UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
-------------------------------------------------
Commission File Number 0-21041
OBJECT DESIGN, INC.
-------------------
(Exact name of registrant as specified in its charter)
Delaware 02-0424252
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 Mall Road, Burlington, MA 01803
---------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 674-5000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --- ------- ---
The number of shares outstanding of the registrant's common stock as of October
31, 1998 was 27,988,780.
<PAGE>
OBJECT DESIGN, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Part I - Financial Information Page
- ------------------------------ ----
<S> <C>
Consolidated Balance Sheets as of September 30, 1998 3
and December 31, 1997
Consolidated Statements of Income for the three and nine 4
months ended September 30, 1998 and September 30, 1997
Consolidated Statements of Cash Flows for the nine months 5
ended September 30, 1998 and September 30, 1997
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Exhibit Index 11
Signatures 12
</TABLE>
2
<PAGE>
OBJECT DESIGN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------------------- -------------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 16,810 $ 16,345
Short term investments 6,200 2,564
Accounts receivable, net 13,934 14,052
Prepaid expenses and other current assets 1,105 830
--------- --------
Total current assets 38,049 33,791
Property and equipment, net 4,191 3,915
Other assets 2,910 1,172
--------- --------
Total assets $ 45,150 $ 38,878
========= ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of capital lease obligations $ 12 $ 104
Accounts payable 2,524 2,852
Accrued expenses 2,911 953
Accrued compensation 2,353 1,968
Deferred revenue 5,227 3,946
-------- --------
Total current liabilities 13,027 9,823
Long-term capital lease obligations 22 236
Stockholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000
shares; no shares issued or outstanding -- --
Common stock, $.001 par value; authorized
200,000,000 shares; 27,886,825 and 27,444,572
shares issued and outstanding 28 27
Additional paid-in capital 64,714 64,091
Accumulated deficit (29,807) (32,733)
Unrealized gain (loss) on marketable securities 7 (8)
Cumulative translation adjustment (1,970) (1,419)
Advances to stockholders (687) (887)
Unearned compensation (184) (252)
--------- --------
Total stockholders' equity 32,101 28,819
-------- --------
Total liabilities and stockholders' equity $ 45,150 $ 38,878
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
OBJECT DESIGN, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands,except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------ ---------------------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Software $ 11,415 $ 9,842 $ 32,234 $ 24,747
Services 5,129 3,008 12,770 8,399
Related party software and services 84 165 252 2,199
-------- --------- -------- --------
Total revenues 16,628 13,015 45,256 35,345
Cost of revenues:
Cost of software 457 319 1,249 1,122
Cost of services 2,543 2,226 7,675 6,048
Cost of related party software
and services 57 59 173 294
-------- --------- -------- --------
Total cost of revenues 3,057 2,604 9,097 7,464
Gross profit 13,571 10,411 36,159 27,881
Operating expenses:
Selling and marketing 8,073 6,784 23,146 17,312
Research and development 2,248 1,796 6,256 5,774
General and administrative 1,443 1,216 4,204 3,447
-------- --------- -------- --------
Total operating expenses 11,764 9,796 33,606 26,533
Operating income 1,807 615 2,553 1,348
Other income, net 267 310 697 1,047
-------- --------- -------- --------
Income before income taxes 2,074 925 3,250 2,395
Provision for income taxes 207 -- 324 97
-------- --------- -------- --------
Net income $ 1,867 $ 925 $ 2,926 $ 2,298
======== ========= ======== ========
Net income per share-basic $ 0.07 $ 0.03 $ 0.11 $ 0.09
Weighted average common
shares outstanding-basic 27,863 27,203 27,724 26,983
Net income per share-diluted $ 0.06 $ 0.03 $ 0.10 $ 0.08
Weighted average common
shares outstanding-diluted 29,059 29,289 29,033 29,150
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
OBJECT DESIGN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------------
Sept. 30, Sept. 30,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,926 $ 2,298
Adjustments to reconcile net income
to net cash provided by (used for) operating
activities:
Depreciation and amortization 1,746 1,530
Bad debt provision 411 165
Other 131 107
Changes in operating assets and liabilities:
Accounts receivable (143) (3,702)
Prepaids and other current assets (314) (705)
Other assets 66 (484)
Accounts payable and accrued expenses 1,938 170
Deferred revenue 1,239 (523)
------- --------
Net cash provided by (used for) operating activities 8,000 (1,144)
------- --------
Cash flows from investing activities:
Capital expenditures (1,902) (2,143)
Purchased technology (2,000) --
Purchases of marketable securities (5,837) (5,400)
Proceeds from sale/maturities of marketable securities 2,201 12,246
------- --------
Net cash (used for) provided by investing activities (7,538) 4,703
------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options 623 562
Repayments from shareholder advances 200 -
Principal payments on capital lease obligations (61) (107)
------- --------
Net cash provided by financing activities 762 455
------- --------
Effect of exchange rate changes on cash (759) (1,118)
------- --------
Net increase in cash and cash equivalents 465 2,896
Cash and cash equivalents, beginning of period 16,345 10,952
------- --------
Cash and cash equivalents, end of period $16,810 $13,848
======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
Object Design, Inc.
Notes to Consolidated Financial Statements
(in thousands, except per share amounts):
A. Basis of Presentation
The consolidated financial statements include the accounts of Object Design,
Inc. (the "Company") and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated. In the opinion of
management, the accompanying consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the consolidated financial position, results of operations and
cash flows of the Company. Certain information and footnote disclosures 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. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in the Company's Annual Report on Form
10-K filed for the year ended December 31, 1997. Certain reclassifications have
been made to the prior year's statements to conform to the current period
presentation. The results for the three and nine months ended September 30, 1998
are not necessarily indicative of the results to be expected for the entire
fiscal year ending December 31, 1998.
B. Net Income Per Share
The following is a calculation of earnings per share:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic
Net income $ 1,867 $ 925 $ 2,926 $ 2,298
Weighted average shares 27,863 27,203 27,724 26,983
Net income per share-basic $ 0.07 $ 0.03 $ 0.11 $ 0.09
1998 1997 1998 1997
---- ---- ---- ----
Diluted
Net income $ 1,867 $ 925 $ 2,926 $ 2,298
Weighted average shares 27,863 27,203 27,724 26,983
Weighted common stock
equivalents 1,196 2,086 1,309 2,167
-------- ------- ------- -------
Total weighted shares-diluted 29,059 29,289 29,033 29,150
Net income per share-diluted $ 0.06 $ 0.03 $ 0.10 $ 0.08
</TABLE>
Options to purchase 1,894,095 and 1,675,798 shares of the Company's common stock
that were outstanding for the three and nine month periods ended September 30,
1998 and options to purchase 113,448 and 174,036 shares of the Company's common
stock that were outstanding for the three and nine month periods ended September
30, 1997, were not included in the computations of diluted earnings per share as
the inclusion of these shares would have been anti-dilutive.
C. Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income"
which establishes standards for the reporting and display of comprehensive
income and its components in general purpose financial statements. The table
below sets forth "comprehensive income" as defined by SFAS 130.
<TABLE>
<CAPTION>
Three Months Ended Sept. 30 Nine Months Ended Sept. 30,
--------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 1,867 $ 925 $ 2,926 $ 2,298
Other comprehensive income (expense), net of tax:
Cumulative translation adjustments 115 (513) (551) (1,133)
Unrealized gain (loss) on investments 15 10 15 (13)
-------- ------- -------- --------
Total other comprehensive income (expense) 130 (503) (536) (1,146)
-------- ------- -------- --------
Comprehensive income $ 1,997 $ 422 $ 2,390 $ 1,152
======== ======= ======== ========
</TABLE>
6
<PAGE>
Object Design, Inc.
Notes to Consolidated Financial Statements - continued
(in thousands, except per share amounts):
D. New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131") "Disclosures about Segments
of an Enterprise and Related Information." SFAS 131 specifies new guidelines for
determining a company's operating segments and related requirements for
disclosure. SFAS 131 will become effective for fiscal years beginning after
December 15, 1997. The Company will adopt the new standard for the fiscal year
ending December 31, 1998, and is in the process of evaluating the impact of the
new standard on the presentation of its financial statements and the disclosures
therein.
In March 1998, the AICPA issued SOP 98-1, "Accounting For the Costs of
Computer Software Developed or Obtained for Internal Use," which specifies the
accounting treatment provided for such computer software costs depending upon
the type of costs incurred. This Statement is effective for fiscal years
beginning after December 15, 1998 and restatement of prior years will not be
required. The Company will adopt the new standard for the fiscal year ending
December 31, 1999 and does not believe that the adoption of this Statement will
have a significant impact on its financial position or results of operations.
On June 15, 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 is effective for fiscal
years beginning after June 15, 1999. SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair values. Changes in
the fair values of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether or not a derivative is
designated as part of a hedge transaction and, if it is, depending on the type
of hedge transaction. The Company has not yet completed its evaluation of the
impact of the adoption of this new standard.
E. Subsequent Events
In October 1998, the Board of Directors approved a one-for-one stock option
exchange program that provided employees the opportunity to exchange stock
options previously granted under the Company's 1997 Non-qualified Stock Option
Plan and the 1996 Incentive Stock Option Plan for new options with a current
market price and new vesting period. Executive officers and directors were not
eligible to participate in the program. The new options were priced at $3.94
based upon the closing price of the Company's stock as reported by NASDAQ on
October 28, 1998 the effective date of the exchange and vest in equal annual
installments over four years.
On November 9, 1998, the Board of Directors approved a stock repurchase
program that plan authorizes the Company to acquire up to 2,000,000 shares of
its common stock. Such purchases would be made in the open market from time to
time. There is no set time limit on the repurchases and, except for reissuances
in connection with employee stock programs, there are no other specific plans
for shares that might be purchased.
7
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations:
Total Revenues. The Company's total revenues increased 27.8% to $16.6 million
for the three-month period ended September 30, 1998 from $13.0 million for the
same period in 1997. Total revenues for the nine months ended September 30, 1998
increased 28.0% to $45.3 million from $35.3 million for the same period last
year.
Software Revenues. Software revenues increased 16.0% to $11.4 million for the
three-month period ended September 30, 1998 from $9.8 million for same period in
1997. Software revenues increased 30.3% to $32.2 million for the nine-month
period ended September 30, 1998 from $24.7 million for the nine-month period
ended September 30, 1997. These increases were primarily due to increased volume
of ObjectStore software licenses and the introduction of PSE Pro in the second
quarter of 1998.
Service Revenues. Service revenues increased 70.5% to $5.1 million for the
three-month period ended September 30, 1998 from $3.0 million for the same
period in 1997. Service revenues increased 52.0% to $12.8 million for the
nine-month period ended September 30, 1998 from $8.4 million for the same period
in 1997. The increase was primarily the result of increased maintenance
revenues, reflecting growth in the Company's installed base, as well as growing
demand for the Company's consulting services for customer deployments and other
services.
Related Party Software and Services Revenue. Revenues from related parties were
$84,000 and $252,000 for the three and nine-month periods ended September 30,
1998 compared to $165,000 and $2.2 million for the three-month and nine months
ended September 30, 1997. Revenues from related parties declined in 1998
primarily due to a large software purchase in the first quarter of 1997 that was
not repeated in 1998. The decrease in revenue for the three months ended
September 30, 1998 from the same period in 1997 reflects lower services
provided.
International Revenues The Company's revenues from international subsidiaries
increased to $6.6 million or 39.7% of total revenues for the three months ended
September 30, 1998 from $3.7 million or 28.3% of total revenues for the same
period last year. International revenues increased to $17.9 million or 39.4% of
total revenues for the nine months ended September 30, 1998 from $11.0 million
or 31.0% of total revenues for the same period in 1997. The Company expects
international revenues in future periods to fluctuate as a percentage of total
revenues.
Cost of Software. Cost of software increased 43.3% to $457,000 for the
three-month period ended September 30, 1998 from $319,000 for the same period in
1997 and increased to 4.0%. of software revenues from 3.2% for the same period
in 1997. Cost of software increased to $1.3 million for the nine-months ended
September 30, 1998 from $1.1 million in the same period in 1997, but decreased
as a percentage of software revenues to 3.9% from 4.5% for the same periods,
respectively. The increase in dollar amount reflects the direct costs associated
with higher ObjectStore revenues in 1998. The variability as a percentage of
software revenues reflects the variability of the revenue mix, since only
certain products bear royalty costs, and fluctuations in costs for packaging and
other material costs relating to new product releases.
Cost of Services. Cost of services increased 14.2% to $2.5 million for the three
month period ended September 30, 1998 from $2.2 million for the same period in
1997 and decreased as a percent of service revenues to 49.6% from 74.0% for the
same periods, respectively. Cost of services increased 26.9% to $7.6 million for
the nine-month period ended September 30, 1998 from $6.0 million for the same
period in 1997 and decreased as a percentage of service revenues to 60.0% from
72.0% for the same periods, respectively. The increase in dollar amount reflects
the growth in staffing necessary to generate and support increased worldwide
service revenue and provide customer support to the Company's increasing
installed base. The decrease in cost of services as a percentage of service
revenues is primarily due to higher average utilization of consulting personnel
in 1998. The Company expects cost of services to continue to grow in absolute
dollars.
Cost of Related Party Software and Services Revenue. The cost of related party
software and services revenue were $57,000 and $59,000 for the three months
ended September 30, 1998 and 1997. The cost of related party software and
services revenue were $173,000 and $294,000 for the nine months ended September
30, 1998 and 1997. The decrease in costs reflects decreased services provided
and costs associated with the large software purchase in 1997 not repeated in
1998.
8
<PAGE>
Selling and Marketing. Selling and marketing expenses increased 19.0% to $8.1
million for the three month period ended September 30, 1998 from $6.8 million
for the same period in 1997 and decreased as a percentage of total revenues to
48.6% from 52.1% for the same periods, respectively. Selling and marketing
expenses increased 33.7% to $23.1 million for the nine months ended September
30, 1998 from $17.3 million for the same period in 1997 and increased as a
percentage of total revenues to 51.1% from 49.0% for the same periods,
respectively. The increase in dollar amount resulted primarily from continued
expansion of the Company's sales force and increased marketing investment,
including increased expenditures on salaries, recruiting fees, marketing
programs, travel and other related expenses as well as higher sales commissions
associated with higher revenues. The Company intends to continue to expand its
sales force and maintain higher levels of marketing investments throughout the
next year and as a result expects selling and marketing expenses to continue to
increase in future periods, but to vary as a percentage of revenues.
Research and Development. Research and development expenses increased 25.5% to
$2.2 million for the three-month period ended September 30, 1998 from $1.8
million for the same period in 1997, but decreased slightly as a percent of
total revenues to 13.5% from 13.8% for the same periods, respectively. Research
and development expense increased 8.3% to $6.3 million for the nine months ended
September 30, 1998 from $5.8 million for the same period in 1997, and decreased
as a percentage of total revenues to 13.8% from 16.3% for the same periods,
respectively. The expense increase was due principally to the addition of
personnel, depreciation of capital expenditures and related overhead
expenditures for enhancements to existing products as well as the development of
new products. The Company expects that research and development expenses will
increase in dollar amount in future periods as the Company continues to enhance
the ObjectStore enterprise database and the development of new products such as
PSE Pro and EXcelon.
General and Administrative. General and administrative expenses increased 18.7%
to $1.4 million for the three months ended September 30, 1998 from $1.2 million
for the same period in 1997 and decreased as a percentage of total revenues to
8.7% from 9.3% for the same periods, respectively. General and administrative
expenses increased 22.0% to $4.2 million for the nine months ended September 30,
1998 from $3.4 million for the nine months ended September 30, 1997, and
decreased slightly from 9.8% to 9.3% of total revenues for both periods. The
increase in dollar amount is reflective of the increased staffing, investments
in information technology, professional expenses and other costs associated with
expanding operations.
Other Income. Other income decreased 13.5%, to $267,000 for the three-month
period ended September 30, 1997 from $310,000 for the corresponding period in
1997. Other income decreased to 33.3% to $697,000 for the nine-month period
ended September 30, 1998 from $1.0 million for the corresponding period in 1997.
The decrease was largely the result of lower rates of return on cash and
investments.
Provision for Income Taxes. The Company's effective tax rate of 10.0% for three
and nine months ended September 30, 1998 and 4.0% for the nine months ended
September 30, 1997 reflects an alternative minimum tax provision for federal
taxes and certain state and foreign taxes. The effective tax rate in all periods
presented is lower than the statutory rate principally due to the utilization of
net operating loss carryforwards.
Liquidity and Capital Resources
At September 30, 1998, the Company's principal sources of liquidity included
$23.0 million of cash and short-term investments and an $2.0 million revolving
line of credit which expires in November 1998. The Company expects to renew the
line of credit at terms similar to the existing agreement. No borrowings were
outstanding under the line of credit during the nine-month period ended
September 30, 1998, but letters of credit in the amount of $550,000 issued for
the account of the Company under the line of credit were outstanding at that
date.
Net cash provided by operating activities was $8.0 million for the nine
months ended September 30, 1998, as compared to $1.1 million used for operating
activities in the corresponding period in 1997. The increase in cash provided
was primarily the result of improvement in accounts receivable collections,
increased deferred revenue associated with maintenance billings and increased
accrued expenses.
The Company's investing activities used $7.5 million of cash for the nine
months ended September 30, 1998 compared with cash provided by the Company's
investing activities of $4.7 million in corresponding period in 1997. The
increased use of cash was attributable primarily to the net purchase of $3.6
million of marketable securities in 1998, compared to the net sale of $6.8
million of short term-investments in 1997, and to a $2.0 million purchase of
technology in 1998.
The Company's financing activities provided $762,000 and $455,000 for the
nine months ended September 30, 1998 and 1997, respectively. The increase in
1998 was primarily the result of repayments of shareholder advances and higher
proceeds from employee stock plans.
The Company believes that its current cash, marketable securities, and funds
generated from operations, if any, will provide adequate liquidity to meet the
Company's capital and operating requirements for the next twelve months.
9
<PAGE>
International Operations: Exchange Rate Fluctuations
Fluctuations in exchange rates can adversely affect the Company's results of
operations and financial position. The financial statements of the Company's
international subsidiaries, all of whose functional currencies are the local
currency, are translated using exchange rates in effect at the end of the period
for assets and liabilities and average exchange rates during the period for
results of operations. Foreign currency translation adjustments are recorded as
a separate component of stockholders' equity, and also are included in reporting
the Company's comprehensive income. The Company itself also engages in
transactions denominated in foreign currencies. Gains and losses from these
transactions, which to date have been immaterial, are reflected in the Company's
results of operations. For the nine-month periods ended September 30, 1998 and
1997, foreign currency translation losses reflected in stockholder's equity at
the end of such periods and included in determining comprehensive income for
such periods were $551,000 and $1.1 million, respectively. The impact of future
exchange rate fluctuations on the Company's results of operations and financial
condition cannot accurately be predicted. The Company does not currently engage
in foreign currency hedging activities.
Year 2000 Compliance
The Company is in the process of reviewing its current product offerings for
Year 2000 compliance and believes that, with the exception of certain minor
administrative functions that do not affect the utility of the product, such
products are Year 2000 compliant in all material respects. The Company is
conducting only limited testing of products that are no longer offered, and thus
the Year 2000 compliance of such products is generally not known. Most of these
untested products are previous releases of current offerings and can be upgraded
to achieve Year 2000 compliance. Testing of certain third-party software
programs that are incorporated in the Company's rapid application development
and enterprise integration tools is not complete and is expected to be complete
in early 1999.
The Company is also assessing the risk of compliance of a number of computer
software programs, including programs used in its internal operations to manage
the Company's financial and accounting functions as well as in the Company's
sales, marketing and product development activities. Any year 2000 failure of
third party software or systems utilized in the Company's operations could have
a material adverse effect on the Company's business, financial condition and
results of operations. Such software and systems will either be upgraded for
compliance or alternative sources will be identified to avoid material problems.
This process is expected to be complete in early 1999.
Costs incurred in the Company's year 2000 compliance effort will be expensed
as incurred. To date, the Company has not incurred material costs to remediate
Year 2000 issues and while the Company's Year 2000 compliance evaluation is not
yet complete, the Company does not at this time foresee a material impact on its
business or operating results from the Year 2000 problem. The Company cannot, of
course, predict the nature or materiality of the impact on its operations or
operating results of noncompliance by parties with whom it does not have a
direct relationship. In particular, the purchasing patterns of customers or
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct their current systems for Year 2000 compliance.
These expenditures may result in reduced funds available to purchase products
and services such as those offered by the Company.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the European
Union are scheduled to establish fixed conversion rates between their existing
sovereign currencies and the Euro, making the Euro their common legal currency
on that date. Following the introduction of the Euro, the legacy currencies are
scheduled to remain legal tender in the participating countries as denominations
of the Euro between January 1, 1999 and January 1, 2002 (the "transition
period"). During the transition period, public and private parties may pay for
goods and services using either the Euro or the participating country's legacy
currency on a "no compulsion, no prohibition" basis. However, conversion rates
no longer will be computed directly from one legacy currency to another.
Instead, a triangular process will apply whereby an amount denominated in one
legacy currency will first be converted into the Euro. The resultant
Euro-denominated amount will then be converted into the second legacy currency.
The Company is currently evaluating the business implications of conversion to
the Euro, including technical adaptation of information technology and other
systems to accommodate Euro-denominated transactions, long-term competitive
implications of the conversions and the effect on market risk with respect to
financial instruments. At this time, management has not completed its assessment
of the impact of the conversion.
10
<PAGE>
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131") "Disclosures about Segments
of an Enterprise and Related Information." SFAS 131 specifies new guidelines for
determining a company's operating segments and related requirements for
disclosure. SFAS 131 will become effective for fiscal years beginning after
December 15, 1997. The Company will adopt the new standard for the fiscal year
ending December 31, 1998, and is in the process of evaluating the impact of the
new standard on the presentation of its financial statements and the disclosures
therein.
In March 1998, the AICPA issued SOP 98-1, "Accounting For the Costs of
Computer Software Developed or Obtained for Internal Use," which specifies the
accounting treatment provided for such computer software costs depending upon
the type of costs incurred. This Statement is effective for fiscal years
beginning after December 15, 1998 and restatement of prior years will not be
required. The Company will adopt the new standard for the fiscal year ending
December 31, 1999 and does not believe that the adoption of this Statement will
have a significant impact on its financial position or results of operations.
On June 15, 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 is effective for fiscal
years beginning after June 15, 1999. SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair values. Changes in
the fair values of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether or not a derivative is
designated as part of a hedge transaction and, if it is, depending on the type
of hedge transaction. The Company has not yet completed its evaluation of the
impact of the adoption of this new standard.
Certain Factors That May Affect Future Results
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission may contain statements which are not historical facts but
which are "forward looking statements" which involve risks and uncertainties.
The words "expect", "anticipate", "internal", "plan", "believe," "seek",
"estimate" and similar statements are intended to identify such forward looking
statements. In particular, statements in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" relating to the Company's
future shipments, revenue and expense levels and profitability, as well as the
sufficiency of capital to meet working capital and capital expenditure
requirements, may be forward-looking statements. Such statements are not
guarantees of future performance, and involve certain risks, uncertainties and
assumptions that could cause the Company's future results to differ materially
from those expressed in any forward-looking statements. The Company disclaims
any intent or obligation to update publicly any forward-looking statements
whether in response to new information, future events or otherwise. Important
information about the basis for those assumptions and the factors that may cause
actual results to vary from such forward-looking statements are contained in
"Certain Factors That May Affect Future Results" included in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in the Company's 1997 Annual Report on Form 10-K, which section is
incorporated herein by reference.
Part II: OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings pending to which the Company is a party.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
*3.3 Amended and Restated Certificate of Incorporation
*3.5 Amended and Restated By-laws of the Company
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
</TABLE>
* This exhibit is incorporated by reference to the similarly numbered exhibit
filed as part of the Company's Registration Statement on Form S-1, Securities
and Exchange Commission File No. 333-05241.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30, 1998.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OBJECT DESIGN, INC.
November 13, 1998 By: /s/ Robert N. Goldman
----------------------------
Robert N. Goldman
President, Chairman of the Board
November 13, 1998 By: /s/ Lacey P. Brandt
----------------------------
Lacey P. Brandt
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 16,810
<SECURITIES> 6,200
<RECEIVABLES> 14,709
<ALLOWANCES> 775
<INVENTORY> 0
<CURRENT-ASSETS> 38,049
<PP&E> 12,936
<DEPRECIATION> 8,745
<TOTAL-ASSETS> 45,150
<CURRENT-LIABILITIES> 13,027
<BONDS> 22
0
0
<COMMON> 28
<OTHER-SE> 32,073
<TOTAL-LIABILITY-AND-EQUITY> 45,150
<SALES> 32,234
<TOTAL-REVENUES> 45,256
<CGS> 1,249
<TOTAL-COSTS> 9,097
<OTHER-EXPENSES> 33,606
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,250
<INCOME-TAX> 324
<INCOME-CONTINUING> 2,926
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,926
<EPS-PRIMARY> .11
<EPS-DILUTED> .10
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 13,848
<SECURITIES> 2,722
<RECEIVABLES> 15,679
<ALLOWANCES> 800
<INVENTORY> 0
<CURRENT-ASSETS> 32,835
<PP&E> 11,721
<DEPRECIATION> 7,718
<TOTAL-ASSETS> 39,751
<CURRENT-LIABILITIES> 9,514
<BONDS> 212
0
0
<COMMON> 27
<OTHER-SE> 29,998
<TOTAL-LIABILITY-AND-EQUITY> 39,751
<SALES> 24,747
<TOTAL-REVENUES> 35,345
<CGS> 1,122
<TOTAL-COSTS> 7,464
<OTHER-EXPENSES> 26,533
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,395
<INCOME-TAX> 97
<INCOME-CONTINUING> 2,298
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,298
<EPS-PRIMARY> .09
<EPS-DILUTED> .08
</TABLE>
