<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 December 31, 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 December
31, 1999 was 12,321,544.
- --------------------------------------------------------------------------------
<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, 1999 and
December 31, 1999....................................................... 3
Condensed Consolidated Statement of Operations for the three
month periods ended December 31, 1998 and 1999.......................... 4
Condensed Consolidated Statement of Cash Flows for the three
month periods ended December 31, 1998 and 1999.......................... 5
Notes to Condensed Consolidated Financial Statements...................... 6
ITEM 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................... 10
ITEM 3. - Quantitative and Qualitative Disclosures About Market Risk.................... 14
PART II - OTHER INFORMATION
ITEMS 1. - 5. Not applicable
ITEM 6. Exhibits and Reports on Form 8-K.............................................. 15
SIGNATURES...................................................................................... 16
EXHIBIT INDEX................................................................................... 17
EXHIBITS........................................................................................ 18
</TABLE>
2
<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, DECEMBER 31,
1999 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ 23,099 $ 22,325
Marketable securities at fair market value ............................ 24,113 17,062
Accounts receivable, less allowance for doubtful accounts of $4,229
and $4,155 at September 30, 1999 and December 31, 1999,
respectively ........................................................ 16,510 16,278
Deferred income taxes ................................................. 3,590 3,590
Prepaid expenses and other current assets ............................. 4,142 4,288
-------- --------
Total current assets .......................................... 71,454 63,543
-------- --------
Property and equipment, net ............................................... 10,593 10,351
Capitalized software development costs, net ............................... 5,406 5,252
Goodwill and other intangible assets, net ................................. 755 1,459
Deferred income taxes ..................................................... 3,477 3,477
Other assets .............................................................. 2,196 2,196
-------- --------
Total assets .................................................. $ 93,881 $ 86,278
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................................... $ 7,775 $ 5,697
Accrued expenses ...................................................... 11,709 9,666
Income taxes payable .................................................. 795 --
Lease obligation, short-term portion .................................. 109 109
Deferred revenue ...................................................... 35,744 33,423
-------- --------
Total current liabilities ..................................... 56,132 48,895
-------- --------
Lease obligation, long-term portion ....................................... 343 343
Deferred revenue .......................................................... 2,063 2,523
-------- --------
Total liabilities ............................................. 58,538 51,761
-------- --------
Common stock, $.01 par value; authorized 40,000 shares, issued
12,607 shares at September 30, 1999 and December 31, 1999 ............. 126 126
Additional paid-in capital ............................................ 36,306 36,377
Retained earnings (accumulated deficit) ............................... 1,188 (368)
Accumulated other comprehensive loss .................................. (257) (233)
-------- --------
37,363 35,902
-------- --------
Less: treasury stock at cost, 410 and 285 shares at September 30,
1999 and December 31, 1999, respectively ............................ (2,020) (1,385)
-------- --------
Total stockholders' equity .................................... 35,343 34,517
-------- --------
Total liabilities and stockholders' equity .................... $ 93,881 $ 86,278
======== ========
</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
------------------
DECEMBER 31,
------------
1998 1999
---- ----
<S> <C> <C>
Revenue:
Software license fees ......................... $ 8,538 $ 3,758
Services revenue .............................. 21,545 19,763
-------- --------
Total revenue ......................... 30,083 23,521
-------- --------
Operating costs and expenses:
Cost of software license fees ................. 1,927 1,561
Cost of services .............................. 9,450 8,731
Research and development ...................... 5,261 5,017
Sales and marketing ........................... 9,929 8,317
General and administrative .................... 2,385 2,706
-------- --------
Total operating costs and expenses .... 28,952 26,332
-------- --------
Income (loss) from operations ................... 1,131 (2,811)
Other income, net ............................... 431 404
-------- --------
Income (loss) before provision for (benefit from)
income taxes ................................... 1,562 (2,407)
Provision for (benefit from) income taxes ....... 500 (891)
-------- --------
Net income (loss) ............................... $ 1,062 $ (1,516)
======== ========
Basic earnings (loss) per share ................. $ 0.08 $ (0.12)
======== ========
Diluted earnings (loss) per share ............... $ 0.08 $ (0.12)
======== ========
</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>
THREE MONTHS ENDED
------------------
DECEMBER 31,
------------
1998 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................................................... $ 1,062 $ (1,516)
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization ...................................... 1,879 1,764
Allowance for doubtful accounts .................................... 69 (100)
Changes in operating assets and liabilities, net of effects from the
acquisition of iT-Soft:
Accounts receivable ............................................ 2,840 298
Prepaid expenses and other current assets ...................... (183) (145)
Other assets ................................................... 8 42
Accounts payable ............................................... (565) (2,113)
Accrued expenses ............................................... (2,548) (2,036)
Income taxes payable ........................................... (1,236) (783)
Deferred revenue ............................................... (2,252) (1,855)
-------- --------
Net cash used in operating activities ......................... (926) (6,444)
-------- --------
Cash flows from investing activities:
Purchase of marketable securities ..................................... (9,265) (3,151)
Sale of marketable securities ......................................... 11,446 10,202
Purchase of property and equipment .................................... (1,850) (675)
Capitalized software .................................................. (1,723) (584)
Acquisition of iT-Soft, net of cash acquired (Note 6) ................. -- (722)
-------- --------
Net cash provided by (used in) investing activities ........... (1,392) 5,070
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock
purchase plan ....................................................... 18 666
-------- --------
Net cash provided by financing activities ..................... 18 666
-------- --------
Effect of foreign exchange rate changes on cash ......................... (38) (66)
-------- --------
Net increase (decrease) in cash and cash equivalents .................... (2,338) (774)
-------- --------
Cash and cash equivalents, beginning of period .......................... 12,708 23,099
-------- --------
Cash and cash equivalents, end of period ................................ $ 10,370 $ 22,325
======== ========
</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 December 31, 1998 and 1999 and for the three month
periods then ended is unaudited, but includes all adjustments (consisting only
of normal recurring entries) which the Company's management believes to be
necessary for the fair presentation of the financial position, results of
operations, and changes in cash flows for the periods presented. The
accompanying interim 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 month period ended
December 31, 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.
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 quarter ended December
31, 1999 under either of the repurchase plans. The Company reissued 125 shares
which had been purchased under the February 1998 Plan during the quarter ended
December 31, 1999.
3. COMPREHENSIVE INCOME
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 month periods ended December 31, 1998 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
DECEMBER 31,
------------
1998 1999
---- ----
<S> <C> <C>
Net income (loss) 1,062 (1,516)
Other comprehensive income (loss):
Foreign currency translation adjustments (17) (18)
Unrealized gain (loss) on investments -- 42
------ ------
Comprehensive income (loss) 1,045 (1,492)
====== ======
</TABLE>
6
<PAGE> 7
INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
4. NET INCOME 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 computation of basic and diluted earnings per share for the three
months ended December 31, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
DEC. 31, 1998 DEC. 31, 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 $ 1,062 12,518 $ 0.08 $(1,516) 12,242 $(0.12)
======= ====== ======= ======
EFFECT OF DILUTIVE SECURITIES:
Stock options 334 N/A
------ ------
DILUTED EARNINGS PER SHARE:
Income available to
common stockholders $ 1,062 12,852 $ 0.08 $(1,516) 12,242 $(0.12)
======= ====== ====== ======= ====== ======
</TABLE>
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. Management has determined that the Company operates in one industry
segment: the design, development, sale, service, and support of proprietary
software products. Substantially all of the Company's revenues are derived from
the licensing of software products and providing related consulting, support,
and training services.
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 (CONTINUED)
The Company has determined that its reportable business segments are North
American Operations (which includes all operations in the United States and
Canada with the exclusion of the Cort Payroll Unit), the Cort Payroll Unit, and
International Operations. The Company's determination of its reportable segments
is based on its internal reporting. The following table presents a summary of
operating information for the quarters ended December 31, 1998 and December 31,
1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
DECEMBER 31,
------------
1998 1999
---- ----
<S> <C> <C>
Revenues:
North American operations $ 26,371 $ 20,682
(excluding Cort)
Cort payroll unit 1,298 1,066
International operations 2,414 1,773
-------- --------
Consolidated $ 30,083 $ 23,521
======== ========
Operating income:
North American operations $ 2,289 $ (1,364)
(excluding Cort)
Cort payroll unit (351) (462)
International operations (807) (985)
-------- --------
Consolidated $ 1,131 $ (2,811)
======== ========
</TABLE>
The following table presents a summary of balance sheet information by
business segment as of September 30, 1999 and December 31, 1999:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1999 1999
---- ----
<S> <C> <C>
Identifiable assets:
North American operations $87,015 $78,892
(excluding Cort)
Cort payroll unit 1,798 1,457
International operations 5,068 5,929
------- -------
Consolidated $93,881 $86,278
======= =======
</TABLE>
6. ACQUISITIONS
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 will be amortized over a period of
five years.
8
<PAGE> 9
INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
6. ACQUISITIONS (CONTINUED)
The acquisition was accounted for as a purchase. Accordingly, the results
of operations of iT-Soft and the fair market values of the acquired assets and
assumed liabilities are included in the Company's financial statements as of the
date of the acquisition.
7. DISCONTINUED PRODUCT LINES
In September 1999, the Company decided to discontinue new release
development of Infinium Financials for Microsoft Windows NT and Infinium Human
Resources for Microsoft Windows NT. The Company plans to provide maintenance and
consulting services for existing customers until November 2000. During the
quarter ended December 31, 1999, the Company recognized $298 of services revenue
and incurred $2,100 in operating expenses, of which $1,177 is included in
research and development and $923 is included in cost of services, related to
those discontinued product lines. The impact to basic and diluted loss per share
for the results relating to the discontinued product lines was ($0.09) per share
for the quarter ended December 31, 1999.
8. SUBSEQUENT EVENT
On January 13, 2000, the Company acquired all of the outstanding capital
stock of Dexton Information Systems, BV, a privately held supplier of Web-based
customer relationship management solutions located in the Netherlands. The
acquisition was consummated for 320,000 shares of Infinium common stock and $5.0
million in cash. The transaction will be accounted for as a purchase.
9
<PAGE> 10
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.
RESULTS OF OPERATIONS
The Company's revenue is 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 Companies' products and third party products marketed
and/or distributed by the Company. The Company's service revenue is comprised of
software maintenance fees and fees for consulting and training services.
Maintenance revenue is recognized ratably over the maintenance period.
Consulting service revenue is recognized as the services are performed.
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 period over period for the
three months ended December 31, 1998 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DEC. 31,
-------------------------------------
% OF TOTAL % OF $
REVENUE INCREASE
---------- (DECREASE)
----------
1998 1999 98 TO 99
---- ---- --------
<S> <C> <C> <C>
Revenue:
Software license fees ...................... 28% 16% (56)%
Service revenue ............................ 72 84 (8)
---- ----
Total revenue ........................... 100 100 (22)
---- ----
Operating costs and expenses:
Cost of software license fees .............. 6 7 (19)
Cost of services ........................... 31 37 (8)
Research and development ................... 17 21 (5)
Sales and marketing ........................ 33 35 (16)
General and administrative ................. 8 12 13
---- ----
Total operating costs and expenses ...... 95 112 (9)
---- ----
Income (loss) from operations ................ 5 (12) (349)
---- ----
Other income, net ............................ 1 2 (6)
---- ----
Income (loss) before provision for
(benefit from) income taxes ................ 6 (10) (254)
Provision for (benefit from) income Taxes .... 2 (4) (278)
---- ----
Net income (loss) ............................ 4% (6)% (243)%
==== ==== ====
</TABLE>
QUARTER ENDED DECEMBER 31, 1999 COMPARED TO QUARTER ENDED DECEMBER 31, 1998
REVENUE. Total revenue decreased 22%, from $30.1 million for the quarter
ended December 31, 1998 to $23.5 million for the quarter ended December 31,
1999. The Company believes that the decrease was primarily due to potential
customers deciding to postpone software acquisitions to focus on their internal
Year 2000 compliance issues.
10
<PAGE> 11
Revenue in North America (United States and Canada) including the Cort
Payroll Unit decreased 21%, from $27.7 million for the quarter ended December
31, 1998 to $21.7 million for the quarter ended December 31, 1999. This is
representative of 93% of total revenue for the first quarter of fiscal year 2000
compared to 92% of total revenue for the first quarter of fiscal year 1999. EMEA
(Europe, Middle East and Africa) revenue decreased 15% from $2.0 million for the
quarter ended December 31, 1998 to $1.7 million for the quarter ended December
31, 1999 while its percentage of total revenue remained unchanged at 7%. Other
international regions, including Asia-Pacific and Latin America, contributed
less than 1% of total revenue for the first quarter of fiscal year 1999 and less
than 2% for the first quarter of fiscal year 1998.
Software license fee revenue decreased 56%, from $8.5 million for the
quarter ended December 31, 1998 to $3.8 million for the quarter ended December
31, 1999. The Company believes the decrease was primarily due to potential
customers deciding to postpone software acquisitions to focus on their internal
Year 2000 compliance issues.
Service revenue decreased 8%, from $21.5 million for the quarter ended
December 31, 1998 to $19.8 million for the quarter ended December 31, 1999. This
decrease was due primarily to a decrease in demand for the Company's service
offerings due to lower software license fees.
The table below summarizes the composition of and decrease in the Company's
services revenue.
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
------------------------------------------
(in thousands) % INCREASE
----------
(DECREASE)
----------
1998 1999 98 TO 99
---- ---- --------
<S> <C> <C> <C>
Maintenance fee revenue $10,361 $10,876 5%
Consulting services revenue 11,184 8,887 (21)
------- -------
Total services revenue $21,545 $19,763 8%
======= =======
</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 decreased 19%, from $1.9 million for the
quarter ended December 31, 1998 to $1.6 million for the quarter ended December
31, 1999. Cost of software license fees as a percentage of software license fee
revenue increased from 23% for the quarter ended December 31, 1998 to 42% for
the quarter ended December 31, 1999. 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 consists of costs to provide product and
technical support, consulting services and training services to licensees of the
Company's software products. Cost of services decreased 8%, from $9.5 million
for the quarter ended December 31, 1998 to $8.7 million for the quarter ended
December 31, 1999. Cost of services as a percentage of service revenue remained
constant at 44% for the quarters ended December 31, 1998 and 1999. The decrease
in the dollar amount is due to lower third party consulting fees. For the
quarter ended December 31, 1999, the cost of services relating to the
discontinued product lines was $923 (see Note 7 to the condensed consolidated
financial statements).
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
December 31, 1998 to $5.0 million for the quarter ended December 31, 1999.
Research and development expense as a percentage of total revenue was 17% for
the fiscal year ended December 31, 1998 and 21% for the fiscal year ended
December 31, 1999. The decrease in the dollar amount is due to a reduction of
development costs related to the Infinium Financials for Windows NT and Infinium
Human Resources for Windows NT products. The Company decided to discontinue new
release development for those products in September 1999. For the quarter ended
December 31, 1999, the research and development expense relating to the
discontinued
11
<PAGE> 12
product lines was $1,177 (see Note 7 to the condensed consolidated financial
statements).
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
decreased 16% from $9.9 million for the quarter ended December 31, 1998 to $8.3
million for the quarter ended December 31, 1999. The decrease was primarily due
to a decrease in commission expense associated with lower revenue. Sales and
marketing expense as a percentage of total revenue was 33% and 35% for the first
quarter of fiscal year 1999 and fiscal year 2000, respectively.
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 13% from $2.4 million for the
quarter ended December 31, 1998 to $2.7 million for the quarter ended December
31, 1999. General and administrative expense as a percentage of total revenue
was 8% and 12% for the first quarter of fiscal year 1999 and fiscal year 2000,
respectively. The increase in dollar amount was primarily due to a slight
increase in staffing and higher outside professional fees.
PROVISION FOR INCOME TAXES. The provision for federal, state and foreign
income changed from $0.5 million representing an effective income tax rate of
32% for the quarter ended December 31, 1998 to a tax benefit of $0.9 million
representing an effective income tax rate of 37% for the quarter ended December
31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had cash, cash equivalents and
marketable securities of $39.4 million resulting from a net use of cash, cash
equivalents and marketable securities of $7.8 million during the first three
months of fiscal year 2000. Operating activities consumed $6.4 million, $0.6
million was used to fund capitalized software, $0.7 was used for purchases of
computers and equipment and the acquisition of iT-Soft consumed an additional
$0.7 million. Proceeds from the exercise of stock options and employee stock
purchase plan provided $0.7 million.
Days sales outstanding ("DSO") increased to 62 days at December 31, 1999
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 December 31,
1999.
Deferred revenue decreased $1.9 million, from $37.8 million at September
30, 1999 to $35.9 million at December 31, 1999. The decrease in deferred revenue
primarily resulted from a decrease in the deferred consulting services component
due to lower customer bookings during the quarter ended December 31, 1999.
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.
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
12
<PAGE> 13
upgraded to comply with Year 2000 requirements. The Company instituted a Year
2000 project in which Year 2000 issues were assessed and addressed in the
development of its software systems, its relationships with third parties, and
its internal operating systems.
Since the end of calendar 1999, the Company has not experienced any material
issues or failures related to the Year 2000.
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 December 31, 1999.
13
<PAGE> 14
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 December 31, 1999,
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 quarter ended December 31, 1999, 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.
14
<PAGE> 15
PART II - OTHER INFORMATION
Items 1 - 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.12 Executive Severance Plan (New Executives)
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K
None
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Infinium Software, Inc. has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: January 9, 2000
INFINIUM SOFTWARE, INC.
by:
/s/ VERONICA M. ZSOLCSAK
------------------------
Veronica M. Zsolcsak
Chief Financial Officer
16
<PAGE> 17
INFINIUM SOFTWARE, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.12 Executive Severance Plan (New Executives)
27 Financial Data Schedule
</TABLE>
17
<PAGE> 1
NAME: __________________
EXECUTIVE SEVERANCE PLAN
COMPANY: INFINIUM SOFTWARE, INC.
EFFECTIVE AS OF: OCTOBER 1, 1999
EXECUTIVE'S PRINCIPAL TITLES: ______________________________________________
If the Executive's employment with the Company is terminated by the Company, not
for "cause", and the Executive executes a one year Non-Competition Agreement in
form satisfactory to the Company, (a) the Company will continue to pay to the
Executive, for the twelve month period beginning on the termination date, his or
her ANNUAL BASE SALARY (as such term is defined in the Executive Compensation
Plan executed by the Company and the Executive) for the Fiscal Year in which the
termination date occurs and (b) the Executive will be entitled to continue to
participate in all of the Company's employee benefits programs (except to the
extent prohibited by the plans) for the twelve month period beginning on the
termination date.
This paragraph shall apply if a Change in Control (as defined in the attached
Appendix to this Plan) occurs. All of the Executive's unvested stock options
shall vest immediately upon the occurrence of a Change in Control. In the event
of a Change of Control, if the Executive is terminated not for "cause," (a) the
Company will continue to pay to the Executive, for the twelve month period
beginning on the termination date, his or her ANNUAL BASE SALARY and TARGET
EXECUTIVE BONUS (as such term is defined in the Executive Compensation Plan
executed by the Company and the Executive) for the Fiscal Year in which the
termination date occurs and (b) the Executive will be entitled to continue to
participate in all of the Company's employee benefits programs (except to the
extent prohibited by the plans) for the twelve month period beginning on the
termination date. If the Executive is not offered a position which is comparable
both in level and total compensation to the position he or she occupied
immediately before the Change in Control, he or she shall be deemed to have been
terminated not for "cause" and the provisions of the preceding sentence shall
apply.
For purposes of this agreement, "cause" is defined as follows: substantial and
continued failure to perform job duties; disloyalty, gross negligence, or breach
of fiduciary duty to the Company; commission of fraud, embezzlement, dishonesty
or deliberate disregard of the Company's rules or policies; unauthorized
disclosure of a trade secret or confidential business information; use of any
illicit drug or the abuse of any drug, alcohol or medication which adversely
affects the Executive's performance; or conviction of a felony offense.
Executive For: INFINIUM SOFTWARE, INC.
Signature: _________________________ Signature: ___________________________
Robert A. Pemberton, CEO
Date: ______________________________ Date: ________________________________
<PAGE> 2
Appendix A
to Executive Severance Plan
A "Change in Control" shall mean:
(1) the acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial
ownership of any capital stock of the Company if,
after such acquisition, such Person beneficially owns
(within the meaning of Rule 13d-3 promulgated under
the Exchange Act) 50% or more of either (x) the
then-outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or
(y) the combined voting power of the then-outstanding
securities of the Company entitled to vote generally
in the election of directors (the "Outstanding
Company Voting Securities"); PROVIDED, HOWEVER, that
for purposes of this subsection (i), the following
acquisitions shall not constitute a Change in Control
Event: (A) any acquisition directly from the Company
(excluding an acquisition pursuant to the exercise,
conversion or exchange of any security exercisable
for, convertible into or exchangeable for common
stock or voting securities of the Company, unless the
Person exercising, converting or exchanging such
security acquired such security directly from the
Company or an underwriter or agent of the Company),
(B) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (C)
any acquisition by any corporation pursuant to a
Business Combination (as defined below) which
complies with clauses (x) and (y) of subsection (iii)
of this definition; or
(2) such time as the Continuing Directors (as defined
below) do not constitute a majority of the Board (or,
if applicable, the Board of Directors of a successor
corporation to the Company), where the term
"Continuing Director" means at any date a member of
the Board (x) who was a member of the Board on the
date this Severance Agreement was signed or (y) who
was nominated or elected subsequent to such date by
at least a majority of the directors who were
Continuing Directors at the time of such nomination
or election or whose election to the Board was
recommended or endorsed by at least a majority of the
directors who were Continuing Directors at the time
of such nomination or election; PROVIDED, HOWEVER,
that there shall be excluded from this clause (y) any
individual whose initial assumption of office
occurred as a result of an actual or threatened
election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents, by or on behalf
of a person other than the Board; or
<PAGE> 3
(3) the consummation of a merger, consolidation,
reorganization, recapitalization or statutory share
exchange involving the Company or a sale or other
disposition of all or substantially all of the assets
of the Company (a "Business Combination"), unless,
immediately following such Business Combination, each
of the following two conditions is satisfied: (x) all
or substantially all of the individuals and entities
who were the beneficial owners of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business
Combination beneficially own, directly or indirectly,
more than 50% of the then-outstanding shares of
common stock and the combined voting power of the
then-outstanding securities entitled to vote
generally in the election of directors, respectively,
of the resulting or acquiring corporation in such
Business Combination (which shall include, without
limitation, a corporation which as a result of such
transaction owns the Company or substantially all of
the Company's assets either directly or through one
or more subsidiaries) (such resulting or acquiring
corporation is referred to herein as the "Acquiring
Corporation") in substantially the same proportions
as their ownership of the Outstanding Company Common
Stock and Outstanding Company Voting Securities,
respectively, immediately prior to such Business
Combination and (y) no Person (excluding the
Acquiring Corporation or any employee benefit plan
(or related trust) maintained or sponsored by the
Company or by the Acquiring Corporation) beneficially
owns, directly or indirectly, 50% or more of the
then-outstanding shares of common stock of the
Acquiring Corporation, or of the combined voting
power of the then-outstanding securities of such
corporation entitled to vote generally in the
election of directors (except to the extent that such
ownership existed prior to the Business Combination).
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 22,325
<SECURITIES> 17,062
<RECEIVABLES> 20,433
<ALLOWANCES> 4,155
<INVENTORY> 0
<CURRENT-ASSETS> 63,543
<PP&E> 25,680
<DEPRECIATION> 15,329
<TOTAL-ASSETS> 86,278
<CURRENT-LIABILITIES> 48,895
<BONDS> 0
0
0
<COMMON> 126
<OTHER-SE> 34,391
<TOTAL-LIABILITY-AND-EQUITY> 86,278
<SALES> 3,758
<TOTAL-REVENUES> 23,521
<CGS> 1,561
<TOTAL-COSTS> 10,292
<OTHER-EXPENSES> 16,040
<LOSS-PROVISION> (100)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,407)
<INCOME-TAX> (891)
<INCOME-CONTINUING> (1,516)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,516)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
