<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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, 1998
OR
[ ] 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: 000-23453
FLEXIINTERNATIONAL SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
Delaware 06-1309427
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
Two Enterprise Drive, Shelton, CT 06484
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(203) 925-3040
(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 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 [ ]
As of June 30, 1998, there were 17,375,908 shares of FlexiInternational
Software, Inc. Common Stock outstanding.
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FLEXIINTERNATIONAL SOFTWARE, INC.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet............................3
Condensed Consolidated Statement of Operations..................4
Condensed Consolidated Statement of Cash Flows..................5
Condensed Consolidated Statement of Stockholders' Equity........6
Notes to Condensed Consolidated Financial Statements............7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................10
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.........................13
Item 4. Submission of Matters to a Vote of Security Holders...............13
Item 5. Other Information.................................................13
Item 6. Exhibits and Reports on Form 8-K..................................13
Signature.........................................................14
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FLEXIINTERNATIONAL SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
-------- ------------
1998 1997
-------- ------------
(unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 18,573 $ 24,622
Short-term investments 3,448 -
Accounts receivable, net of allowance for doubtful
accounts of $756 and $672, respectively 12,008 8,571
Prepaid expenses and other current assets 871 1,143
-------- --------
Total current assets 34,900 34,336
Property and equipment at cost, net of accumulated depreciation
and amortization of $1,728 and $1,392, respectively 2,063 1,222
Long-term receivable 800 -
Acquired software 2,160 -
Goodwill 727 -
Other assets, net of accumulated amortization of $209 and $197, respectively 209 112
-------- --------
Total assets $ 40,859 $ 35,670
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 6,989 $ 4,409
Current portion of capital lease obligations 257 206
Short-term debt 393 -
Deferred revenues 3,582 3,045
-------- --------
Total current liabilities 11,221 7,660
Long-term portion of capital lease obligations 397 304
-------- --------
Total liabilities 11,618 7,964
-------- --------
Stockholders' equity:
Common stock; $.01 par value; 50,000,000 shares authorized;
issued and outstanding shares - 17,375,908 and 16,492,008, respectively 174 165
Additional paid-in capital 56,299 49,749
Accumulated deficit (27,232) (22,208)
-------- --------
Total stockholders' equity 29,241 27,706
-------- --------
Total liabilities and stockholders' equity $ 40,859 $ 35,670
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
FLEXIINTERNATIONAL SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
------- ------- ------- -------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Software license $ 6,059 $ 1,510 $10,746 $ 2,821
Service and maintenance 3,192 1,465 6,013 2,701
------- ------- ------- -------
Total revenues 9,251 2,975 16,759 5,522
Cost of revenues:
Software license 664 163 1,131 459
Service and maintenance 2,106 1,100 3,859 1,877
------- ------- ------- -------
Total cost of revenues 2,770 1,263 4,990 2,336
Operating expenses:
Sales and marketing 2,605 1,753 4,748 3,314
Product development 2,304 1,914 4,326 4,066
General and administrative 805 507 1,417 1,102
Acquired in-process research & development 6,830 - 6,830 -
------- ------- ------- -------
Total operating expenses 12,544 4,174 17,321 8,482
------- ------- ------- -------
Operating loss (6,063) (2,462) (5,552) (5,296)
Interest income 284 53 570 66
Interest expense (29) (20) (42) (46)
------- ------- ------- -------
Loss before provision for income taxes (5,808) (2,429) (5,024) (5,276)
Provision for income taxes - - - -
------- ------- ------- -------
Net loss $(5,808) $(2,429) $(5,024) $(5,276)
======= ======= ======= =======
Net loss per share:
Basic $ (0.35) $ (0.41) $ (0.30) $ (0.92)
Diluted $ (0.35) $ (0.41) $ (0.30) $ (0.92)
Weighted average shares:
Basic 16,567 5,971 16,533 5,728
Diluted 16,567 5,971 16,533 5,728
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
FLEXIINTERNATIONAL SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
June 30,
----------------------
1998 1997
------- -------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(5,024) $(5,276)
Non-cash items included in net loss:
Depreciation and amortization 348 235
Acquired in-process research and development charge 6,830 -
Provision for doubtful accounts 150 150
Change in operating accounts:
Accounts receivable (3,606) (2,527)
Prepaid expenses and other assets 326 (512)
Accounts payable and accrued expenses 34 519
Deferred revenue (547) 2,713
------- -------
Net cash used in operating activities (1,489) (4,698)
Cash flows from investing activities:
Acquisition of subsidiary, less cash acquired (493) -
Purchase of property and equipment (552) (370)
------- -------
Net cash used in investing activities (1,045) (370)
Cash flows from financing activities:
Purchase of short-term investments (3,448) -
Proceeds from sales of common stock, net of stock issue costs - 4,300
Proceeds from line of credit, net - 700
Proceeds from exercise of stock options and warrants 38 13
Repayments of convertible note payable - (77)
Payments of capital lease obligations (105) (139)
------- -------
Net cash (used in) provided by financing activities (3,515) 4,797
------- -------
Decrease in cash and cash equivalents (6,049) (271)
------- -------
Cash and cash equivalents at beginning of period 24,622 3,273
------- -------
Cash and cash equivalents at end of period $18,573 $ 3,002
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
FLEXIINTERNATIONAL SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common Stock Additional Total
---------------------- paid-in Accumulated stockholders'
Shares Amount capital deficit equity
---------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 16,492,008 $165 $49,749 $(22,208) $27,706
Exercise of stock options and warrants 20,400 - 38 - 38
Stock issued in conjunction with the
acquisition of The Dodge Group 863,500 9 6,512 - 6,521
Net loss - - - (5,024) (5,024)
---------- ---- ------- -------- -------
Balance at June 30, 1998 17,375,908 $174 $56,299 $(27,232) $29,241
========== ==== ======= ======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. 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 such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not misleading. These
condensed consolidated financial statements should be read in conjunction with
the financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
The unaudited condensed consolidated financial statements include the accounts
of FlexiInternational Software, Inc. and its subsidiaries and reflect all
adjustments (which include only normal, recurring adjustments) which are, in the
opinion of management, necessary to state fairly the results for the three and
six month periods ended June 30, 1998. The results for the three and six month
periods ended June 30, 1998 are not necessarily indicative of the results
expected for the full year.
NOTE 2 - EARNINGS PER SHARE
In 1997, the Company adopted Financial Accounting Standards Board Statement No.
128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 applies to entities
with publicly held common stock or potential common stock and is effective for
financial statements issued for periods ending after December 15, 1997. Under
SFAS No. 128, the presentation of primary earnings per share is replaced with a
presentation of basic earnings per share. SFAS No. 128 requires dual
presentation of basic and diluted earnings per share for entities with complex
capital structures. Basic earnings per share includes no dilution and is
computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity, similar to fully diluted earnings per share.
The Company has presented basic and diluted loss per share for all periods.
In February 1998, the SEC issued Staff Accounting Bulletin No. 98 ("SAB No.
98"). SAB No. 98 requires the disclosure of historical earnings per share
information for all pre initial public offering (IPO) periods in accordance with
SFAS No. 128. As a result, the Company has included net loss per share for all
pre-IPO periods presented.
NOTE 3 - ACQUISITION
On June 24, 1998, the Company completed the acquisition of The Dodge Group, Inc.
("Dodge"), a software developer that specializes in financial data warehouse
solutions. Under the terms of the acquisition, the Company issued an aggregate
of 863,500 shares of its common stock and $754,000 in cash in exchange for all
outstanding shares of Dodge stock and payment in full of principal and interest
on promissory notes of Dodge held by certain former stockholders of Dodge. In
addition, the Company granted options to employees of Dodge under its 1997 Stock
Incentive Plan to purchase an aggregate of 168,000 shares of common stock. The
acquisition was accounted for using the purchase method of accounting, and
accordingly, the results of Dodge's operations are included in the Company's
condensed consolidated financial statements from the date of acquisition.
A summary of the purchase price for the acquisition is as follows (in
thousands):
Stock and stock options $6,521
Payment of convertible notes payable 754
Acquisition costs 281
Liabilities assumed 2,161
------
$9,717
======
7
<PAGE> 8
A summary of the allocation of the purchase price is as follows (in thousands):
Acquired in-process research and development 6,830
Acquired software 2,160
Goodwill 727
------
$9,717
======
Acquired in-process research and development represents the fair value of
technologies acquired for use in the Company's own development efforts. The
Company determined the amount of the purchase price to be allocated to
in-process research and development and to acquired software based on an
independent valuation using the income approach. This approach assumes that a
given stream of income and related profits can be attributed to certain
in-process research and development and to acquired software. This method
examines the time and cost to incorporate the acquired technology into the
Company's development projects, expected incremental revenues and expenses
associated with the development projects utilizing the acquired technology, and
risks and uncertainties associated with the acquired technology. Such risks and
uncertainties include inherent difficulties and uncertainties in incorporating
the acquired technology into the Company's development projects and risks
related to the viability of and potential changes to target markets. The Company
also concluded that the acquired technology had no alternative future use.
Acquired software represents the fair value of applications and technologies
presently in use. The resulting value will be amortized using the straight-line
method over its estimated life of five years, and subjected to periodic
impairment tests in accordance with established policies.
Goodwill represents the excess of the purchase price over the fair value of
identifiable tangible and intangible assets acquired and is amortized using the
straight-line method over its estimated life of five years.
The acquisition of Dodge was a tax free reorganization under the Internal
Revenue Code (IRC). Therefore, the charge for in-process research and
development is not deductible for income tax purposes. The Company acquired a
net operating loss carryforward of approximately $29 million, which expires no
later than 2009. Under the provisions of the IRC, the amount of these net
operating loss carryforwards available annually to offset future taxable income
is significantly limited. No value has been attributed to these net operating
losses in the purchase price allocation due to these limitations.
In connection with the acquisition, approximately 86,350 shares of common stock
issued were placed in escrow as security for indemnification obligations made by
former shareholders of Dodge.
The following table reflects pro forma combined results of operations
(unaudited) of the Company and Dodge, giving effect to the acquisition of Dodge
at the beginning of the fiscal year 1997, for all periods presented, and
excludes the one-time in-process research and development charge of $6,830 for
the periods presented:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenue $11,555 $ 5,003 $21,205 $ 9,793
Net loss $ (380) $(3,284) $ (533) $(6,361)
Net loss per diluted common share $ (0.02) $ (0.48) $ (0.03) $ (0.96)
Shares used in computation 17,373 6,835 17,368 6,592
</TABLE>
NOTE 4 - REVENUE RECOGNITION
The Company licenses software under noncancellable license agreements through
direct and indirect channels, and provides services including maintenance,
training and consulting. Effective January 1, 1998, the Company has adopted SOP
97-2 "Software Revenue Recognition". The adoption of SOP 97-2 had no material
impact on the financial statements. Software license revenues through the
Company's direct sales channel and guaranteed minimum royalties through its
indirect sales channel are recognized when a noncancellable license agreement
has been signed, the product has been delivered and installed, collection is
considered probable by management and all significant contractual obligations
have been satisfied. Other software license royalties earned through the
8
<PAGE> 9
Company's indirect sales channel are recognized as such fees are reported to the
Company. Revenues on all software license transactions in which there are
significant outstanding obligations are not recognized until such obligations
are fulfilled. Maintenance revenues for maintaining, supporting and providing
periodic upgrading are deferred and recognized ratably over the maintenance
period, generally one year. Revenues from training and consulting services are
recognized as such services are performed. The Company does not require
collateral for its receivables, and reserves are maintained for potential
losses.
NOTE 5 - RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130,"Reporting Comprehensive Income," ("SFAS No. 130"). SFAS No. 130 applies to
all companies and is effective for fiscal years beginning after December 15,
1997. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income in a set of financial statements. Comprehensive income is
defined as the change in net assets of a business enterprise during a period
from transactions generated from non-owner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. Management believes that with the acquisition of Dodge,
and the possibility of foreign currency fluctuations, the adoption of SFAS No.
130 will have an impact on future financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
("SFAS No. 131"). SFAS No. 131 applies to all public companies and is effective
for fiscal years beginning after December 15, 1997. SFAS No. 131 requires that
business segment financial information be reported in the financial statements
utilizing the management approach, which includes disclosures of certain
geographic financial information. The management approach is defined as the
manner in which management organizes the segments within the enterprise for
making operating decisions and assessing performance. Management continues to
assess its reporting requirements under SFAS 131 and will make all required
disclosures as necessary.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report contains
forward-looking statements. For this purpose, any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," and similar expressions are intended to identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's opinions only as of
the date hereof. The Company undertakes no obligation to revise or publicly
release the results of any revision to these forward-looking statements. Readers
should carefully review the risk factors described in other documents the
Company files from time to time with the Securities and Exchange Commission,
including the Annual Report on Form 10-K for the year ended December 31, 1997.
RESULTS OF OPERATIONS
Revenues. Total revenues, consisting of software license revenues and
service and maintenance revenues, increased 211.0%, from $3.0 million for the
three months ended June 30, 1997 to $9.3 million for the three months ended June
30, 1998. Year to date revenues increased 203.5% from $5.5 million in 1997 to
$16.8 million for the same period in 1998. Two customers provided approximately
39.2% and 42.5% of the total revenues for the three months and six months ended
June 30, 1998, respectively. Revenue growth was due primarily to increased
software license revenues.
Software license revenues increased 301.3%, from $1.5 million for the three
months ended June 30, 1997 to $6.1 million for the three months ended June 30,
1998. Year to date software license revenues increased 280.9% from $2.8 million
in 1997 to $10.8 million in 1998. Software license revenue growth was due to
increased revenue from new clients, existing clients and indirect sales channel
fees.
Service and maintenance revenues increased 117.9%, from $1.5 million for the
three months ended June 30, 1997 to $3.2 million for the three months ended June
30, 1998. Year to date service and maintenance revenues increased 122.6% from
$2.7 million in 1997 to $6.0 million in 1998. The increase was primarily
attributable to the growth of the installed base of customers and the increasing
complexity of user requirements, which resulted in an increase in consulting
service revenues.
Cost of Revenues. The Company's cost of revenues consists of cost of
software license revenues and cost of service and maintenance revenues. Cost of
software license revenues consists primarily of the cost of third-party software
products distributed by the Company and the cost of product media, manuals and
shipping. Cost of service and maintenance revenues consists of costs to provide
consulting, implementation and training to licensees of the Company's products
and the cost of providing software maintenance to customers, technical support
services and periodic upgrades of software.
Cost of software license revenues increased 307.4%, from $163,000 for the
three months ended June 30, 1997 to $664,000 for the three months ended June 30,
1998. Cost of software license revenues as a percentage of software license
revenues increased from 10.8% for the three months ended June 30, 1997 to 11.0%
for the three months ended June 30, 1998. Year to date the cost of software
license revenues increased 146.4% from $0.5 million in 1997 to $1.1 million in
1998, while decreasing as a percentage of software license revenue from 16.3% in
1997 to 10.5% in 1998. The dollar increase in cost of software license revenues
was primarily attributable to an increase in third-party software products
distributed by the Company, as well as costs associated with increased sales
volume.
Cost of service and maintenance revenues increased 91.5%, from $1.1 million
for the three months ended June 30, 1997 to $2.1 million for the three months
ended June 30, 1998. Cost of service and maintenance revenues as a percentage of
service and maintenance revenues decreased from 75.1% for the three months ended
June 30, 1997 to 66.0% for the three months ended June 30, 1998. Year to date
the cost of service and maintenance revenues increased 105.6% from $1.9 million
in 1997 to $3.9 million in 1998, while decreasing as a percentage of service and
maintenance revenues from 69.5% in 1997 to 64.2% in 1998. The increase in dollar
amount resulted primarily from the addition of service consultants and customer
support personnel to provide services to a larger customer base.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions, travel and promotional expenses, and facility and
communication costs for direct sales offices. Sales and marketing expenses
increased 48.6%, from $1.8 million for the three months ended June 30, 1997 to
$2.6 million for the three months ended June 30, 1998. Year to date sales and
marketing expenses increased 43.3% from $3.3 million in 1997 to $4.7 million in
1998. The increase in dollar amount was primarily attributable to increased
staffing in the direct sales
10
<PAGE> 11
force and sales and marketing organizations. Sales and marketing expenses as a
percentage of total revenues decreased from 59.0% to 28.2% for the three months
ended June 30, 1997 and 1998, respectively, and from 60.0% to 28.3% for year to
date 1997 and 1998, respectively. The decreases in these percentages were
primarily due to an increasing revenue base. The Company is in the process of
expanding its distribution channels, both domestically and internationally and,
accordingly, sales and marketing expenses are expected to increase in dollar
amount in the future.
Product Development (Excluding Acquired In-Process Research and
Development). Product development expenses include software development costs
and consist primarily of engineering personnel costs. The Company has made
significant investments in product development in the past several years to
bring its suite of component-based, object-oriented financial accounting
products to market.
Product development expenses increased 20.4%, from $1.9 million for the
three months ended June 30, 1997 to $2.3 million for the three months ended June
30, 1998. Year to date product development expenses increased 6.4% from $4.1
million in 1997 to $4.3 million in 1998. The increase in product development
expenses was due primarily to an increase in staffing. Product development
expenses as a percentage of total revenues decreased from 64.4% to 24.9% for the
three months ended June 30, 1997 and 1998, respectively, and from 73.6% to 25.8%
for year to date 1997 and 1998, respectively. The Company anticipates that
product development expenses will increase in dollar amount in future periods as
the Company continues to enhance the functionality of its core financial
accounting and reporting and workflow applications and as it continues
development work on the next releases of its suite of application modules.
General and Administrative. General and administrative expenses consist
primarily of salaries of executive, administrative and financial personnel, as
well as provisions for doubtful accounts and outside professional fees. General
and administrative expenses increased 58.8%, from $507,000 for the three months
ended June 30, 1997 to $805,000 for the three months ended June 30, 1998. Year
to date general and administrative expenses increased 28.6% from $1.1 million in
1997 to $1.4 million in 1998. General and administrative expenses as a
percentage of total revenues decreased from 17.1% to 8.7% for the three months
ended June 30, 1997 and 1998, respectively, and from 20.0% to 8.5% for year to
date 1997 and 1998, respectively. The decreases in these percentages were
primarily due to an increasing revenue base. The Company expects general and
administrative expenses to increase in dollar amount in future periods due to
the Company's growth as well as the additional expense of being a public
company.
Acquired In-Process Research and Development. As a result of the June 24,
1998 acquisition of The Dodge Group, there is a one-time charge of $6.8 million
for acquired in-process research and development in the three month and six
months periods ended June 30, 1998. The Company anticipates additional product
development expenses in future periods in order to establish technological
feasibility for this technology, and expects that this will be a commercially
viable product within the next 12 months.
Provision for Income Taxes. No provision or benefit for federal, state or
foreign income taxes was made for the three-month or year to date periods ended
June 30, 1998 and 1997. Excluding the Dodge acquisition, the Company has
reported only annual tax losses to date and consequently has approximately $18.0
million of net operating loss carryforwards, which expire at various times
through the year 2012, available to offset future taxable income. The
utilization of such net operating losses is subject to limitations as a result
of an ownership change. The annual limitation and the timing of attaining
profitability may result in the expiration of net operating loss carryforwards
before utilization.
Supplemental Disclosure of Net Income (Loss) and Income (Loss) per Share
Excluding Nonrecurring Charges. Excluding the one-time charge for acquired
in-process research and development of $6.8 million, net income was $1.0 million
or $0.06 per diluted share and $1.8 million or $0.10 per diluted share for the
three and six month periods ended June 30, 1998, respectively. This compares to
a loss of $2.4 million or $0.41 per diluted share and $5.3 million or $0.92 per
diluted share in the three and six month periods ended June 30, 1997,
respectively, as reflected in the following table:
11
<PAGE> 12
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30, 1998
----------------------------------- -----------------------------------
1998 1998(a) 1997 1998 1998(a) 1997
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Supplemental net income (loss) $(5,808) $1,022 $(2,429) $(5,024) $1,806 $(5,276)
Percentage of revenue (62.8%) 11.0% (81.6%) (30.0%) 10.8% (95.5%)
Supplemental net income (loss)
per share:
Basic $ (0.35) $ 0.06 $ (0.41) $ (0.30) $ 0.11 $ (0.92)
Diluted $ (0.35) $ 0.06 $ (0.41) $ (0.30) $ 0.10 $ (0.92)
</TABLE>
a) Excludes one-time charge of $6.8 million for acquired in-process research &
development
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has primarily financed its operations
through private placements of its stock to private investors, issuances of
convertible promissory notes and loans and, to a lesser extent, equipment
financing and traditional financing arrangements. In December 1997, the Company
completed an initial public offering of its common stock, resulting in net
proceeds to the Company of approximately $22.2 million.
As of June 30, 1998, the Company had cash and cash equivalents of $18.6
million, a decrease of $6.0 million from December 31, 1997. The Company's
working capital at June 30, 1998 was $23.7 million, compared to $26.7 million at
December 31, 1997.
The Company's operating activities resulted in net cash outflow of $1.2
million for the six months ended June 30, 1998, attributable primarily to
increased accounts receivable, consistent with the growth in revenues. Investing
activities, consisting of payments under the Dodge acquisition on June 24, 1998,
and capital expenditures (primarily computer property and equipment), resulted
in net cash outflow of $1.3 million for the six months ended June 30, 1998. The
Company's financing activities resulted in net cash outflow of $3.5 million for
the six months ended June 30, 1998, primarily attributable to the purchase of
short-term investments.
The Company has a working capital revolving line of credit with a bank,
which is secured by the Company's accounts receivable. The amount available
under this facility is limited to the lesser of 80% of the Company's eligible
accounts receivable, as defined, or $4.8 million. The facility will expire on
April 1, 1999. The agreement under which the line of credit was established
contains certain covenants, including provisions requiring the Company to
maintain specified financial ratios. The Company was in compliance with these
covenants at June 30, 1998. At June 30, 1998, no borrowings were outstanding
under this line of credit.
The Company believes that cash and cash equivalents, cash generated
internally by operations, and available borrowings under the line of credit will
be sufficient to meet the Company's working capital requirements for at least
the next twelve months.
YEAR 2000 COMPLIANCE
The Company continues to evaluate and address business and operational
issues related to Year 2000 compliance, and believes that its installed
computer systems and software products, and those of its subsidiaries are in
compliance. The total cost to remediate its Year 2000 issues is not expected to
be material.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Recent Sales of Unregistered Securities.
On June 24, 1998, the Company acquired The Dodge Group, Inc. ("Dodge")
pursuant to the Agreement and Plan of Merger, dated as of June 24, 1998 (the
"Merger Agreement"), among the Company, Dodge and Princess Acquisition
Corporation, a wholly-owned subsidiary of the Company. Pursuant to the Merger
Agreement, the Company issued an aggregate of 838,778 shares of Common Stock to
holders of the capital stock and debt of Dodge. Such shares were offered and
sold in reliance on the exemption from registration provided by Rule 506 of
Regulation D under the Securities Act of 1933, as amended.
(d) Use of Proceeds.
(1) The Company's registration statement on Form S-1 under the
Securities Act of 1933, as amended, (File No. 333-38403) for the
Company's initial public offering, the use of proceeds of which
is herein reported, was declared effective as of December 11,
1997.
(4)(vii) From December 11, 1997 to June 30, 1998, the Company used
approximately $1,306,000 of the proceeds from the initial
public offering for the purchase and installation of
property and equipment ($552,000) and payments of
convertible notes payable in connection with the Dodge
acquisition ($754,000). Payment of these expenses were to
persons other than (a) directors or officers of the Company
or their associates, (b) persons owning 10% or more of the
equity securities of the Company or (c) affiliates of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Stockholders on April 30, 1998
(the "Annual Meeting")
(b) At the Annual Meeting, the stockholders:
(1) Elect each of Stefan R. Bothe and Thomas H. Bredt as a Class I
director of the Company for a three-year term by a vote of
11,228,009 shares for and 3,234 shares withheld and 11,227,124
shares for and 4,119 shares withheld, respectively.
(2) Ratified the selection of PricewaterhouseCoopers LLP as the
Company's independent accountants for the current fiscal year by
a vote of 11,228,943 shares for, 200 shares against and 2,100
shares abstained.
ITEM 5. OTHER INFORMATION
Any proposal that a stockholder wishes the Company to consider for
inclusion in the Company's proxy statement and form of proxy card for the
Company's 1999 Annual Meeting of Stockholders (the "1999 Meeting") must be
submitted to the Secretary of the Company at its offices, Two Enterprise Drive,
Shelton, Connecticut 06484, no later than December 4, 1998.
In addition, the Company's Bylaws require all stockholder proposals to
be timely submitted in advance to the Company at the above address (other than
proposals submitted for inclusion in the Company's proxy statement and form of
proxy as described above). To be timely, the Secretary must receive such notice
not less than 60 days nor more than 90 days prior to the 1999 Meeting; provided
that, if less than 70 days' notice or prior public disclosure of the date of the
1999 Meeting is given or made, the notice must be received not later than the
close of business on the 10th day following the date on which such notice of the
date of the meeting was mailed or such public disclosure was made, whichever
occurs first.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation
3.2 Amended and Restated By-Laws
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The registrant filed a report on Form 8-K on June 30, 1998 reporting its
acquisition of The Dodge Group under Item 2. Financial statements and pro forma
information, required under Item 7 of Form 8-K, will be filed by amendment of
such report on Form 8-K on or before September 8, 1998.
13
<PAGE> 14
SIGNATURE
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.
FLEXIINTERNATIONAL SOFTWARE, INC.
By: /s/ Stefan R. Bothe
-----------------------------------
Stefan R. Bothe, Chairman & CEO
Date: August 14, 1998
14
<PAGE> 15
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
NO.
-------
3.1 Amended and Restated Certificate of Incorporation of the Registrant
is incorporated herein by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1, as amended (File No
333-38403) (the "Form S-1").
3.2 Amended and Restated By-Laws of the Registrant is incorporated
herein by reference to Exhibit 3.4 to the Form S-1.
27.1 Financial Data Schedule (six-month period ended June 30, 1998).
15
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