<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, 2000
[ ] 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 July 28,
2000 was 12,883,666.
--------------------------------------------------------------------------------
<PAGE> 2
INFINIUM SOFTWARE, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet at June 30, 2000 (unaudited)
and September 30, 1999.................................................. 3
Condensed Consolidated Statement of Operations for the three and
nine month periods ended June 30, 2000 (unaudited) and 1999
(unaudited)............................................................. 4
Condensed Consolidated Statement of Cash Flows for the
nine month periods ended June 30, 2000 (unaudited) and 1999
(unaudited)............................................................. 5
Notes to Condensed Consolidated Financial Statements.................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 11
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.................. 18
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings........................................................... 19
ITEM 2. Changes in Securities....................................................... 19
ITEM 3. Defaults Upon Senior Securities............................................. 19
ITEM 4. Submission of Matters to a Vote of Security Holders......................... 19
ITEM 5. Other Information........................................................... 19
ITEM 6. Exhibits and Reports on Form 8-K............................................ 19
SIGNATURES ............................................................................ 20
EXHIBITS ............................................................................ 21
</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>
JUNE 30, SEPTEMBER, 30
2000 1999
-------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................................. $ 17,774 $ 23,099
Marketable securities at fair market value ............................. 4,677 24,113
Accounts receivable, less allowance for doubtful accounts of $3,271
and $4,229 at June 30, 2000 and September 30, 1999,
respectively ......................................................... 14,334 16,510
Refundable income taxes ................................................ 5,886 --
Deferred income taxes .................................................. 3,726 3,590
Prepaid expenses and other current assets .............................. 5,161 4,142
-------- --------
Total current assets ........................................... 51,558 71,454
-------- --------
Property and equipment, net .............................................. 15,977 10,593
Capitalized software development costs, net .............................. 6,303 5,406
Goodwill and other intangible assets, net ................................ 5,804 755
Deferred income taxes .................................................... 3,477 3,477
Other assets ............................................................. 2,096 2,196
-------- --------
Total assets ................................................... $ 85,215 $ 93,881
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................................... $ 9,074 $ 7,775
Accrued expenses ....................................................... 11,847 11,709
Income taxes payable ................................................... -- 795
Lease obligation, short-term portion ................................... 93 109
Deferred revenue ....................................................... 34,418 35,744
-------- --------
Total current liabilities ...................................... 55,432 56,132
-------- --------
Lease obligation, long-term portion ...................................... 286 343
Deferred revenue ......................................................... 2,021 2,063
Deferred income taxes .................................................... 170 --
Other long-term liabilities .............................................. 1,000 --
-------- --------
Total liabilities .............................................. 58,909 58,538
-------- --------
Common stock, $0.01 par value; authorized 40,000 shares, issued 12,927 and
12,607 shares at June 30, 2000 and September 30, 1999
respectively ........................................................... 129 126
Additional paid-in capital ............................................... 38,327 36,306
Retained earnings (accumulated deficit) .................................. (11,963) 1,188
Accumulated other comprehensive income (loss) ............................ 23 (257)
-------- --------
26,516 37,363
Less: treasury stock at cost, 43 and 410 shares at June 30,
2000 and September 30, 1999, respectively ............................ (210) (2,020)
-------- --------
Total stockholders' equity ..................................... 26,306 35,343
-------- --------
Total liabilities and stockholders' equity ..................... $ 85,215 $ 93,881
======== ========
</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,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Software license fees ......................... $ 5,132 $ 7,036 $ 13,442 $ 24,811
Services revenue .............................. 16,780 22,205 54,577 65,878
-------- -------- -------- --------
Total revenue ......................... 21,912 29,241 68,019 90,689
-------- -------- -------- --------
Operating costs and expenses:
Cost of software license fees ................. 1,752 1,824 4,887 6,104
Cost of services .............................. 8,267 10,252 26,121 29,964
Research and development ...................... 6,139 5,019 15,785 15,232
Sales and marketing ........................... 13,620 10,117 31,173 30,299
General and administrative .................... 4,842 2,922 10,673 8,260
-------- -------- -------- --------
Total operating costs and expenses .... 34,620 30,134 88,639 89,859
-------- -------- -------- --------
Income (loss) from operations ................... (12,708) (893) (20,620) 830
Other income, net ............................... 295 1,484 1,073 2,226
-------- -------- -------- --------
Income (loss) before provision for (benefit from)
income taxes .............................. (12,413) 591 (19,547) 3,056
Provision for (benefit from) income taxes ....... (4,215) 189 (6,640) 978
-------- -------- -------- --------
Net income (loss) ............................... $ (8,198) $ 402 $(12,907) $ 2,078
======== ======== ======== ========
Basic earnings (loss) per share ................. $ (0.64) $ 0.03 $ (1.02) $ 0.17
======== ======== ======== ========
Diluted earnings (loss) per share ............... $ (0.64) $ 0.03 $ (1.02) $ 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,
--------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................................................... $(12,907) $ 2,078
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization ...................................... 6,228 6,639
Allowance for doubtful accounts .................................... (1,019) 275
Changes in operating assets and liabilities, net of effects from
the acquisitions of businesses:
Accounts receivable ............................................ 3,809 6,163
Prepaid expenses and other current assets ...................... (1,031) (1,045)
Other assets ................................................... 100 887
Accounts payable ............................................... 1,009 (1,555)
Accrued expenses ............................................... (945) (1,528)
Income taxes payable ........................................... (6,570) (1,021)
Deferred revenue ............................................... (1,665) (2,461)
-------- --------
Net cash provided by (used in) operating activities .......... (12,991) 8,432
-------- --------
Cash flows from investing activities:
Purchase of marketable securities ..................................... (4,148) (15,882)
Sale of marketable securities ......................................... 24,007 22,610
Purchase of property and equipment .................................... (8,210) (5,020)
Capitalized software .................................................. (1,290) (4,560)
Acquisitions of businesses, net of cash acquired (Note 6) ............. (4,575) --
-------- --------
Net cash provided by (used in) investing activities ........... 5,784 (2,852)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock
purchase plan ....................................................... 1,750 359
Purchase of treasury stock ............................................ -- (941)
-------- --------
Net cash provided by (used in) financing activities ........... 1,750 (582)
-------- --------
Effect of foreign exchange rate changes on cash ......................... 132 (94)
-------- --------
Net increase (decrease) in cash and cash equivalents .................... (5,325) 4,904
-------- --------
Cash and cash equivalents, beginning of period .......................... 23,099 12,708
-------- --------
Cash and cash equivalents, end of period ................................ $ 17,774 $ 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, 2000 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,
1999. 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, 2000 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.
On October 29, 1999, the Company's Board of Directors approved a new stock
repurchase program authorizing the Company to repurchase an additional $10,000
of common stock to use to meet requirements of its employee stock option and
stock purchase plan. No minimum number or value of shares to be repurchased has
been fixed for the new program nor has a time limit as to the duration of the
program been established.
No shares were repurchased by the Company during the three and nine month
periods ended June 30, 2000 under either of the repurchase plans. The Company
reissued 53, 189 and 125 shares which had been purchased under the February 1998
Plan during the quarters ended June 30, 2000, March 31, 2000 and December 31,
1999, respectively.
3. COMPREHENSIVE INCOME (LOSS)
The table below sets forth comprehensive income and loss as defined by
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income for the three and nine month periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
JUNE 30, JUNE 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ (8,198) $ 402 $(12,907) $ 2,078
Other comprehensive income (loss):
Foreign currency translation adjustments 94 (16) 27 (24)
Unrealized gain (loss) on investments (242) 115 253 115
-------- -------- -------- --------
Comprehensive income (loss) $ (8,346) $ 501 $(12,627) $ 2,169
======== ======== ======== ========
</TABLE>
6
<PAGE> 7
INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
4. NET INCOME (LOSS) PER COMMON 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 the 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 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.
The difference between basic shares outstanding and dilutive shares
outstanding is the assumed conversion of common stock equivalents (stock
options) in the amounts of 44 for the three month period ended June 30, 2000 and
224 for the nine months ended June 30, 2000.
As per generally accepted accounting principles, the computation of net
loss per share is based on the weighted average basic shares outstanding. The
computation of basic and diluted earnings per share for the three and nine month
periods ended June 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
PER PER
LOSS SHARES SHARE INCOME SHARES SHARE
---- ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income (loss) per common
share $ (8,198) 12,838 $ (0.64) $ 402 12,413 $ 0.03
========= ======== ====== ========
EFFECT OF DILUTIVE SECURITIES:
Stock options N/A 124
------ ------
DILUTED EARNINGS PER SHARE:
Income (loss) per common
share $ (8,198) 12,838 $ (0.64) $ 402 12,537 $ 0.03
========= ====== ======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
PER PER
LOSS SHARES SHARE INCOME SHARES SHARE
---- ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income (loss) per common
share $(12,907) 12,596 $ (1.02) $2,078 12,481 $ 0.17
======== ======== ====== ========
EFFECT OF DILUTIVE SECURITIES:
Stock options N/A 195
------ -----
DILUTED EARNINGS PER SHARE:
Income (loss) per common
share $(12,907) 12,596 $ (1.02) $2,078 12,676 $ 0.16
======== ====== ======== ====== ====== ========
</TABLE>
7
<PAGE> 8
INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
5. SEGMENT INFORMATION AND GEOGRAPHIC AREAS
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131 (SFAS 131), Disclosures About Segments of an
Enterprise and Related Information. SFAS 131 superceded Statement of Financial
Accounting Standards No. 14 (SFAS 14), Financial Reporting for Segments of a
Business Enterprise. SFAS 131 establishes standards for disclosures about
operating segments, products and services, geographic areas, and major
customers. At September 30, 1999, management had determined that the Company
operated in one industry segment (designated as "Infinium" below): the design,
development, sale, service, and support of proprietary software products. During
the third quarter, significant focus was directed towards the Company's newly
formed application service provider business unit (designated as "ASP" below).
During the third quarter, the Company has determined that its reportable
business segments are North American Operations (all operations in the United
States and Canada, including Infinium, the Cort Payroll Unit and ASP) and
International Operations. The Company's determination of its reportable segments
is based on its internal reporting to the key decision maker as defined in SFAS
131. The following table presents a summary of operating information for the
three and nine month periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
JUNE 30, JUNE 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
North American operations:
Infinium $ 18,083 $ 25,022 $ 57,953 $ 79,396
Cort payroll unit 1,530 1,402 3,753 3,891
ASP 21 -- 21 --
-------- -------- -------- --------
Total North American operations 19,634 26,424 61,727 83,287
International operations 2,278 2,817 6,292 7,402
-------- -------- -------- --------
Consolidated $ 21,912 $ 29,241 $ 68,019 $ 90,689
======== ======== ======== ========
Operating income (loss):
North American operations:
Infinium $ (6,065) $ (260) $ (9,571) $ 3,742
Cort payroll unit (165) (221) (1,140) (952)
ASP (4,667) -- (5,439) --
-------- -------- -------- --------
Total North American operations (10,897) (481) (16,150) 2,790
International operations (1,811) (412) (4,470) (1,960)
-------- -------- -------- --------
Consolidated $(12,708) $ (893) $(20,620) $ 830
======== ======== ======== ========
</TABLE>
8
<PAGE> 9
INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
The following table summarizes identifiable assets by business segment as
of June 30, 2000 and September 30, 1999:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
-------- -------------
2000 1999
---- ----
<S> <C> <C>
Identifiable assets:
North American operations:
Infinium $71,546 $87,015
Cort payroll unit 1,804 1,798
ASP 5,517 --
------- -------
Total North American operations 78,867 88,813
International operations 6,348 5,068
------- -------
Consolidated $85,215 $93,881
======= =======
</TABLE>
6. ACQUISITIONS
On January 13, 2000, the Company acquired all of the outstanding capital
stock of Dexton Information Systems, B.V. ("Dexton"), a privately held supplier
of Web-based customer relationship management solutions located in the
Netherlands. The purchase price of $7,589 was comprised of $5,000 in cash, the
issuance of 320 shares of Infinium common stock and acquisition expenses of
$749. The acquisition was accounted for as a purchase, consequently, the
purchase price was allocated to the acquired assets and assumed liabilities,
based on their fair value at the date of acquisition, as follows:
<TABLE>
<CAPTION>
<S> <C>
Net tangible assets acquired $ 460
Intangible assets acquired:
Customer base 716
Work force 802
Current technology 2,064
Goodwill 3,547
------
Total $7,589
======
</TABLE>
The intangible assets are being amortized on a straight-line basis over
five years.
On November 29, 1999, the Company acquired substantially all of the assets
and liabilities of iT-Soft (M.) Sdn. Bhd. ("iT-Soft"), a privately held
value-added reseller of Infinium solutions located in Malaysia. The transaction
was consummated for $650 in cash which was paid during the quarter ended
December 31, 1999 and $84 in acquisition expenses. The difference of $766
between the purchase price and the net book value of the acquired assets and
liabilities was allocated to goodwill and is being amortized over a period of
five years.
The acquisitions of Dexton and iT-Soft were accounted for as purchases.
Accordingly, the results of operations of Dexton and iT-Soft and the fair market
values of the acquired assets and assumed liabilities are included in the
Company's financial statements as of their respective acquisition dates. The
acquisitions were immaterial for purposes of pro-forma financial statement
presentation.
9
<PAGE> 10
INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
7. DISCONTINUED PRODUCT LINES
The Company decided, in September 1999, to discontinue new release
development of Infinium Financials for Microsoft Windows NT and Infinium Human
Resources for Microsoft Windows NT. In February 2000, the Company divested
Infinium Financials for Microsoft Windows NT to a Gores Technology Group
company, Artemis Financial Systems, Inc. ("Artemis"), for a cash payment of $822
from the Company to Artemis. The Company plans to continue to provide
maintenance and consulting services for existing customers of Infinium Human
Resources for Microsoft Windows NT until November 2000.
General and administrative expense for the three and nine months ended June
30, 2000 includes $120 and $474 of expenses incurred in connection with
transitioning NT customers from the discontinued product lines described above,
respectively.
8. RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2000, the Financial Accounting Standards Board (FASB) released
FASB interpretation No. 44 (FIN No. 44), Accounting for Certain Transactions
involving Stock Compensation - an interpretation of APB Opinion No. 25. FIN 44
provides guidance for certain issues that arise in applying Accounting
Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock Issued to
Employees. The Company does not expect that the adoption of FIN No. 44 will have
a significant impact on the Company's results of operations or financial
position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, as amended by SAB 101A and SAB 101B, which is effective in the
fourth quarter of fiscal year 2001. SAB 101 clarifies the Securities and
Exchange Commission's view regarding recognition of revenue. The Company is
currently evaluating the effects of this change but anticipates that the
adoption of SAB 101 will not have a material effect on the Company's financial
position or results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 (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 a material impact on the Company's
financial position or results of operations.
9. SUBSEQUENT EVENTS
In July, 2000, The Company entered into an agreement with a major financial
institution for a $3.0 million line of credit. At this time, no borrowings are
outstanding against this line of credit.
10
<PAGE> 11
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
Infinium Software, Inc. ("Infinium", "the Company") develops, markets and
supports enterprise-level business software applications and provides software
application services. Infinium offers Web- and server-based financial, human
resources, supply management, process manufacturing, business analytics and
customer relationship management solutions, services, support and deployment
options to its customers.
During the first nine months of fiscal year 2000, the Company focused on
extending its offerings from traditional back-office applications and services
to e-business solutions and application hosting services. The Company retooled
its traditional applications for delivery over the Web, and added Web-based
front office applications. The Company's entry into the Application Service
Provider (ASP) market included the opening of its full-service, carrier-class
ASP enterprise solution hosting center. In addition, two acquisitions were
completed during the first nine months of fiscal 2000. The Company acquired
iT-Soft, a privately held value-added reseller of Infinium solutions, in
November 1999. In January 2000, the Company acquired Dexton, a supplier of
Web-based customer relationship management solutions based in the Netherlands.
(See Note 6 of Notes to Condensed Consolidated Financial Statements.)
The Company discontinued new release development of Infinium Financials for
Microsoft Windows NT and Infinium Human Resources for Microsoft Windows NT
during the fourth quarter of fiscal 1999. The Company plans to continue to
provide maintenance and consulting services for existing customers of Infinium
Human Resources for Microsoft Windows NT until November 2000. In February 2000,
the Company divested Infinium Financials for Microsoft Windows NT to Artemis, a
Gores Technology Group company, for a cash payment of $822 from the Company to
Artemis. General and administrative expense for the nine months ended June 30,
2000 includes $474 in expenses incurred in connection with transitioning NT
customers from the discontinued product lines. During the remainder of fiscal
2000, the Company will incur additional costs associated with this transition.
In August, 2000, the Company announced a plan to significantly reduce
expenses. As a result of this plan, the Company reduced its workforce by
approximately 18%. The Company will have to take a charge in the fourth quarter
ending September 30 between $1.6 and $1.8 million, as a result of this action.
The results of operations for the discontinued product lines for the three
and nine month periods ended June 30, 2000 are as follows (in 000's):
11
<PAGE> 12
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 2000
------------- -------------
<S> <C> <C>
Services revenue $ 75 $ 548
Operating costs and expenses:
Cost of services 300 1,989
Research and development 270 1,927
General and administrative 135 568
------- -------
Total operating costs and expenses 705 4,484
------- -------
Loss from operations (630) (3,936)
Benefit from income taxes 214 1,364
------- -------
Net operating loss $ (416) $(2,572)
======= =======
</TABLE>
The impact to basic and diluted loss per share for the results relating to
the discontinued product lines was ($0.03) per share and ($0.20) per share for
the three and nine months ended June 30, 2000, respectively.
The Company's revenue through the first nine months was primarily derived
from two sources: software license fees and services 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.
The Company's service revenue is comprised of software maintenance fees, fees
for consulting and training services and fees for ASP related services.
Maintenance revenue is recognized ratably over the maintenance period.
Consulting service revenue is recognized as the services are performed. ASP
setup and subscription fees are recognized ratably over the contract term. ASP
consulting service revenue is recognized as the services are performed.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 2000 COMPARED TO QUARTER ENDED JUNE 30, 1999
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 or decrease from period to period for the three
months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
% OF TOTAL % OF $
REVENUE INCREASE (DECREASE)
---------- -------------------
2000 1999 1999 TO 2000
---- ---- ------------
Revenue:
<S> <C> <C> <C>
Software license fees ............ 23% 24% (27)%
Services revenue ................. 77 76 (24)
------ ------
Total revenue ................. 100 100 (25)
------ ------
Operating costs and expenses:
Cost of software license fees .... 8 6 (4)
Cost of services ................. 38 35 (19)
Research and development ......... 28 17 22
Sales and marketing .............. 62 35 35
General and administrative ....... 22 10 66
------ ------
Total operating costs and
expenses .................... 158 103 15
------ ------
Income (loss) from operations ...... (58) (3) 1,323
Other income, net .................. 1 5 (80)
------ ------
Income (loss) before provision for
(benefit from) income taxes ..... (57) 2 (2,200)
Provision for (benefit from) income
taxes ............................ (19) 1 (2,330)
------ ------
Net income (loss) .................. (38)% 1% (2,139)%
====== ======
</TABLE>
12
<PAGE> 13
REVENUE. Total revenue declined $7.3 million, or 25%, from $29.2 million
for the quarter ended June 30, 1999 to $21.9 million for the quarter ended June
30, 2000. Software license fees declined 27%, from $7.0 million for the quarter
ended June 30, 1999 to $5.1 million for the same quarter in fiscal 2000. This
decline reflects the slower recovery in back-office applications and the
elimination of revenues related to the discontinued products. Service revenue,
comprised of maintenance fee revenue, consulting services revenue and revenue
derived from ASP related services, declined 24%, from $22.2 million for the
quarter ended June 30, 1999 to $16.8 million for the quarter ended June 30,
2000. This decrease was related to lower sales of software licenses and the
reduction in services related to discontinued products. The components of
service revenue are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
(in thousands) % DECREASE
----------
2000 1999 1999 TO 2000
---- ---- ------------
<S> <C> <C> <C>
Maintenance fee revenue $ 10,321 $ 10,398 (1)%
Consulting services revenue 6,438 11,807 (45)
ASP revenue 21 -- --
-------- -------- --------
Total services revenue
$ 16,780 $ 22,205 (24)%
======== ======== ========
</TABLE>
COST OF SOFTWARE LICENSE FEES. Cost of software license fees consists
primarily of royalties on 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 remained constant at $1.8 million for
the quarters ended June 30, 1999 and 2000. Cost of software license fees as a
percentage of software license fee revenue increased from 26% for the quarter
ended June 30, 1999 to 34% for the same quarter in fiscal 2000, due to lower
software license revenue.
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 software products and costs related to the ASP line of business. Cost
of services decreased 19%, from $10.2 million for the quarter ended June 30,
1999 to $8.3 million for the quarter ended June 30, 2000. The decrease in the
dollar amount is due to lower third party consulting fees. Cost of services as a
percentage of service revenue was 49% and 46% for the quarters ended June 30,
2000 and 1999, respectively.
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 increased 22% from $5.0 million for the quarter ended June
30, 1999 to $6.1 million for the quarter ended June 30, 2000. Research and
development expense as a percentage of total revenue was 28% for the quarter
ended June 30, 2000 and 17% for the quarter ended June 30, 1999. The increase in
research and development expenses is primarily the result of the development of
new products which have not yet reached technological feasibility thereby
reducing the amount of software development costs which were capitalized during
the quarter ended June 30, 2000. Offsetting the increase in research and
development expenses caused by the reduction in software capitalization was a
reduction in development costs related to the Infinium Financials for Windows NT
and Infinium Human Resources for Windows NT products. In September 1999, the
Company decided to discontinue new release development for those products. For
the quarter ended June 30, 2000, research and development expenses relating to
the discontinued product lines was $270 compared to $480 for the previous
quarter ended March 31, 2000. (See Note 7 of Notes to Condensed Consolidated
Financial Statements.)
13
<PAGE> 14
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 35% from $10.1 million for the quarter ended June 30, 1999 to $13.6
million for the quarter ended June 30, 2000. The increase was due to start-up
marketing expenses associated with the ASP business. Sales and marketing expense
as a percentage of total revenue was 62% and 35% for the third quarters of
fiscal year 2000 and fiscal year 1999, respectively.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries of executive and administrative personnel as well as
provisions for doubtful accounts, insurance, investor relations and outside
professional fees. General and administrative expenses increased 66% from $2.9
million for the quarter ended June 30, 1999 to $4.8 million for the quarter
ended June 30, 2000. General and administrative expense as a percentage of total
revenue was 22% and 10% for the third quarters of fiscal year 2000 and fiscal
year 1999, respectively. The increase in percentage and dollar amount was
primarily due to costs associated with the Company's increasing focus on its new
application service provider and customer relationship management lines of
business, as well as the expenses incurred in connection with transitioning NT
customers from the discontinued product lines. In addition, during the third
quarter of fiscal 2000, general and administrative expenses included costs
associated with employee attendance at Infinium World, the Company's annual
customer conference. For the quarter ended June 30, 2000, general and
administrative expenses attributable to the discontinued product lines were $135
compared to $433 for the previous quarter ended March 31, 2000. (See Note 7 of
Notes to Condensed Consolidated Financial Statements
PROVISION FOR (BENEFIT FROM) INCOME TAXES. The provision for (benefit from)
federal, state and foreign income taxes changed from $0.2 million representing
an effective income tax rate of 32% for the quarter ended June 30, 1999 to a tax
benefit of $4.2 million representing an effective income tax rate of 34% for the
quarter ended June 30, 2000.
NINE MONTHS ENDED JUNE 30, 2000 COMPARED TO NINE MONTHS ENDED JUNE 30, 1999
The following table sets forth for the periods indicated the Company's
condensed consolidated statement of operations data expressed as a percentage of
total revenue and the percentage of dollar increase or decrease from period to
period for the nine months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
--------------------------
% OF TOTAL % OF $
REVENUE INCREASE
---------- (DECREASE)
----------
2000 1999 1999 TO
---- ---- -------
2000
-----
<S> <C> <C> <C>
Revenue:
Software license fees .................... 20% 27% (46)%
Services revenue ......................... 80 73 (17)
------ ------
Total revenue ......................... 100 100 (25)
------ ------
Operating costs and expenses:
Cost of software license fees ............ 7 7 (20)
Cost of services ......................... 38 33 (13)
Research and development ................. 23 17 4
Sales and marketing ...................... 46 33 3
General and administrative ............... 16 9 29
------ ------
Total operating costs and expenses .... 130 99 (1)
------ ------
Income (loss) from operations .............. (30) 1 (2,584)
Other income, net .......................... 1 2 (52)
------ ------
Income (loss) before provision for
(benefit from) income taxes ............. (29) 3 (740)
Provision for (benefit from) income taxes... (10) 1 (779)
------ ------
Net income (loss) .......................... (19)% 2% (721)%
====== ======
</TABLE>
14
<PAGE> 15
REVENUE. As the following chart indicates, total revenue declined $22.7
million, or 25%, from $90.7 million for the nine months ended June 30, 1999 to
$68.0 million for the same period in fiscal 2000.
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
--------------------------
(in thousands) % INCREASE
----------
(DECREASE)
----------
2000 1999 1999 TO 2000
---- ---- ------------
<S> <C> <C> <C>
Software license fees $ 13,442 $ 24,811 (46)%
Services revenue:
Maintenance fee revenue 32,082 31,246 3
Consulting services revenue 22,474 34,632 (35)
ASP revenue 21 -- --
-------- -------- --------
Total services revenue 54,577 65,878 (17)
-------- -------- --------
Total revenue $ 68,019 $ 90,689 (25)%
======== ======== ========
</TABLE>
Software license fees declined 46%, from $24.8 million for the nine months
ended June 30, 1999 to $13.4 million for the same period in fiscal 2000. The
Company believes that the decrease was primarily due to the elimination of
revenues related to the discontinued products, potential customers deciding to
postpone software acquisitions to focus on their internal year 2000 compliance
issues in the first quarter of Fiscal 2000 and subsequently, the slower recovery
in the license of back office applications. Total services revenue declined
$11.3 million, or 17%, from $65.9 million for the nine months ended June 30,
1999 to $54.6 million for the nine month period ended June 30, 2000. The
reduction was primarily the result of a lower software license fees. Maintenance
fee revenue, the other component of services revenue, increased from $31.2
million for the nine months ended June 30, 1999 to $32.1 million for the same
period in fiscal 2000. For the nine months ended June 30, 2000, services revenue
relating to the discontinued product lines was $548. (See Note 7 of Notes to
Condensed Consolidated Financial Statements.)
COST OF SOFTWARE LICENSE FEES. Cost of software license fees decreased $1.2
million, or 20%, from $6.1 million for the nine months ended June 30, 1999 to
$4.9 million for the nine months ended June 30, 2000. As a percentage of
software license fee revenue, the cost of software license fees increased from
25% for the nine months ended June 30, 1999 to 36% for the same period in fiscal
2000. The decrease in the dollar amount was primarily due to a decrease in
royalties on third party product software sales.
COST OF SERVICES. Cost of services declined 13%, from $30.0 million for the
nine months ended June 30, 1999 to $26.1 million for the nine months ended June
30, 2000. The decrease in the dollar amount is due to lower third party
consulting fees. Cost of services as a percentage of service revenue was 48% and
45% for the nine month periods ended June 30, 2000 and 1999, respectively. The
percentage increase is primarily attributable to costs associated with the
divestiture of the Infinium Financials for Windows NT product to Artemis. For
the nine months ended June 30, 2000, the cost of services relating to the
discontinued product lines was $1,989. (See Note 7 of Notes to Condensed
Consolidated Financial Statements.)
RESEARCH AND DEVELOPMENT. Research and development expenses increased 4%
from $15.2 million for the nine months ended June 30, 1999 to $15.8 million for
the same period in fiscal 2000. Research and development expense as a percentage
of total revenue was 17% for the nine months ended June 30, 1999 and 23% for the
nine months ended June 30, 2000. The increase in research and development
expenses is primarily the result of the development of new products which have
not yet realized technological feasibility thereby reducing the amount of
software development costs which were capitalized during the nine months ended
June 30, 2000. Offsetting this increase in research and development expenses
caused by the reduction in software capitalization was a reduction in
development costs related to the Infinium Financials for Windows NT and Infinium
Human Resources for Windows NT products. In September 1999, the Company decided
to discontinue new release development for those products. For the nine months
ended June 30, 2000, research and development expenses relating to the
discontinued product lines was $1,927. (See Note 7 of Notes to Condensed
Consolidated Financial Statements.)
15
<PAGE> 16
SALES AND MARKETING. Sales and marketing expenses increased 3% from $30.3
million for the nine months ended June 30, 1999 to $31.2 million for the nine
months ended June 30, 2000. The increase was attributable to increased marketing
spending related to the ASP business, partially offset by reduced commissions
resulting from lower sales levels. Sales and marketing expense as a percentage
of total revenue was 46% and 33% for the first nine months of fiscal year 2000
and fiscal year 1999, respectively.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
29% from $8.3 million for the nine months ended June 30, 1999 to $10.7 million
for the same period in fiscal 2000. General and administrative expense as a
percentage of total revenue was 16% and 9% for the first nine months of fiscal
year 2000 and fiscal year 1999, respectively. The increase in percentage and
dollar amount was primarily due to costs associated with the Company's
increasing focus on its new application service provider and customer
relationship management lines of business, as well as the expenses incurred in
connection with transitioning customers from the discontinued product lines.
(See Note 7 of Notes to Condensed Consolidated Financial Statements.) In
addition, during the third quarter of fiscal 2000, general and administrative
expenses included costs associated with employee attendance at Infinium World,
the Company's annual customer conference.
PROVISION FOR (BENEFIT FROM) INCOME TAXES. The provision for (benefit from)
federal, state and foreign income taxes changed from $1.0 million representing
an effective income tax rate of 32% for the nine months ended June 30, 1999 to a
tax benefit of $6.6 million representing an effective income tax rate of 34% for
the nine months ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had cash, cash equivalents and marketable
securities of $22.5 million resulting from a net use of cash, cash equivalents
and marketable securities of $24.8 million during the first nine months of
fiscal year 2000. Operating activities consumed $13.0 million, $1.3 million was
used to fund capitalized software and $8.2 was used for purchases of property,
computers and equipment, of which $5.5 million was associated with the Company's
ASP business unit. The acquisitions of iT-Soft and Dexton consumed an additional
$4.6 million. Proceeds from the exercise of stock options and the employee stock
purchase plan provided $1.8 million. In July, 2000, the Company entered into an
agreement with a major financial institution for a $3.0 million line of credit.
At this time, no borrowings are outstanding against this line of credit.
Days sales outstanding ("DSO") increased to 59 days at June 30, 2000
compared to 47 days at September 30, 1999. 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. The increase in DSO is
primarily due to the decrease in revenue for the quarter ended June 30, 2000.
Deferred revenue decreased $1.4 million, from $37.8 million at September
30, 1999 to $36.4 million at June 30, 2000. The decrease in deferred revenue
primarily resulted from a decrease in the deferred consulting services component
of revenue due to lower customer bookings during the nine month period ended
June 30, 2000.
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 2000. 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.
16
<PAGE> 17
IMPACT OF THE YEAR 2000
The Company has not experienced any material issues or failures related to
the Year 2000.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2000, the Financial Accounting Standards Board (FASB) released
FASB interpretation No. 44 (FIN No. 44), Accounting for Certain Transactions
involving Stock Compensation - an interpretation of APB Opinion No. 25. FIN 44
provides guidance for certain issues that arise in applying Accounting
Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock Issued to
Employees. The Company does not expect that the adoption of FIN No. 44 will have
a significant impact on the Company's results of operations or financial
position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, as amended by SAB 101A and SAB 101B, which is effective in the
fourth quarter of fiscal year 2001. SAB 101 clarifies the Securities and
Exchange Commission's view regarding recognition of revenue. The Company is
currently evaluating the effects of this change but anticipates that the
adoption of SAB 101 will not have a material effect on the Company's financial
position or results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 (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 a material impact on the Company's
financial position or results of operations.
FACTORS AFFECTING FUTURE PERFORMANCE
The factors affecting the Company's future performance have not changed
significantly from those enumerated in the Company's Annual Report on Form 10-K
for the year ended September 30, 1999, except for the additional information
provided below.
During the fiscal 2000, Infinium invested in its Application Service
Provider services offering, including opening its full service carrier class ASP
enterprise solution-hosting center. The Company made ASP capital investments of
$5.5 million and incurred operating losses of $5.4 in that part of its business.
The Company has limited operating history in the ASP environment. Its current
and potential competitors in the ASP business includes many companies focussed
exclusively on the application hosting business. Many of the competitors for the
ASP business have longer operating histories, greater name recognition, more
established relationships, greater resources and other competitive advantages
over Infinium's ASP business. As a result, the Company's ASP business is subject
to many of the same types of risks related to the Company's product offerings as
the Company enumerated in its Annual Report on Form-K for the year ended
September 30, 1999.
17
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk involves
forward-looking statements. Actual results could differ materially from those
discussed in the forward-looking statements. The Company is exposed to market
risk related to changes in interest rates and foreign currency exchange rates.
The Company does not use derivative financial instruments for speculative or
trading purposes.
INTEREST RATE RISK
The Company is exposed to market risk from changes in interest rates
primarily through its investing and borrowing activities. In addition, the
Company's ability to finance future acquisition transactions may be impacted if
the Company is unable to obtain appropriate financing at acceptable rates. The
Company's investing strategy to manage interest rate exposure is to invest in
short-term, highly liquid investments. The Company maintains a portfolio of
highly liquid cash equivalents and short-term investments. At June 30, 2000, the
fair value of the Company's short-term investments approximated market value.
FOREIGN CURRENCY RISK
The Company faces exposure to movements in foreign currency exchange rates.
These exposures may change over time as business practices evolve and could have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company does not use derivative financial instruments
to hedge foreign currency exposures or for trading. Historically, the Company's
primary exposures have been related to the operations of its foreign
subsidiaries. In the three and nine month periods ended June 30, 2000, the net
impact of foreign currency changes was not material. The introduction of the
euro as a common currency for most members of the European Monetary Union took
place in the Company's fiscal year 1999.
18
<PAGE> 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 2000.
19
<PAGE> 20
SIGNATURE
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 9, 2000
INFINIUM SOFTWARE, INC.
by: /s/ VERONICA M. ZSOLCSAK
------------------------
Veronica M. Zsolcsak
Chief Financial Officer
20
<PAGE> 21
INFINIUM SOFTWARE, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
