<PAGE> 1
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 SEPTEMBER 30, 1996
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: 0-21601
INFINITY FINANCIAL TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0227321
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
640 CLYDE COURT
MOUNTAIN VIEW, CALIFORNIA 94043
(Address of principal executive offices, including zip code)
(415) 940-6100
(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 NO X
--- ---
As of October 31, 1996, there were 18,119,830 outstanding shares of the
Registrant's Common Stock, par value $0.001 per share.
<PAGE> 2
INFINITY FINANCIAL TECHNOLOGY, INC.
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page
- ------------------------------- ----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995............................................ 3
Condensed Consolidated Statements of Income for the
Three Months and Nine Months Ended September 30, 1996
and 1995......................................................... 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1996 and 1995.................... 5
Notes to Condensed Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 8
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.......................................... 24
Signatures ................................................................. 25
- ----------
Exhibit Index ................................................................. 26
- -------------
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INFINITY FINANCIAL TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
ASSETS ------------ -----------
Current assets: (unaudited)
<S> <C> <C>
Cash and cash equivalents ....................................... $ 5,032 $ 3,517
Receivables, less allowance for doubtful accounts of $180 and
$195 at September 30, 1996 and December 31, 1995, respectively 15,398 6,686
Deferred tax asset .............................................. 1,010 569
Prepaid expenses and other current assets ....................... 396 212
-------- --------
Total current assets ......................................... 21,836 10,984
Furniture and equipment, net ....................................... 2,215 1,449
Other assets ....................................................... 404 415
-------- --------
Total assets ................................................. $ 24,455 $ 12,848
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 1,407 $ 218
Accrued compensation ............................................ 2,519 1,533
Payable to former stockholder ................................... -- 1,277
Other accrued liabilities ....................................... 2,021 665
Deferred revenue ................................................ 8,030 2,806
Current portion of capital lease obligations .................... 203 213
-------- --------
Total current liabilities .................................... 14,180 6,712
Long-term portion of capital lease obligations ..................... 253 303
Other long-term liabilities ........................................ -- 67
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized;
3,083,334 shares issued and outstanding ...................... 1,053 1,053
Common stock, $0.001 par value; 50,000,000 shares authorized;
12,975,822 and 12,486,200 shares issued and outstanding as of
September 30, 1996 and December 31, 1995, respectively ....... 2,456 1,570
Deferred stock compensation ..................................... (542) --
Notes receivable from stockholders .............................. (884) (1,025)
Cumulative translation adjustment ............................... (6) --
Retained earnings ............................................... 7,945 4,168
-------- --------
Total stockholders' equity ................................... 10,022 5,766
-------- --------
Total liabilities and stockholders' equity ................... $ 24,455 $ 12,848
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
INFINITY FINANCIAL TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data - unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
License revenues ............................ $ 8,380 $ 4,805 $ 22,498 $ 13,621
Service revenues ............................ 2,237 1.682 6,066 4,158
-------- -------- -------- --------
Total revenues ........................... 10,617 6,487 28,564 17,779
Costs and expenses:
Cost of revenues ............................ 1,384 905 3,249 2,030
Sales and marketing ......................... 3,896 2,156 10,070 5,493
Research and development .................... 2,433 1,512 6,571 4,412
General and administrative .................. 891 640 2,600 1,630
-------- -------- -------- --------
Total costs and expenses ................. 8,604 5,213 22,490 13,565
-------- -------- -------- --------
Income from operations ......................... 2,013 1,274 6,074 4,214
Other income (expense), net .................... 74 (18) 17 3
-------- -------- -------- --------
Income before provision for income taxes ....... 2,087 1,256 6,091 4,217
Provision for income taxes ..................... 793 496 2,314 1,668
-------- -------- -------- --------
Net income ............................... $ 1,294 $ 760 $ 3,777 $ 2,549
======== ======== ======== ========
Net income per share ........................... $ 0.07 $ 0.04 $ 0.20 $ 0.14
======== ======== ======== ========
Shares used in computing net income per share .. 18,763 18,727 18,808 18,145
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
INFINITY FINANCIAL TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 3,777 $ 2,549
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation, amortization and other ......................... 608 358
Changes in assets and liabilities:
Receivables .................................................. (8,718) (1,850)
Deferred tax asset ........................................... (441) --
Prepaid expenses and other current assets .................... (173) (145)
Accounts payable ............................................. 1,189 65
Accrued compensation ......................................... 986 708
Payable to former stockholder ................................ (1,277) --
Other accrued liabilities and long-term liabilities .......... 1,289 315
Deferred revenue ............................................. 5,224 (2,056)
------- -------
Net cash provided by (used in) operating activities ....... 2,464 (56)
------- -------
Cash flows used in investing activities:
Capital expenditures ............................................ (1,120) (220)
Cash flows provided by (used in) financing activities:
Payments of notes receivable from stockholders .................. 201 9
Principal payments of capital lease obligations ................. (231) (245)
Proceeds from issuance of common stock .......................... 201 470
------- -------
Net cash provided by (used in) financing activities ....... 171 234
------- -------
Net increase (decrease) in cash and cash equivalents .............. 1,515 (42)
Cash and cash equivalents at beginning of period ................... 3,517 3,235
------- -------
Cash and cash equivalents at end of period ......................... $ 5,032 $ 3,193
======= =======
SUPPLEMENTAL INFORMATION:
Cash paid during the period:
Income taxes paid ............................................ $ 2,302 $ 1,759
======= =======
Interest paid ................................................ $ 48 $ 51
======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital lease .......................... $ 171 $ 466
======= =======
Issuance of common stock in exchange for notes receivable ....... $ 60 $ 1,003
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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INFINITY FINANCIAL TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (the "Commission") and reflect all adjustments consisting of
normal recurring adjustments which, in the opinion of management, are necessary
for a fair presentation of the operating results for the periods presented. The
results of operations for the interim periods presented are not necessarily
indicative of the results that may be expected for the full fiscal year. This
quarterly report on Form 10-Q should be read in conjunction with the audited
consolidated financial statements and notes thereto for the three year period
ended December 31, 1995 included in the Infinity Financial Technology, Inc.
("Infinity" or the "Company") Registration Statement on Form S-1 filed with the
Commission in October 1996.
The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All intercompany account balances
and transactions have been eliminated in consolidation. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates, and such differences could affect the results
of operations reported in future periods.
Certain amounts in the comparative periods in 1995 condensed consolidated
financial statements have been reclassified to conform to the 1996 presentation.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the American Institute
of Certified Public Accountants Statement of Position 91-1 ("SOP 91-1"),
"Software Revenue Recognition." License revenues less deferrals for warranty are
recognized upon shipment only if no significant vendor obligations remain and
collection of the resulting receivable is deemed probable. License warranty
revenues are recognized ratably over the warranty period, generally 30 to 90
days. When the Company receives payment on licenses prior to shipment and
fulfillment of significant vendor obligations, such payments are recorded as
deferred revenue. Service revenues consist primarily of maintenance and support,
training, consulting and co-development projects. Service revenues from customer
maintenance fees for ongoing customer support and product updates are recognized
ratably over the maintenance term, which is typically 12 months. Service
revenues from customer training and consulting services are recognized as the
service is performed. Service revenues from co-development agreements are
recognized upon achievement of contractual milestones or on a
percentage-of-completion basis.
6
<PAGE> 7
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common shares outstanding and common equivalent shares arising from the assumed
exercise of stock options using the treasury stock method and the conversion of
Series A and Series C convertible preferred stock on the as-converted method.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletins,
common and common equivalent shares issued during the period commencing 12
months prior to the initial filing of an initial public offering at prices below
the assumed public offering price have been included in the calculation as if
they were outstanding for all periods presented (using the treasury stock
method).
COMMON AND PREFERRED STOCK
In July 1996, the board of directors authorized management of the Company
to file a Registration Statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public. See
"Subsequent Event" note. In addition, the Company's board of directors approved
a two-for-one stock split. In conjunction with this split, the Company's board
of directors approved an increase in the number of authorized common shares to
50,000,000. Accordingly, all the share and per share data has been retroactively
adjusted to reflect these changes.
In July 1996, the Company's board of directors adopted the 1996 Employee
Stock Purchase Plan (the "Purchase Plan") which authorizes the issuance of
300,000 shares of common stock and the 1996 Stock Incentive Plan, which provides
for the issuance of options to purchase up to 800,000 shares of Common Stock.
Shares may be purchased under the Purchase Plan at 85% of the lessor of the fair
market value of the common stock on the grant or purchase date. In addition, the
board of directors also approved an increase of 250,000 in the number of shares
authorized for issuance under the 1993 Incentive Stock Option Plan.
In September 1996, the Company reincorporated in the State of Delaware. In
conjunction with the reincorporation in Delaware, the par value of the Company's
preferred and common stock was changed to $0.001. The Company's financial
statements have been retroactively adjusted to reflect this change.
SUBSEQUENT EVENT
The Company's initial public offering of 2.7 million shares of common
stock, which generated net proceeds to Infinity of $28.9 million, was effective
October 25, 1996 and is not reflected in the quarter ended September 30, 1996.
In the offering, Infinity sold 2 million shares with the remainder offered by
certain selling shareholders.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's operating performance each quarter is subject to various
risks and uncertainties as discussed herein and in the Company's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on
October 25, 1996. This report contains forward-looking statements within the
meaning of the Securities and Exchange Act of 1934, it should be read in
conjunction with the section entitled "Factors Affecting Operating Results"
discussed below, and the "Risk Factors" section included in the Company's
Registration Statement on Form S-1.
OVERVIEW
Infinity develops, markets and supports object-oriented, client/server
platform and software solutions for financial trading and risk management.
Founded in 1989, the Company currently has more than 40 customers around the
world, consisting of large banks and other financial institutions with
sophisticated trading operations and risk management needs. Its primary product
is the Infinity Platform(TM), which provides customers with a foundation to
rapidly develop, deploy and modify trading and risk management systems in
response to the changing requirements of the marketplace. Infinity also offers
Infinity Derivatives(TM), software solutions for derivatives trading. Infinity
has introduced and plans to release in the fourth quarter of 1996 Infinity
RiskView(TM), which is designed to facilitate customers' development of risk
management systems.
In the third quarter of 1996, Infinity continued to experience significant
growth in several aspects of its business. Total revenues of $10.6 million for
the three months ended September 30, 1996 represented an increase of 64% over
the comparable quarter in 1995. Net income of $1.3 million, or $0.07 per share,
improved 70% from $760,000, or $0.04 per share, over the same quarter in 1995.
For the nine months ended September 30, 1996, total revenues were $28.6 million,
a 61% increase over the $17.8 million recorded for the first nine months of
1995. Net income for the nine months ended September 30, 1996 increased 48%,
rising to $3.8 million, or $0.20 per share, compared to $2.5 million, or $0.14
per share, for the same period in the prior year.
The Company believes that significant ongoing investment in several
aspects of the business will continue to be critical to its success. Consistent
with the trend in the quarter ended September 30, 1996, the Company plans to
continue expanding its sales and marketing infrastructure domestically and
internationally, devote substantial resources to research and development
expenses, and build the Company's customer support and service organization. As
a result of these factors, the Company plans to continue to direct a significant
percentage of its revenues towards operating expenses necessary to keep the
Company competitive and responsive to its customers' needs.
8
<PAGE> 9
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's condensed
consolidated statements of income as a percentage of the total revenues for
the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
License revenues .................... 79% 74% 79% 77%
Service revenues .................... 21 26 21 23
--- --- --- ---
Total revenues ................... 100 100 100 100
Costs and expenses:
Cost of revenues .................... 13 14 11 11
Sales and marketing ................. 37 33 36 31
Research and development ............ 23 23 23 25
General and administrative .......... 8 10 9 9
--- --- --- ---
Total costs and expenses ......... 81 80 79 76
--- --- --- ---
Income from operations ................. 19 20 21 24
Other income (expense), net ............ 1 0 0 0
--- --- --- ---
Income before provision for income taxes 20 20 21 24
Provision for income taxes ............. 8 8 8 10
--- --- --- ---
Net income ....................... 12% 12% 13% 14%
=== === === ===
</TABLE>
REVENUES
The Company's revenues are derived from two sources, license revenues and
service revenues, including software maintenance and support, training,
consulting and co-development contracts. The Company's total revenues increased
64% to $10.6 million for the three months ended September 30, 1996 from $6.5
million in the comparable period of 1995, and for the nine months ended
September 30, 1996, total revenues increased 61% to $28.6 million from $17.8
million for the nine months ended September 30, 1995. These increases are
attributable to an increase in the number of software licenses sold to both
existing customers and new customers, and expansion of the Company's direct
sales organization. Additionally, the Company's growth in its customer base has
contributed to increased maintenance service revenues. Total revenues increased
9% in the third quarter of 1996 as compared to the immediately preceding quarter
as a result of the factors described above.
International revenues, which are defined by the Company as sales outside
North America, accounted for 63% and 49% of total revenues for the three months
ended September 30, 1996 and 1995, respectively, and 68% and 46% of total
revenues for the nine months ended September 30, 1996 and 1995, respectively.
The increases in international revenues are primarily attributable to an
increase in the Company's international sales and marketing efforts. The Company
currently maintains international sales offices in London, Paris, Sydney and
Tokyo, and intends to continue to expand its international operations. The
Company expects that international sales will continue to represent a
substantial majority of its total revenues for the foreseeable future.
9
<PAGE> 10
The Company currently believes that an increasing portion of the Company's
revenues, cost of revenues and operating expenses will be incurred in foreign
currencies. Although it is impossible to predict future exchange rate movements
between the U.S. dollar and other currencies, it can be anticipated that to the
extent the U.S. dollar strengthens or weakens against other currencies, a
substantial portion of the Company's revenues, cost of revenues and operating
expenses will be commensurately lower or higher than would be the case in a more
stable foreign currency environment. Although the Company from time to time
undertakes foreign exchange hedging transactions to cover a portion of its
foreign currency transaction exposure, the Company does not attempt to cover all
potential foreign currency exposure and therefore, the Company may be subject to
variations in operating results as a result of foreign exchange fluctuations.
License Revenues. The Company's license revenues increased 74% to $8.4
million for the three months ended September 30, 1996 from $4.8 million in the
comparable period of 1995, and for the nine months ended September 30, 1996,
license revenues increased 65% to $22.5 million from $13.6 million for the nine
months ended September 30, 1995. The percentage of the Company's total revenues
attributable to license revenues increased to 79% for the three months ended
September 30, 1996 from 74% in the comparable period of 1995, and for the nine
months ended September 30, 1996 increased to 79% from 77% for the nine months
ended September 30, 1995. These increases were primarily attributable to sales
to new customers and existing customers. The Company licensed its products to
five new customers in the third quarter of 1996.
Service Revenues. The Company's service revenues increased 33% to $2.2
million for the three months ended September 30, 1996 from $1.7 million in the
comparable period of 1995, and for the nine months ended September 30, 1996,
service revenues increased 46% to $6.1 million from $4.2 million for the nine
months ended September 30, 1995. These increases were primarily attributable to
growth in maintenance and support fees derived from higher license revenues. The
percentage of the Company's total revenues attributable to service revenues
decreased to 21% for the three months ended September 30, 1996 from 26% in the
comparable period of 1995, and for the nine months ended September 30, 1996
decreased to 21% from 23% for the nine months ended September 30, 1995. The
percentage decreases are due primarily to lower consulting fees earned during
1996 as compared to 1995.
The Company historically has experienced significant renewal rates of
maintenance contracts; however, some customers have licensed the source code of
the Company's products and have, on occasion, chosen to maintain those products
in-house, while continuing to rely on the Company for providing support and
upgrades to other licensed product. Furthermore, the Company's service revenues
have been dependent upon a relatively small number of new and existing
customers. Based on these and other factors, there can be no assurance that
previous renewal rates and prices charged by the Company for maintenance, and
corresponding revenues, will continue in the future.
10
<PAGE> 11
COSTS AND EXPENSES
Cost of Revenues. Cost of revenues consists primarily of
personnel-related costs, including facility and other overhead allocations
incurred in providing on-site and telephone support, consulting services and
training to customers. The Company's cost of revenues increased 53% to $1.4
million for the three months ended September 30, 1996 from $905,000 in the
comparable period of 1995, and for the nine months ended September 30, 1996,
cost of revenues increased 60% to $3.2 million from $2.0 million for the nine
months ended September 30, 1995. The Company's cost of revenues as a percentage
of total revenues decreased to 13% for the three month period ended September
30, 1996 as compared to 14% during the comparable period of 1995, and for the
nine months ended September 30, 1996 and 1995, the Company's cost of revenues
as a percentage of total revenues were constant at 11%. The percentage decrease
in the three months ended September 30, 1996 as compared to the comparable
period in 1995 was due primarily to comparatively fewer consulting projects in
the 1996 period, partially offset by increased costs associated with an
increase in the number of customer support personnel and related overhead costs
necessary to support a larger installed customer base. Cost of revenues
increased 29% in the third quarter of 1996 as compared to the immediately
preceding quarter as a result of an increase in the number of customer support
personnel and related overhead costs discussed previously.
The Company intends to commit substantial financial resources to expand
its support operations, both domestically and internationally. In addition, the
Company expects to increase its spending for consulting staff and
infrastructure in anticipation of growing demand for implementation consulting
services from its customer base. As a result of these factors, the Company
expects its cost of revenues to increase in the future, both in absolute dollar
amounts and possibly as a percentage of total revenues.
Sales and Marketing. Sales and marketing expenses increased 81% to $3.9
million for the three months ended September 30, 1996 from $2.2 million in the
comparable period of 1995, and for the nine months ended September 30, 1996,
sales and marketing expenses increased 83% to $10.1 million from $5.5 million
for the nine months ended September 30, 1995. These increases were principally
the result of additional sales and marketing personnel, facilities expansion,
higher sales commissions associated with increased total revenues and increased
marketing activities domestically and internationally. Sales and marketing
expenses increased as a percentage of total revenues to 37% during the three
months ended September 30, 1996 from 33% in the comparable period of 1995, and
for the nine months ended September 30, 1996 increased to 36% from 31% for the
nine months ended September 30, 1995, due the Company's growth in its global
direct sales and marketing force, and its expansion into other international
markets. Sales and marketing expenses increased 10% in the third quarter of 1996
as compared to the immediately preceding quarter as a result of the Company's
growth in its sales and marketing force. The Company expects to incur higher
sales and marketing expenses in the future in both absolute dollar amounts and
likely as a percentage of total revenues as the Company expands its sales and
marketing staff at its corporate headquarters and other major locations in which
the Company chooses to do business.
11
<PAGE> 12
Research and Development. Research and development costs are expensed as
incurred. Research and development expenses increased 61% to $2.4 million for
the three months ended September 30, 1996 from $1.5 million in the comparable
period of 1995, and increased 49% to $6.6 million for the nine months ended
September 30, 1996 from $4.4 million in the comparable period of 1995. These
increases were principally the result of the hiring of additional engineering
personnel and associated expenses. Research and development expenses were 23% of
total revenues during the three months ended September 30, 1996 and 1995, and
during the nine months ended September 30, 1996, as compared to 25% during the
nine months ended September 30, 1995. The decrease in 1996 was due primarily to
growth in the Company's total revenues. The Company expects to incur higher
research and development expenses in absolute dollars for the remainder of 1996
and in fiscal 1997, although these expenses are expected to remain relatively
constant as a percentage of total revenues. There can be no assurance, however,
that total revenues will grow at the same rate as the anticipated research and
development expenses. Research and development expenses increased 8% in the
third quarter of 1996 as compared to the immediately preceding quarter due to
the hiring of additional engineering personnel and associated expenses.
General and Administrative. General and administrative expenses
increased 39% to $891,000 for the three months ended September 30, 1996 from
$640,000 in the comparable period of 1995, and increased 60% to $2.6 million
for the nine months ended September 30, 1996 from $1.6 million in the
comparable period of 1995. These increases were primarily due to increased
staffing and professional fees necessary to manage and support the Company's
recent growth and to provide the infrastructure required for a public company.
General and administrative expenses decreased as a percentage of total revenues
to 8% for the three months ended September 30, 1996 from 10% during the
comparable period of 1995, and were constant at 9% of total revenues during the
nine months ended September 30, 1996 and 1995, due primarily to growth in the
Company's total revenues. The Company expects to incur higher absolute dollar
general and administrative expenses for the remainder of fiscal 1996 and in
fiscal 1997, although these expenses are expected to remain relatively constant
as a percentage of total revenues. There can be no assurance, however, that
total revenues will grow at the same rate as the anticipated general and
administrative expenses. General and administrative expenses increased 1% in
the third quarter of 1996 as compared to the immediately preceding quarter due
to slightly higher professional and legal fees necessary to support the
Company's continued growth.
OTHER INCOME (EXPENSE), NET
During the three months ended September 30, 1996, other income
(expense), net was $74,000 as compared to ($18,000) in the comparable period of
1995. During the nine months ended September 30, 1996, other income (expense),
net was $17,000 versus $3,000 in the comparable period of 1995. The changes
during the periods represent the varying levels of the Company's invested cash
balances from time to time and other factors including interest expense on
capital lease lines and losses on disposal of furniture and equipment.
12
<PAGE> 13
PROVISION FOR INCOME TAXES
The Company's provision for income taxes increased to $793,000 for the
three months ended September 30, 1996 from $496,000 in the comparable period of
1995, and increased to $2.3 million for the nine months ended September 30, 1996
from $1.7 million in the comparable period of 1995. The Company's effective tax
rate in 1996 is estimated to be 38% versus an approximate 40% effective tax rate
in 1995. The decrease in the effective tax rate is primarily attributable to the
benefits derived from the establishment of a foreign sales corporation.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily by cash
generated from operations and through private sales of preferred equity
securities. For the nine months ended September 30, 1996 approximately $2.5
million of cash was generated from operating activities and $56,000 of cash was
used in operating activities in the comparable period of 1995. Cash generated
in the nine months ended September 30, 1996 was primarily attributed to net
income, and increases in deferred revenue and other accrued liabilities offset
by increases in receivables and a payment to a former stockholder. For the nine
months ended September 30, 1995, cash used in operations resulted primarily from
decreases in deferred revenue and increases in receivables offset by net income.
The Company's principal sources of liquidity as of September 30, 1996
consisted of approximately $5.0 million in cash and cash equivalents and $3.0
million available on a working capital line of credit secured by receivables.
There were no borrowings under the line of credit at September 30, 1996.
The Company may also utilize cash to acquire or invest in complementary
businesses or products or to obtain the right to use complementary technologies.
From time to time, in the ordinary course of business, the Company evaluates
potential acquisitions of such businesses, products or technologies. The Company
currently has no understandings, commitments or agreements with respect to any
material acquisition of other businesses, products or technologies.
The Company believes that its cash balances and cash available under its
line of credit together with the net proceeds from the sale of the Common Stock
offered in the Company's initial public offering on October 25, 1996 of $28.9
million, will be sufficient to meet its working capital and capital expenditure
requirements for at least the next twelve months based on current plans and
trends.
FACTORS AFFECTING OPERATING RESULTS
The statements contained in this Form 10-Q which are not purely historical
are forward looking statements, including statements regarding the Company's
beliefs, expectations, hopes, plans or intentions regarding the future. Forward
looking statements in this document include statements under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's plans or intentions to continue to expand
its sales and
13
<PAGE> 14
marketing infrastructure domestically and internationally, to devote substantial
resources to research and development expenses, to build or expand its customer
support and services organization, to expand international operations, and
statements under such heading regarding Infinity's expectations regarding the
composition of revenues, cost of revenues, use of revenues, research and
development expenses, liquidity and anticipated cash needs and availability,
among others. All forward looking statements included in this document are made
as of the date hereof, based on information available to the Company as of the
date hereof, and Infinity assumes no obligation to update any forward looking
statement or statements. It is important to note that the Company's actual
results could differ materially from those in such forward looking statements.
The following important factors, among others, in some cases have affected, and
in the future could affect, the Company's actual operating results and could
cause the Company's actual consolidated operating results for the fourth quarter
of 1996, and thereafter, to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company.
SIGNIFICANT POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
Although the Company has experienced increased revenues and has been
profitable in each of its last five fiscal years and for the nine months ended
September 30, 1996, the Company does not believe prior growth rates are
sustainable or indicative of future operating results, and there can be no
assurance that the Company will be able to sustain revenue growth or maintain
profitability in the future. In addition, the Company intends to commit
substantial financial resources to expanding its business, including its sales
and support operations and product development infrastructure. As a result, the
Company does not expect to sustain the current level of operating margins in
future periods.
Individual licenses of the Company's products typically account for large
dollar amounts relative to quarterly revenues, so that the timing of one license
can cause substantial shifts of revenue and profits between accounting periods.
Because of the large dollar commitment and the mission critical function that
the Company's products address, approval at senior levels within customer
organizations is frequently required for a purchase of the Company's products.
The Company's quarterly revenues are dependent upon a small number of new
individual product sales, and any downturn in a potential customer's business,
or any loss or delay of individual orders for any other reason, would have a
significant impact on the Company's revenues and profitability on a quarterly
and annual basis. For example, in the quarter ended September 30, 1996, revenues
included sales to existing customers and five new customers. The Company
historically has operated with little backlog because its products are generally
shipped as orders are received. As a result, license revenues in any quarter
depend on the volume and timing of, and the Company's ability to fill, orders
received in that quarter. In addition, a relatively high percentage of the
Company's expenses is fixed in the short term because the Company's expense
levels are based, in part, on its expectations as to future revenues. As a
result, if revenues fall below expectations, operating margins will be adversely
affected. In addition, historically the Company has experienced significant
renewal rates of maintenance contracts; however, many customers have licensed
the source code of the Company's products and certain customers have chosen to
terminate the maintenance contracts with the Company due to their ability to
maintain
14
<PAGE> 15
the Company's products. Furthermore, the Company's service revenues have been
dependent upon a relatively small number of new and existing customers in each
quarter. Based on these and other factors, there can be no assurance that
previous renewal rates and prices charged by the Company for maintenance, and
corresponding revenues, will continue in the future. See "Lengthy Sales Cycle."
The Company's revenues and operating results have fluctuated significantly
in the past, and are likely to continue to fluctuate significantly in the
future, on an annual and quarterly basis. Fluctuations in the Company's revenues
and results of operations may result from a number of factors, many of which are
beyond the Company's control, including (i) the relatively long sales cycle of
three months to over one year for the Company's software products, (ii) the
timing and size of the Company's individual license transactions, and, in
particular, the dependence of the Company's revenues in any quarter on the sale
of a limited number of large dollar licenses, (iii) the Company's typical
recognition of a significant portion of its quarterly revenues in the last
month, weeks or days of the quarter, (iv) the relatively high percentage of
total revenues derived from product revenues versus service revenues, (v) the
timing of the introduction of new products or product enhancements by the
Company and its competitors, (vi) the deferral of significant revenues until
completion or acceptance of certain customized portions of software required by
any individual license transaction, (vii) changes in customer budgets, (viii)
seasonality of technology purchases by customers, (ix) the mix of revenues
derived from the Company's direct sales force and various distribution and
marketing channels and between domestic and international customers, (x)
currency exchange rate fluctuations, (xi) changes in applicable government
regulations, (xii) the untimely loss of key sales personnel, (xiii) changes in
relationships with strategic partners and (xiv) general economic conditions,
particularly those which affect the Company's targeted customer base.
The Company's quarterly revenues are also subject to certain seasonal
fluctuations, particularly in the third quarter when reduced economic activity
outside North America during the summer months can negatively affect the
Company's licensing revenues. This and other seasonal factors, which the Company
believes are common to the software industry, could cause the Company's revenues
and profitability to fluctuate between quarters.
Due to the foregoing and other factors, the Company believes that its
quarterly and annual revenues, expenses and operating results could vary
significantly in the future and that period-to-period comparisons should not be
relied upon as indications of future performance. Because of the above factors,
it is possible that the Company's operating results will be below the
expectations of stock market analysts and investors in some future quarter,
which would have a severe adverse effect on the price of the Company's stock.
DEPENDENCE ON EVOLVING MARKET FOR FINANCIAL TRADING AND RISK MANAGEMENT
SOFTWARE; NO ASSURANCE OF MARKET ACCEPTANCE
To date, the Company has derived substantially all of its revenue from the
sale of software products for financial trading and risk management. The Company
expects that revenues from such sales will account for substantially all of its
revenues for the foreseeable future. The market
15
<PAGE> 16
for financial trading and risk management software is rapidly evolving, and the
Company's operating results and opportunity for growth in the future are highly
dependent on acceptance of its products in and the continued growth of this
market. As is the case in new and evolving industries, demand and market
acceptance for recently introduced products are subject to a high level of
uncertainty and risk. A decline or slow-down in growth in the market for, or
market acceptance of, such products as a result of increased competition,
technological or regulatory change, a banking and financial services industry
downturn or other factors would have a material adverse effect on the Company's
business, financial condition and results of operations. In particular, because
the Company's customer base has historically been limited to larger commercial
banks and financial institutions, the Company would be particularly vulnerable
to a downturn in the banking and financial services industries.
The Company currently markets and sells its products primarily to large
banks and other financial institutions, many of which rely on internally
developed software to fulfill their financial trading and risk management needs.
Demand for and acceptance of the Company's products by this customer base
depends on a number of factors, which include the products' functionality and
performance characteristics, the ability of these clients to achieve cost
savings by using third-party software, the time and cost required to internally
develop software, the willingness of these institutions to rely on third-party
software to fulfill mission critical financial trading and risk management needs
and their assessment of the Company's ability to support these products. Many of
these banks and financial institutions have made significant investments in
time, capital and human resources in developing and implementing these internal
systems and are highly dependent upon the continued use of internally developed
systems. The legacy nature of many of these internally developed systems
combined with the substantial financial costs to shift to third-party products
for these applications generally constitute the principal factors inhibiting
migration to third party products in financial trading and risk management, such
as those offered by the Company. No assurance can be made that these factors
will not inhibit growth in the market for third-party financial trading and risk
management software and, as a consequence, materially adversely affect the
Company's business, financial condition and results of operations.
The Company is attempting to develop the Infinity Platform as an industry
standard for financial trading and risk management. No assurance can be given
that this attempt to establish an industry standard will be successful, even if
a significant market for third-party financial trading an risk management
software continues to develop. If the Company is unsuccessful in establishing
the Infinity Platform as an industry standard, widespread acceptance of its
products and its ability to market additional application programs for financial
trading and risk management will be adversely affected, and, as a consequence,
the Company's future growth, business, financial condition and results of
operations will be materially adversely affected.
LENGTHY SALES CYCLE
Because of the mission critical functions performed by the Company's
products, the purchase of such products is a strategic decision which generally
requires approval at senior levels of customers' organizations. In addition, the
purchase of the Company's products involves a
16
<PAGE> 17
significant commitment of customers' financial resources. For these and other
reasons, the sales cycle associated with the purchase of the Company's products
is typically complex, lengthy and subject to a number of significant risks,
including changes in customers' budgetary constraints and approval at senior
levels of customers' organizations, over which the Company has no control. The
Company's sales cycle can range from three months to over one year. Because of
the lengthy sales cycle and the dependence of the Company's quarterly revenues
upon a small number of new individual product sales for large dollar amounts,
the loss or delay of a single sale could have a material adverse effect on the
Company's business, financial condition and results of operations.
RAPID TECHNOLOGICAL CHANGE AND DEPENDENCE ON NEW PRODUCTS
The market for the Company's products is characterized by rapid
technological advances, evolving industry standards in computer hardware and
software technology, changes in customer requirements and frequent new product
introductions and enhancements. The Company's future success will depend upon
its ability to continue to enhance its current product line and to develop and
introduce new products that address technological developments, satisfy
increasingly sophisticated customer requirements and achieve market acceptance.
In particular, the failure of the Company to develop new products or enhance
existing products to (i) timely adapt to the rapidly developing computer
hardware and software technology upon which its products are based, (ii)
incorporate new functionality reflecting rapidly evolving types of derivative
securities and other financial instruments and risk management methodologies and
(iii) incorporate new functionality to facilitate customers' compliance with
changing applicable governmental regulations could cause customers to delay
their purchase of the Company's products, or to decide not to purchase such
products. In September 1995, the Company introduced its back-office modules for
Infinity Derivatives, which have been implemented on a limited basis to date by
Infinity's customers. The Company further intends to release prior to the end of
1996 a risk management product called Infinity RiskView, designed to extend the
Infinity Platform for certain risk management functions, and a Windows NT
version of its Infinity Derivatives product. No assurance can be given that
development of Infinity RiskView or the Windows NT version of Infinity
Derivatives will be successfully completed or that either of these new products
will be accepted in the marketplace. The anticipated release of these products
also could cause customers to delay purchase decisions for existing products of
the Company. The Company has in the past experienced delays in the introduction
of product enhancements and new products, including a delay in introducing the
back-office modules for Infinity Derivatives. There can be no assurance that the
Company will not experience such delays in the future, or be successful in
developing and marketing, on a timely and cost-effective basis, product
enhancements or new products, including Infinity RiskView and the Windows NT
version of Infinity Derivatives, and the failure to do so could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risks of Product Defects; Product Liability."
17
<PAGE> 18
SMALL DIRECT SALES FORCE AND RELIANCE ON IBM CORPORATION AND OTHER STRATEGIC
RELATIONSHIPS
The Company has a small direct sales force, which consisted of 16 persons
at September 30, 1996. Historically, most of the Company's sales have been
derived through its direct sales force, and the Company's business strategy
depends on significantly expanding this sales force. The Company has previously
experienced substantial difficulty in hiring sales personnel with expertise in
sophisticated financial instruments and is likely to experience similar
difficulty as it attempts to hire other qualified staff who have the required
experience levels. In the past, the Company has also experienced difficulty in
adequately staffing a sales force for its principal United States sales office
located in New York. There can be no assurance that the Company will be able to
recruit, train and retain additional qualified sales personnel with the
requisite experience and knowledge, particularly those with experience in both
finance and software development. The failure to successfully expand the
Company's sale force would have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company has established strategic relationships with a number of
organizations that are complementary to its direct sales force and which it
believes are important to its worldwide sales, marketing and support activities
and the implementation of its products. The Company believes that its
relationships with such organizations provide an additional sales and marketing
channel and further promote the Infinity Platform to become an industry
standard. Due in part to the current small size of its direct sales force, the
Company believes such relationships are particularly important to its sales
efforts and efforts to establish an industry standard. In particular, the
Company has developed a non-exclusive strategic relationship with IBM
Corporation ("IBM"). IBM acts as a solution provider and markets the Company's
products on a worldwide basis as part of IBM information management solutions,
although IBM is under no contractual obligation to market the Company's
products. During the quarter ended September 30, 1996, license revenues
facilitated by IBM accounted for 11% of license revenues and 8% of total
revenues. Any deterioration of the Company's relationship with IBM could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company also has relationships with key third party
developers, including Axime Integration de Systemes and Diagram S.A., and
service providers, including Price Waterhouse LLP. Third-party developers
constitute a key component of Infinity's strategy in developing products and
applications for the Infinity Platform for specific markets that Infinity does
not currently address. In addition, Infinity has established the Infinity
Certified Engineering program which qualifies various software development firms
to work as consultants with Infinity customers in implementing and customizing
the Infinity Platform and other products. The failure by the Company to maintain
its existing relationships, or to establish new relationships in the future,
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company's customers and potential
customers frequently rely on these third-party service providers to extend,
deploy and/or manage Infinity's products. If the Company is unable to train
adequately a sufficient number of service providers or, if for any reason such
service providers do not have or choose not to devote the resources necessary to
facilitate implementation of the Company's products or if such service providers
18
<PAGE> 19
adopt a product or technology other than Infinity's, the Company's business,
financial condition and results of operations could be materially adversely
affected.
MANAGEMENT OF GROWTH
The Company's business has grown rapidly in recent years. This growth has
placed, and may continue to place, a significant strain on the Company's
management and operations. The Company's future operating results will depend on
its ability to continue to broaden the Company's senior management group, and
its ability to attract, hire and retain skilled employees. The Company's success
will also depend on the ability of its officers and key employees to continue to
implement and improve its operational and financial control systems and to
expand, train and manage its employee base. The Company's future operating
results will also depend on its ability to expand its sales and marketing
organizations, further implement a reseller and partner channel to penetrate
different and broader markets than those addressed by its existing direct sales
force and expand its support organization commensurate with growth in its
installed base. The Company's inability to effectively manage growth could have
a material adverse effect on the Company's business, financial condition and
results of operations.
COMPETITION
The market for transaction processing and risk management systems for
financial institutions is intensely competitive. It is characterized by rapidly
changing technological requirements, as new instruments and new strategies are
developed and implemented, and a high degree of technological progress, as new
software and hardware technologies are applied to the challenge of trading and
risk management. The rapid pace of innovation and change in the market Infinity
serves necessitates an ongoing research and development effort to enhance the
features and functionality of the Infinity Platform and Infinity products.
Many of the Company's competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
greater name recognition and a larger installed base of customers than the
Company. The Company's competitors are diverse and offer a variety of solutions
directed at the financial trading and risk management information system
marketplace. These competitors include companies offering and developing
financial trading or risk management software products that compete with
products offered by the Company. Certain of such competitors provide point
solutions for particular elements of the financial trading marketplace,
including, for example, the front-office derivative trading market, which
constitutes a significant portion of the Company's business. Certain of such
point-solutions may provide greater off-the-shelf functionality than the
Company's customizable integrated system. To the extent customers elect to
pursue such point solutions targeted at the front-office derivatives market or
other elements of the financial trading marketplace, as opposed to the Company's
integrated solutions, the Company's business, financial condition and results of
operations may be materially adversely affected. In addition, potential
customers may select such a competitor's product where they believe it is easier
to integrate such product with a product previously purchased from such
competitor or where they prefer the user interface of such product. The Company
may also face competition from other business application software vendors who
may
19
<PAGE> 20
broaden their product offering by internally developing or acquiring financial
trading and risk management software products. In addition to competition from
such third-party companies, the Company frequently faces substantial sales
resistance from the internal development groups of potential customers that have
developed or may develop systems that may substitute for those offered by the
Company. In particular, the Company has experienced significant difficulties in
persuading potential customers to purchase its products where their internal
development groups have already progressed significantly toward completion of
systems which the Company's products would augment or replace and where the
underlying technologies, such as the programming language, utilized by such
groups differ fundamentally from the Company's.
In order to be successful in the future, the Company must respond promptly
and effectively to the challenges of technological change and competitors'
innovations. There can be no assurance that the Company will be able to compete
successfully with existing or new competitors or that competition will not have
a material adverse effect on the Company's business, financial condition and
results of operation.
RISKS ASSOCIATED WITH INTERNATIONAL SALES
For the nine months ended September 30, 1996 and in the 1995, 1994 and
1993 fiscal years, the Company derived 68%, 53%, 25% and 27% of its total
revenues, respectively, from sales outside North America and anticipates that a
majority of its revenues for the foreseeable future will be derived from sources
outside North America. The Company sells its products through a direct sales
force located in offices in New York, London, Paris, Sydney and Tokyo as well as
its headquarters in Mountain View, California. The Company also has full-time
support personnel in Frankfurt and Toronto. The Company intends to continue to
expand its sales and support operations outside North America and to enter
additional international markets, which will require significant management
attention and financial resources. International operations are generally
subject to a number of risks, including costs of customizing products for
foreign countries, dependence on local resellers, multiple, conflicting and
changing government regulations regarding financial transactions, longer payment
cycles, import and export restrictions, tariffs, difficulties in staffing and
managing foreign operations, greater difficulty or delay in accounts receivable
collection, potentially adverse tax consequences, the burdens of complying with
a variety of foreign laws, the impact of possible recessionary environments in
economies outside North America and political and economic instability. The
Company's total revenue is also substantially affected by seasonal fluctuations
resulting from lower sales that typically occur during the summer months in
Europe and other parts of the world.
Until 1996, the Company's international sales were generally denominated
and collected in U.S. dollars. During the nine months ended September 30, 1996
international sales were denominated in both U.S. dollars and foreign
currencies. The Company believes that an increasing portion of the Company's
cost of revenues and operating expenses will be incurred in foreign currencies.
Although it is impossible to predict future exchange rate movements between the
U.S. dollar and other currencies, it can be anticipated that to the extent the
U.S. dollar strengthens or weakens against other currencies, a substantial
portion of the Company's revenues, cost of revenues and operating expenses will
be commensurately lower or higher than would be
20
<PAGE> 21
the case in a more stable foreign currency environment. Although the Company
from time to time undertakes foreign exchange hedging transactions to cover a
portion of its foreign currency transaction exposure, the Company does not
attempt to cover all potential foreign currency exposure and therefore, the
Company may be subject to variations in operating results as a result of foreign
exchange fluctuations.
In the past, the Company has benefited from increased international demand
for its risk management solutions resulting from the imposition of new capital
adequacy and regulatory reporting requirements. For example, a significant
portion of the Company's 1995 and first quarter 1996 international revenues were
attributable to new European customers who began to respond to the requirements
of the European Capital Adequacy Directive in late 1994 through implementation
of risk management systems. If regulatory requirements remain unchanged or are
eased, the demand for risk management solutions will likely be reduced, which
would materially adversely affect the Company's business, financial condition
and results of operations.
DEPENDENCE ON KEY EMPLOYEES
The Company's success depends to a significant extent on the performance
of a number of senior management and sales and engineering personnel, including
Roger A. Lang, a founder of the Company and its President and Chief Executive
Officer. The Company's Vice President of Software Engineering, Keith Hospers, is
currently on long-term disability leave from the Company for medical reasons,
which leave is expected to continue for the indefinite future. The Company's
Vice President of Client Services commenced a one-year educational leave in
August 1996. The absence of these two key employees has placed and continues to
place a significant additional burden on the other members of the Company's
management team and could materially adversely affect the development of the
Company's products and the Company's business, financial condition and results
of operations. The Company is currently recruiting a Vice President of Products
and Technology, who would oversee all product development and engineering
activities of the Company and would assume many of Mr. Hospers' prior
responsibilities. The Company is experiencing difficulty in recruiting a
qualified individual for this position and would expect similar difficulty in
replacing its Vice President for Client Services if the current individual in
that position chooses not to return to the Company following completion of his
one-year educational leave. Further, given the critical role of the Company's
limited engineering staff in executing the Company's product strategies, the
loss of any additional significant part of its engineering staff would also have
a material adverse effect on the Company. The Company generally does not have
long-term employment contracts with Mr. Lang, its engineering staff or any other
employees. The Company believes that its future success also will depend in part
on its ability to attract and retain highly-skilled engineering, managerial,
sales and marketing personnel. Competition for such personnel in the software
industry is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. The Company has
previously experienced substantial difficulty in hiring sales and engineering
personnel with expertise in sophisticated financial instruments and may
experience similar difficulty as it attempts to hire other qualified staff who
have the required experience levels. In particular, the Company has experienced
difficulty competing for such personnel with large financial institutions with
substantially greater financial resources. Failure
21
<PAGE> 22
to attract and retain key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations.
PROTECTION OF INTELLECTUAL PROPERTY
The Company's success is heavily dependent upon its proprietary
technology. The Company relies primarily on a combination of copyright, trade
secret and trademark laws, nondisclosure and other contractual provisions and
technical measures to protect its proprietary rights. The Company seeks to
protect its software, documentation and other written materials through trade
secret and copyright laws, which provide only limited protection. As part of its
confidentiality procedures, the Company generally enters into nondisclosure
agreements with its employees, consultants, distributors and corporate partners.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use the Company's products
or technology independently. In particular, the Company customarily provides its
existing and potential distribution partners with access to its product
architecture and other proprietary information underlying the Company's licensed
software, including source code. An unauthorized publication or proliferation of
the Company's source code could materially adversely affect the Company's
business, financial condition and results of operations. Policing unauthorized
use of the Company's products is difficult, and the Company is unable to
determine the extent to which unauthorized use of its software products exists,
In addition, effective protection of intellectual property rights may be
unavailable or limited in certain countries in which the Company currently sells
products, such as Japan, and countries the Company may target to expand its
sales efforts such as Brazil, Hong Kong, Mexico, South Africa and Thailand.
Accordingly, there can be no assurance that the Company's means of protecting
its proprietary rights will be adequate or that the Company's competitors will
not independently develop similar technology.
RISKS OF PRODUCT DEFECTS; PRODUCT LIABILITY
As a result of their complexity, software products may contain undetected
errors or failures. Despite testing by the Company and use by current and
potential customers, when first introduced or as new versions are released,
there can be no assurance that errors will not be found in new products after
commencement of commercial shipments. The most recent release of Infinity
Derivatives, which included new features and functionality, contained a number
of errors and defects which the Company is correcting in the normal course of
post-release development support. Although the Company has not experienced
material adverse effects resulting from any such defects and errors to date,
there can be no assurance that defects and errors will not be found in new
versions or enhancements after commencement of commercial shipments, resulting
in loss of revenues, delay in market acceptance or damage to the Company's
reputation, which could have a material adverse effect upon the Company's
business, financial condition and results of operations.
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure for potential claims based
on errors or malfunctions of its products. It is possible, however, that the
limitation of liability provisions contained in the
22
<PAGE> 23
Company's license agreements may not be effective under the laws of certain
jurisdictions. Although the Company has not experienced any product liability
claims to date, the sale and support of the Company's products entails the risk
of such claims. The Company currently does not have insurance against product
liability risks, and, if the Company were to elect to obtain such insurance,
there can be no assurance that such insurance will be available to the Company
on commercially reasonable terms or at all. A product liability claim brought
against the Company could have a material adverse effect on the Company's
business, financial condition and results of operations.
23
<PAGE> 24
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith or incorporated by reference
herein.
Exhibit
Number Exhibit Title
------ -------------
11.1 Statement of computation of net income per share
27.1 Financial data schedule
(b) The company did not file any reports on Form 8-K during the three
months ended September 30, 1996.
24
<PAGE> 25
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.
INFINITY FINANCIAL TECHNOLOGY, INC.
(Registrant)
Date: December 9, 1996 /s/ TERRY H. CARLITZ
-----------------------------------
Terry H. Carlitz
Chief Financial Officer and
Vice President, Finance
(Duly Authorized Officer and Principal
Financial Officer)
25
<PAGE> 26
EXHIBIT INDEX
Exhibit
Number Exhibit Title
------- -------------
11.1 Statement of Computation of Net Income Per Share
27.1 Financial Data Schedule
26
<PAGE> 1
EXHIBIT 11.1
INFINITY FINANCIAL TECHNOLOGY, INC.
STATEMENT OF COMPUTATION OF NET INCOME PER SHARE(1)
(In thousands, except per share data - unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income .............................................. $ 1,294 $ 760 $ 3,777 $ 2,549
======= ======= ======= =======
PRIMARY:
Weighted average common shares outstanding .............. 12,151 11,447 11,945 10,835
Common stock equivalents:
Preferred stock using the as if converted method 3,083 3,083 3,083 3,083
Stock options using the treasury stock method .. 1,487 2,155 1,738 2,185
Shares related to Staff Accounting Bulletin topic 4D:
Shares of common stock ......................... 770 770 770 770
Stock options .................................. 1,272 1,272 1,272 1,272
------- ------- ------- -------
Shares used in computing net income per share ........... 18,763 18,727 18,808 18,145
======= ======= ======= =======
Net income per share .................................... $ 0.07 $ 0.04 $ 0.20 $ 0.14
======= ======= ======= =======
FULLY DILUTED:
Weighted average common shares outstanding .............. 12,151 11,447 11,945 10,835
Common stock equivalents:
Preferred stock using the as if converted method 3,083 4,483 3,083 4,483
Stock options using the treasury stock method .. 1,497 2,172 1,753 2,264
Shares related to Staff Accounting Bulletin topic 4D:
Shares of common stock ......................... 770 770 770 770
Stock options .................................. 1,272 1,272 1,272 1,272
------- ------- ------- -------
Shares used in computing net income per share ........... 18,773 20,144 18,824 19,624
======= ======= ======= =======
Net income per share .................................... $ 0.07 $ 0.04 $ 0.20 $ 0.13
======= ======= ======= =======
</TABLE>
(1) For an explanation of the number of shares used to compute net income per
share, see notes to condensed consolidated financial statements.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (a) the
Company's September 30, 1996 financial statements and is qualified in its
entirety by reference to such (b) financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 5,032
<SECURITIES> 0
<RECEIVABLES> 15,578
<ALLOWANCES> 180
<INVENTORY> 0
<CURRENT-ASSETS> 21,836
<PP&E> 3,662
<DEPRECIATION> 1,447
<TOTAL-ASSETS> 24,455
<CURRENT-LIABILITIES> 14,180
<BONDS> 0
1,053
0
<COMMON> 2,456
<OTHER-SE> 6,513
<TOTAL-LIABILITY-AND-EQUITY> 24,455
<SALES> 28,564
<TOTAL-REVENUES> 28,564
<CGS> 3,249
<TOTAL-COSTS> 3,249
<OTHER-EXPENSES> 19,241
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 6,091
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</TABLE>
