days as of September 30, 1998. 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 the next.
Deferred revenue decreased $2.7 million, from $37.6 million at September
30, 1998 to $34.9 million at June 30, 1999. The decrease in deferred revenue is
due to a decrease in the deferred consulting services component which is a
result of increased services delivery during the quarter ended June 30, 1999.
The Company is currently contemplating expanding its offering of
complementary products and technology via third party software relationships
and/or acquisition. Consummation of additional agreements may result in the use
of cash, cash equivalents and marketable securities for prepaid royalties,
development funding, and acquisition. Although there are no current agreements
with respect to additional material acquisitions of complementary businesses,
such transactions could, if they were to occur, require additional sources of
financing.
14
<PAGE> 15
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 1999. 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.
IMPACT OF THE YEAR 2000
The Year 2000 issue relates primarily to computer software and operating
systems in which dates have been abbreviated. Unless corrected, these systems
may recognize the date of "January 1, 2000" as "January 1, 1900". As a result,
computer software and operating systems used by many companies may need to be
upgraded to comply with Year 2000 requirements. The Company has instituted a
Year 2000 project in which Year 2000 issues are assessed and addressed in the
development of its software systems, its relationships with third parties, and
its internal operating systems.
The human resource, financial management, materials management, and process
manufacturing systems owned, developed, and marketed by the Company to run on
the IBM AS/400 and the Microsoft Windows NT servers are designed to store four
digit date formats for years and to process (calculate, compare, and sequence)
date/time data from the twentieth century into the twenty-first century.
Beginning in 1995, in anticipation of the Year 2000, the Company began testing
its systems for defects in date formats. The Company has developed a Year 2000
plan under which that testing will continue through the Year 2000 on currently
available releases and as new releases of the software systems are developed.
The Company is certified by the Information Technology Association of America
(ITAA) regarding Year 2000 methods and processes used in the development of its
AS/400 products. The Company has not sought ITAA certification for the methods
and processes used in the development of its other software systems. Although
the software systems developed by the Company are designed to be Year 2000
compliant and are being tested for compliance on an ongoing basis, there can be
no assurance that such software systems do not contain undetected errors or
defects or that, when combined or interoperating with other hardware, software,
firmware, or modifications that are not fully compliant, will process data in a
manner that is Year 2000 compliant. Additionally, some of the Company's
customers are running older versions of the Company's systems, which may have
defects in date formats. The Company encourages its customers to migrate to
current product versions so that they will get the benefit of all error and
defect corrections that are currently available. Because the Company is in the
business of selling computer system products, the Company's risk of being
subjected to lawsuits relating to Year 2000 issues with its products is likely
to be greater than that of companies in other industries. The outcomes of any
Year 2000 claims and the impact of such claims on the Company cannot be
determined at this time; such outcomes will depend on the facts and
circumstances of each situation and the evolving state of the law as these types
of claims are addressed by legal systems worldwide.
The Company's financial management and human resource management internal
business information systems are primarily made up of the same commercial
application software products developed and marketed by the Company to end
users. The Company does not expect any significant Year 2000 compliance issues
to arise in connection with those primary information systems.
The Company has substantially completed the three phases of its Year 2000
project related to third parties from whom it purchases development, marketing,
and other types of services as well as third parties from whom the Company
acquires supplies for it internal operations. Those phases were preparing an
inventory of such third parties, assigning priorities for such third parties,
obtaining from third parties that are material to the business of the Company
responses to questionnaires regarding Year 2000 readiness of the third party and
its products. As the final phases of the Company's Year 2000 project related to
third parties, the Company has substantially completed testing material items ,
repairing or replacing material items that are determined not to be Year 2000
compliant (scheduled for completion by September 1999), and designing and
implementing contingency and business continuation plans (scheduled for
completion by September 1999).
15
<PAGE> 16
The total cost associated with the Year 2000 project is not expected to be
material to the Company's financial position. The Company has not separately
tracked costs of the Year 2000 project but has, as part of its existing
operating budget, budgeted the anticipated costs related to both efforts in the
Research and Development organization to continue ongoing testing of the
Company's systems and to begin testing of third party products, and efforts in
the Internal Systems organization to test other third party products and repair
or replace internal systems.
The Company believes that the Year 2000 problem in general had resulted, in
the prior fiscal periods, in an increased demand for its software systems,
because of the speed in which customers can implement the Company's systems.
Such demand has slowed down as the Year 2000 draws closer. Additionally, as the
Year 2000 approaches, potential customers may consider outsourcing their system
needs to data center outsourcing and service bureau alternatives. Also,
application software system acquisitions have slowed down as potential customers
decide to postpone acquisitions and implementations which are not required by
their own Year 2000 projects. The Company's ability to accurately forecast the
impact of these issues on the software industry and on its own quarter to
quarter revenue is limited.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, the Company's normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity, and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third parties, the Company is unable
to determine at this time whether the consequences of Year 2000 failures will
have a material impact on the Company's results of operations, liquidity, or
financial condition.
None of the Company's customers, on its own, is considered material to the
business of the Company and none are being contacted regarding its own Year 2000
readiness. The Year 2000 project is expected to significantly reduce the
Company's level of uncertainty about the Year 2000 problem and, in particular,
about the Year 2000 compliance and readiness of the material third parties with
which it has relationships. The Company believes that, with the implementation
of new business systems and completion of the Year 2000 project as scheduled,
the possibility of significant interruptions of normal operations should be
reduced.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their sovereign currencies and
the euro and adopted the euro as their common legal currency on that date. In
the year 2002, participating countries will adopt the euro as their single
currency. Until that date, use of the euro is optional.
The Company does not believe that the consequences of the euro conversion
at January 1, 1999 have had or will have a material impact on the Company's
results of operations, liquidity, or financial condition. The Company's revenue
from Europe represented approximately 6% of the Company's total revenue in
fiscal 1998. In addition, the Company has not conducted any business denominated
in the euro nor does the Company anticipate any significant volume of such
transactions during this initial phase of the transition to the euro.
The Company has modified the financial, human resource, and material
management application software products it has developed and marketed to end
users so that the systems, as modified, substantially comply with the euro
currency requirements known generally as `triangulation' and as `no
compulsion/no prohibition,' as described under Articles 3,4, and 5 of Council
Regulation (EC) No. 1103/7 of 17 June 1997 on certain provisions relating to the
introduction of the euro. Such modifications have been made generally available
to its customers. Despite the foregoing, there can be no assurance that such
software products will not contain undetected errors or defects or that, when
combined or interoperating with other hardware, software, firmware or
modifications which have not been modified for euro conversion, will convert
currency data in a manner compliant with the euro conversion adopted by the
member countries.
16
<PAGE> 17
The Company's financial management and human resource management internal
business information systems are primarily made of the same commercial
application software products developed and marketed by the Company to end
users. The Company does not expect significant euro conversion issues to arise
in connection with those primary internal business information systems.
The Company has begun to identify and ensure that all other euro conversion
compliance issues are addressed.
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 slowing of
application software purchases resulting from a market focus on preparations for
the Year 2000, 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, the Year 2000 and euro
conversion issues described above, 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.
The Securities and Exchange Commission (SEC) has recently raised issues
regarding the methodologies used in the allocation of purchase price to
in-process research and development (R&D) acquired and has required some
companies to adjust or restate prior period earnings to reduce allocations to
in-process R&D, thereby increasing intangible assets and future amortization
expense. While the Company believes its in-process R&D allocation is
appropriate, if the SEC were to require that the allocation be changed, this
would result in higher amortization expense, which would adversely impact future
operating results in addition to a restatement of historical operating results.
During fiscal year 1998, the Company acquired all of the outstanding capital
stock of Cort Directions, Inc., (Cort), a privately held software concern which
primarily developed and marketed a payroll application for the Microsoft NT
platform. The transaction was consummated for $7,857 in cash as well as $375 of
acquisition costs. The amount allocated to in-process research and development
was determined by an independent appraiser and represented technology which had
not reached technological feasibility and had no alternative future use.
Accordingly, this amount of $7,796 was charged to operations at the acquisition
date.
The Company's business has experienced and is expected to continue to
experience significant seasonality. In recent years, the Company has experienced
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
17
<PAGE> 18
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 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 midrange 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.
A portion of the Company's revenue comes from customers using Microsoft NT
servers. The Company is continuing to develop software applications which
operate on the Microsoft Windows NT operating system as well as over the
Internet and within corporate intranets. The Company's development and
implementation of versions of its business software applications to run on
Microsoft Windows NT servers involves more intense competition from a larger
number of competitors. Although the Company has been successful in generating
revenue from these new products, there can be no assurance that the Company will
continue to be able to compete successfully against current or future
competitors.
The Company's continued growth and success depend to a significant extent
on the continued services of its senior management and other key employees and
the hiring of new qualified employees. Competition for highly-skilled business,
product development, technical and other personnel is increasingly intense due
to lower overall unemployment rates and significant information
technology-related spending. Accordingly, the Company expects to experience
increased compensation costs that may not be offset through either improved
productivity or higher prices. There can be no assurances that the Company will
be successful in continuously recruiting new personnel and in retaining existing
personnel. The Company does not have long-term employment or non-competition
agreements with its employees. The loss of key employees or the Company's
inability to attract additional qualified employees or retain other employees
could have a material adverse effect on the continued growth of the Company.
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
18
<PAGE> 19
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 11%, 11% and 7% of
the Company's total revenue in fiscal 1996, 1997 and 1998, 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
difficulties of localizing products for foreign countries, lack of acceptance of
localized products in foreign countries, longer accounts receivable payment
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in the Company's exposure to market risk
from September 30, 1998.
19
<PAGE> 20
PART II - OTHER INFORMATION
Items 1.-4. Not applicable
Item 5. Other Information
On July 14, 1999 the Company's President and Chief Executive Officer,
Frederick J. Lizza resigned. The Company has appointed Robert A. Pemberton
to the position of President and Chief Executive Officer. Mr. Pemberton
founded the Company in July 1981 and operated as the Company's Chief
Executive Officer until December 1996. He has remained the Chairman of the
Board of the Company since its founding.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K
None
20
<PAGE> 21
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: August 13, 1999
INFINIUM SOFTWARE, INC.
by:
/s/ DANIEL J. KOSSMANN
----------------------
Daniel J. Kossmann
Chief Financial Officer
21
<PAGE> 22
INFINIUM SOFTWARE, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<S> <C> <C>
27 Financial Data Schedule 23
</TABLE>
22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 17,612
<SECURITIES> 26,857
<RECEIVABLES> 22,652
<ALLOWANCES> 1,828
<INVENTORY> 0
<CURRENT-ASSETS> 74,878
<PP&E> 23,516
<DEPRECIATION> 13,753
<TOTAL-ASSETS> 101,104
<CURRENT-LIABILITIES> 54,656
<BONDS> 0
0
0
<COMMON> 126
<OTHER-SE> 44,085
<TOTAL-LIABILITY-AND-EQUITY> 101,104
<SALES> 24,811
<TOTAL-REVENUES> 90,689
<CGS> 6,104
<TOTAL-COSTS> 36,068
<OTHER-EXPENSES> 53,791
<LOSS-PROVISION> 175
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,056
<INCOME-TAX> 978
<INCOME-CONTINUING> 2,078
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,078
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.16
</TABLE>
