<PAGE>
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, 1999
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: 0-26507
SHOWCASE CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1628214
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4115 Highway 52 North, Suite 300
Rochester, Minnesota 55901-0144
(Address of principal executive offices) (Zip Code)
(507) 288-5922
(Registrants'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 Exchange Act during the past 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 ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
10,345,505 Common Shares as of November 9, 1999.
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Table of Contents
SHOWCASE CORPORATION AND SUBSIDIARIES
Report on Form 10-Q
for period ended
September 30, 1999
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations for the three and six
months ended September 30, 1999 and 1998 ........................ 2
Consolidated Balance Sheets as of September 30, 1999 and
March 31, 1999 .................................................. 3
Consolidated Statements of Cash Flows for the six months ended
September 30, 1999 and 1998 ..................................... 4
Notes to Consolidated Financial Statements ...................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................... 7
Item 3. Quantitative and Qualitative Disclosure About Market Risks ...... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................... 13
Item 2. Changes in Securities and Use of Proceeds ....................... 13
Item 3. Defaults upon Senior Securities ................................. 14
Item 4. Submission of Matters to a Vote of Security Holders ............. 14
Item 5. Other Information ............................................... 14
Item 6. Exhibits and Reports on Form 8-K ................................ 14
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<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
License fees ..................... $ 4,027 $ 5,019 $ 10,092 $ 9,243
Maintenance and support .......... 3,301 2,365 6,507 4,526
Professional service fees ........ 1,178 1,037 2,412 1,950
-------- -------- -------- --------
Total revenues .............. 8,506 8,421 19,011 15,719
-------- -------- -------- --------
Cost of revenues:
License fees ..................... 766 1,000 1,835 1,818
Maintenance and support .......... 753 605 1,577 1,169
Professional service fees ........ 1,112 577 2,144 1,189
-------- -------- -------- --------
Total cost of revenues ...... 2,631 2,182 5,556 4,176
-------- -------- -------- --------
Gross margin .............................. 5,875 6,239 13,455 11,543
-------- -------- -------- --------
Operating expenses:
Sales and marketing .............. 5,234 4,378 10,508 8,765
Product development .............. 1,247 1,219 2,410 2,199
General and administrative ....... 1,136 748 2,077 1,484
-------- -------- -------- --------
Total operating expenses .... 7,617 6,345 14,995 12,448
-------- -------- -------- --------
Operating income (loss) ................... (1,742) (106) (1,540) (905)
-------- -------- -------- --------
Other income (expense), net:
Interest expenses ................ (4) (49) (10) (102)
Interest income .................. 366 74 470 133
Other income (expense), net ...... -- -- 1 --
-------- -------- -------- --------
Total other income (expense),
net ....................... 362 25 461 31
-------- -------- -------- --------
Net income (loss) before income
taxes ................................ (1,380) (81) (1,079) (874)
Income taxes .............................. 185 45 300 85
-------- -------- -------- --------
Net income (loss) ......................... $ (1,565) $ (126) $ (1,379) $ (959)
-------- -------- -------- --------
Other comprehensive income (loss):
Foreign currency translation
adjustment ............................. (6) (19) 28 (3)
Unrealized holding gain (loss)
on securities .......................... 40 -- 72 (123)
-------- -------- -------- --------
Comprehensive income (loss) ............... $ (1,531) $ (145) $ (1,279) $ (1,085)
======== ======== ======== ========
Net income (loss) per share:
Basic ............................ $ (0.15) $ (0.03) $ (0.19) $ (0.22)
======== ======== ======== ========
Diluted .......................... $ (0.15) $ (0.03) $ (0.19) $ (0.22)
======== ======== ======== ========
Weighted average shares outstanding
used in computing basic net
income (loss) per share ................ 10,139 4,409 7,341 4,301
Weighted average shares outstanding
used in computing diluted net
income (loss) per share ................ 10,139 4,409 7,341 4,301
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
------------- --------
<S> <C> <C>
Assets
Current Assets:
Cash ......................................................... $ 5,138 $ 8,900
Marketable securities ........................................ 25,640 139
Accounts receivable, net ..................................... 6,910 7,070
Prepaid expenses and other current assets .................... 1,177 1,059
Income taxes receivable ............................................... 238 --
Deferred income taxes ........................................ 220 550
-------- --------
Total current assets ................................. 39,323 17,718
-------- --------
Property and equipment, net ........................................... 2,141 2,092
Goodwill, net of accumulated amortization ............................. 86 116
-------- --------
Total assets ......................................... $ 41,550 $ 19,926
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable ............................................. $ 1,024 $ 1,373
Accrued liabilities .......................................... 4,393 4,121
Current portion of long-term debt ............................ 5 5
Current portion of obligations under capital leases .......... 114 127
Income taxes payable ......................................... -- 295
Deferred revenue ............................................. 10,493 11,646
-------- --------
Total current liabilities ............................ 16,029 17,567
-------- --------
Long-term debt, less current portion .................................. -- 2
Capital lease obligations, less current portion ....................... 25 85
-------- --------
Total liabilities .................................... 16,054 17,654
-------- --------
Stockholders' equity:
Series A convertible preferred stock; $.01 par value;
473,757 shares authorized, issued, and outstanding,
total liquidation preference of $2,400 ..................... -- 5
Series B convertible preferred stock; $.01 par value;
1,777,500 shares authorized, 875,000 issued and outstanding,
total liquidation preference of $3,500 ..................... -- 9
Common stock, $.01 par value, 50,000,000 and 10,000,000 shares
authorized, 10,332,345 and 4,502,867 shares issued
and outstanding ............................................ 103 45
Additional paid-in capital ................................... 31,073 6,452
Accumulated other comprehensive income:
Cumulative translation adjustment ................... 75 47
Unrealized holding gain (loss) on securities ........ (109) (181)
Deferred compensation ........................................ (484) (322)
Accumulated deficit .......................................... (5,162) (3,783)
-------- --------
Total stockholders' equity ........................... 25,496 2,272
-------- --------
Total liabilities and stockholders' equity ........... $ 41,550 $ 19,926
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................... $ (1,379) $ (959)
Adjustments to reconcile net loss
to cash provided by (used in) operating activities:
Depreciation and amortization ............................. 375 415
Provision for returns and doubtful accounts, net of returns
and writeoffs ........................................... (90) 45
Deferred income taxes ..................................... 330 --
Deferred compensation amortization and expense related to
cashless exercise of warrants ........................... 129 --
Loss on the disposal of property and equipment ............ 3 --
Changes in operating assets and liabilities, net of effect
of foreign exchange rate changes:
Accounts receivable ................................... 250 (241)
Prepaid expenses ...................................... (118) (36)
Income taxes receivable ............................... (238) (90)
Accounts payable ...................................... (349) (391)
Accrued liabilities ................................... 271 865
Deferred revenue ...................................... (1,153) 1,182
Income taxes payable .................................. (294) 85
-------- --------
Net cash provided by (used in) operating activities (2,263) 875
-------- --------
Cash flows from investing activities:
Purchase of property and equipment ............................ (370) (175)
Purchase of marketable securities ............................. (63,621) --
Sale and maturity of marketable securities .................... 38,192 --
Proceeds from affiliates ...................................... -- 12
-------- --------
Net cash used in investing activities ............. (25,799) (163)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options ....................... 26 96
Proceeds from initial public offering, net of expenses ........ 24,350 --
Payments on long-term debt .................................... -- (188)
Payments of capitalized lease obligations ..................... (76) (80)
-------- --------
Net cash provided by (used in) financing activities 24,300 (172)
-------- --------
Net increase (decrease) in cash ................................... (3,762) 540
Cash, beginning of period ......................................... 8,900 5,404
-------- --------
Cash, end of period ............................................... $ 5,138 $ 5,944
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the six months for interest .................. $ 10 $ 102
======== ========
Cash paid during the six months for income taxes .............. $ 642 $ 93
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Basis of Presentation
The unaudited interim consolidated financial statements include the
accounts of ShowCase Corporation and its wholly owned subsidiaries
(collectively, the "Company") and have been prepared by the Company in
accordance with generally accepted accounting principles, pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally
included in the financial statements have been omitted or condensed
pursuant to such rules and regulations. The information furnished
reflects, in the opinion of the management of the Company, all
adjustments, consisting primarily of recurring accruals, considered
necessary for a fair presentation of the financial position and the
results of operations.
The Company adopted the provisions of Statement of Position ("SOP") No.
98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use; SOP No. 98-5, Reporting on the Costs of
Start-Up Activities, and SOP No. 98-9, Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions,
effective April 1, 1999. The adoption of these pronouncements did not
have a material effect on the Company's operating results.
(2) Net Income (Loss) per Share
Basic income (loss) per share represents net income (loss) divided by
the weighted average number of common shares outstanding during the
period. Diluted income (loss) per share represents net income (loss)
divided by the sum of the weighted average number of common shares
outstanding plus shares derived from other potentially dilutive
securities. For the Company, potentially dilutive securities include
"in-the-money" fixed stock options and warrants and the amount of
weighted average common shares which would be added by the conversion
of outstanding convertible preferred stock. The number of shares added
for stock options and warrants is determined by the treasury stock
method, which assumes exercise of these options and warrants and the
use of any proceeds from such exercise to repurchase a portion of these
shares at the average market price for the period. When the results of
operations are a loss, other potentially dilutive securities are not
included in the calculation of loss per share.
For the three and six month periods ended September 30, 1999 and 1998,
basic loss per share is the same as diluted loss per share because the
effect of the inclusion of other potentially dilutive securities in the
calculation of diluted loss per share was antidilutive.
The number of option shares excluded from the calculation of
potentially dilutive securities either because the exercise price
exceeded the average market price or because their inclusion in a
calculation of net loss per share would have been antidilutive was
1,148,689 and 648,896 for the three months ended September 30, 1999 and
1998, respectively, and 1,125,701 and 700,498 for the six months ended
September 30, 1999 and 1998, respectively. The effect of conversion of
the Company's convertible preferred stock was also excluded from the
calculation of net loss per diluted share because the resulting impact
would also have been antidilutive for the three and six months ended
September 30, 1998.
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SHOWCASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(3) Deferred Compensation
During the three months ended June 30, 1999, the Company granted to
employees options to purchase 81,000 shares of common stock. The
Company recorded deferred compensation of approximately $153,000,
representing the difference between the deemed value of the common
stock for accounting purposes and the option exercise price of such
options on the date of grant. The Company accounts for these stock
options in accordance with APB Opinion No. 25, Accounting for Stock
Issued to Employees, and will recognize the deferred compensation cost
over the five year vesting period of options granted. No stock options
were granted during the three months ended September 30, 1999 for which
the exercise price was less than the deemed value of the common stock
for accounting purposes on the date of grant.
(4) Cashless Exercise of Warrants
During the three months ended September 30, 1999, a warrant holder
exercised a warrant to purchase shares of the Company's common stock
pursuant to a cashless exercise provision. The Company recognized an
expense of approximately $79,000 and issued an aggregate of 8,182
shares of its common stock during the three months ended September 30,
1999 as a result of this exercise.
(5) Initial Public Offering and Conversion of Preferred Stock
On June 29, 1999, the Company's registration statement for its initial
public offering of 3,000,000 shares of common stock at $9.00 per share
was declared effective by the Securities and Exchange Commission. The
closing of the sale of such shares occurred on July 6, 1999 at which
time the 3,000,000 common shares were issued and proceeds, net of the
underwriting discount, of $25,110,000 were received.
On July 6, 1999, the outstanding shares of the Company's Series A and
Series B convertible preferred stock were converted into 1,895,028 and
864,198 shares of common stock, respectively.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
All statements, trend analysis and other information contained in the
following discussion relative to markets for our products and trends in
revenues, gross margins and anticipated expense levels, as well as other
statements including words such as "anticipate," "believe," "plan," "estimate,"
"expect," "intend" and other similar expressions constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended. These forward-looking statements are subject to business
and economic risks and uncertainties, including but not limited to those
described in Exhibit 99.1 to our Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999, as well as those discussed in our Registration Statement on
Form S-1 (File No. 333-77223) (the "Registration Statement"). Our actual results
of operations may differ materially from those contained in the forward-looking
statements. All forward-looking statements included in this report are based on
information available to us on the date of this report, and we assume no
obligation to update these forward-looking statements, or to update the reasons
why actual results could differ from those projected in these forward-looking
statements.
Overview
We are the leading provider of fully integrated, end-to-end, business
intelligence solutions for IBM AS/400 customers. Our ShowCase STRATEGY(R)
product suite and related services are designed to enable organizations to
rapidly implement business intelligence solutions that create increased value
from their operational and customer data. The sophisticated data warehousing and
management capabilities of our product suite provides our clients with highly
scalable and tightly integrated solutions. Our products enable enterprise-wide
distribution of information and allow end-user access and analysis through
familiar applications and Internet browsers. We have eight years of experience
delivering business intelligence solutions. Our ShowCase STRATEGY product suite,
introduced in 1996, supports ad hoc information access, enterprise reporting and
analytics.
We were incorporated in 1988, and in 1991, introduced the first
Windows-based query tool for the IBM AS/400, ShowCase VISTA. During the next
four years, we continued to broaden our family of data access products, expand
our comprehensive service and support programs, grow our telesales and indirect
sales channels and invest in marketing and administrative functions. To support
the introduction of the ShowCase STRATEGY product suite in 1996, we created a
direct field sales force and increased our global distribution presence. Our
revenues increased to $8.5 and $19.0 million for the three and six months ended
September 30, 1999, respectively, from $8.4 and $15.7 million for the three and
six months ended September 30, 1998, respectively. Although our revenues have
increased significantly in recent periods, this growth may not continue. We
intend to continue to invest significant resources in the development of our
product suite, sales and marketing and general and administrative functions.
Our revenues come from three principal sources: license fees,
maintenance and support and professional service fees. We adopted the provisions
of Statement of Position ("SOP") No. 97-2, Software Revenue Recognition, as
amended by SOP No. 98-4, Deferral of the Effective Date of Certain Provisions of
SOP No. 97-2, effective April 1, 1998, and SOP No. 98-9, Modification of SOP No.
97-2, Software Revenue Recognition, with Respect to Certain Transactions,
effective April 1, 1999. Under SOP No. 97-2, we recognize license revenue when
the software product has been delivered, if a signed contract exists, the fee is
fixed and determinable, collection of resulting receivables is probable and
product returns are reasonably estimable. License fee revenues that are
contingent upon sale to an end user by distributors and other distribution
partners are recognized upon receipt of a report of delivery to the end user.
Maintenance and support fees committed as part of new product license sales and
maintenance resulting from renewed
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<PAGE>
maintenance contracts are deferred and recognized ratably over the contract
period. Professional service revenue is recognized when services are performed.
We sell our products through a direct sales force and through indirect
distribution channels. Direct sales are made by our telesales organization and
direct field sales force in North American and by wholly-owned subsidiaries in
Germany, France, the United Kingdom and Belgium, including its branch office in
the Netherlands. Our distribution partners include IBM, software application
vendors, resellers and distributors located in the United States, Italy,
Switzerland, Mexico, Japan, Australia, Singapore, Hong Kong, Thailand and South
Korea. Sales through indirect channels accounts for 22.2% and 31.1% of license
fee revenues for the three months ended September 30, 1999 and 1998,
respectively, and 19.6% and 26.5% for the six months ended September 30, 1999
and 1998, respectively.
Revenues from clients outside North America represented 45.9% and 35.7%
of total revenue for the three months ended September 30, 1999 and 1998,
respectively, and 37.8% and 40.7% for the six months ended September 30, 1999
and 1998, respectively. A majority of these sales was derived from European
sales. We intend to continue to expand our international operations and have
committed, and will continue to commit, significant management time and
financial resources to developing direct and indirect international sales
channels.
Results of Operations
The following table sets forth certain statement of operations data as
a percentage of total revenues for the periods indicated.
Three Months Ended Six Months Ended
September 30, September 30
--------------- ---------------
1999 1998 1999 1998
----- ----- ----- -----
As a Percentage of Total Revenues:
Revenues:
License fees .................... 47.3% 59.6% 53.1% 58.8%
Maintenance and support ......... 38.8 28.1 34.2 28.8
Professional service fees ....... 13.8 12.3 12.7 12.4
----- ----- ----- -----
Total revenues .............. 100.0 100.0 100.0 100.0
Cost of revenues:
License fees .................... 9.0 11.9 9.7 11.6
Maintenance and support ......... 8.9 7.2 8.3 7.4
Professional service fees ....... 13.1 6.9 11.3 7.6
----- ----- ----- -----
Total cost of revenues ...... 30.9 25.9 29.2 26.6
----- ----- ----- -----
Gross margin ........................ 69.1 74.1 70.8 73.4
Operating expenses:
Sales and marketing ............. 61.5 52.0 55.3 55.8
Product development ............. 14.7 14.5 12.7 14.0
General and administrative ...... 13.4 8.9 10.9 9.4
----- ----- ----- -----
Total operating expenses .... 89.5 75.3 78.9 79.2
----- ----- ----- -----
Operating income (loss) ............. (20.5) (1.3) (8.1) (5.8)
Other income (expense), net ......... 4.3 0.3 2.4 0.2
----- ----- ----- -----
Net income (loss) before income taxes (16.2) (1.0) (5.7) (5.6)
Income taxes ........................ 2.2 0.5 1.6 0.5
----- ----- ----- -----
Net income (loss) ................... (18.4)% (1.5)% (7.3)% (6.1)%
===== ===== ===== =====
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Revenues
Total revenues. Total revenues increased to $8.5 million for the three
months ended September 30, 1999 from $8.4 million for the three months ended
September 30, 1998, representing an increase of 1.0%. For the six months ended
September 30, 1999, total revenues increased to $19.0 million from $15.7 million
for the six months ended September 30, 1998, an increase of 20.9%.
License fees. License fee revenues decreased to $4.0 million for the
three months ended September 30, 1999 from $5.0 million for the three months
ended September 30, 1998, representing a decrease of 19.8%. This decrease was
primarily attributable to lower license fee revenues from Asia, low volume from
our IBM distribution channel and the deferral of purchase decisions by potential
clients because of year 2000 concerns. For the six months ended September 30,
1999, license fee revenues increased to $10.1 million from $9.2 million for the
six months ended September 30, 1998, an increase of 9.2%. This increase in
license fee revenues was largely attributable to an increase in the number of
licenses sold by our expanded direct field sales force during the three months
ended June 30, 1999. License fee revenues as a percentage of total revenues were
47.3% and 59.6% for the three months ended September 30, 1999 and 1998,
respectively, and 53.1% and 58.8% for the six months ended September 30, 1999
and 1998, respectively. Licensing fees for our Essbase/400 product represented
38.6% and 37.0% of our total license fee revenues for the three months ended
September 30, 1999 and 1998, respectively, and 41.6% and 38.7% for the six
months ended September 30, 1999 and 1998, respectively.
Maintenance and support. Maintenance and support revenues increased to
$3.3 million for the three months ended September 30, 1999 from $2.4 million for
the three months ended September 30, 1998, representing an increase of 39.6%.
For the six months ended September 30, 1999, maintenance and support revenues
increased to $6.5 million from $4.5 million for the six months ended September
30, 1998, an increase of 43.8%. Maintenance and support revenues as a percentage
of total revenues were 38.8% and 28.1% for the three months ended September 30,
1999 and 1998, respectively, and 34.2% and 28.8% for the six months ended
September 30, 1999 and 1998, respectively. These increases in maintenance and
support revenues were largely a result of the renewal of maintenance and support
contracts, as well as new maintenance and support contracts associated with new
product licenses.
Professional service fees. Professional service fee revenues increased
to $1.2 million for the three months ended September 30, 1999 from $1.0 million
for the three months ended September 30, 1998, representing an increase of
13.6%. For the six months ended September 30, 1999, professional service fee
revenues increased to $2.4 million from $2.0 million for the six months ended
September 30, 1998, an increase of 23.7%. Professional service revenues as a
percentage of total revenues were 13.8% and 12.3% for the three months ended
September 30, 1999 and 1998, respectively, and 12.7% and 12.4% for the six
months ended September 30, 1999. These increases in professional service
revenues were largely a result of revenues associated with the sale of new
product licenses.
Costs of Revenues
Cost of license fees. Cost of license fees consists primarily of the
costs of product manuals, media, packaging, shipping and royalties paid to third
parties. Cost of license fees decreased to $0.8 million for the three months
ended September 30, 1999 from $1.0 million for the three months ended September
30, 1998, representing 19.0% and 19.9% of license fee revenues for these
periods, respectively. This decrease in cost of license fees in dollar amount
was primarily attributable to lower license fee revenues. Cost of license fees
was $1.8 million for each of the six months ended September 30, 1999 and 1998,
representing 18.2% and
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<PAGE>
19.7% of license fee revenues for these periods, respectively. We anticipate
that cost of license fees will increase in dollar amount in future periods as
license fee revenues increase. Cost of license fees as a percentage of total
license fees may increase if we enter into additional royalty arrangements or if
sales of Essbase/400 or other products which carry a royalty obligation increase
as a percentage of license fee revenues.
Cost of maintenance and support. Cost of maintenance and support
consists primarily of personnel costs associated with providing maintenance and
support services and payments to third parties to provide maintenance and
support, particularly with respect to Essbase/400. Cost of maintenance and
support increased to $0.8 million for the three months ended September 30, 1999
from $0.6 million for the three months ended September 30, 1998, representing
22.8% and 25.6% of maintenance and support revenues for these periods,
respectively. Cost of maintenance and support increased to $1.6 million for the
six months ended September 30, 1999 from $1.2 million for the six months ended
September 30, 1998, representing 24.2% and 25.8% of maintenance and support
revenues for these periods, respectively. These increases in the cost of
maintenance and support in dollar amount were primarily due to the hiring of
additional personnel. We anticipate that cost of maintenance and support will
increase in dollar amount in future periods as maintenance and support revenues
increase.
Cost of professional service fees. Cost of professional service fees
consists primarily of the costs of providing training and consulting services.
Cost of professional service fees increased to $1.1 million for the three months
ended September 30, 1999 from $0.6 million for the three months ended September
30, 1998, representing 94.3% and 55.6% of professional service fee revenues for
these periods, respectively. Cost of professional service fees increased to $2.1
million for the six months ended September 30, 1999 from $1.2 million for the
six months ended September 30, 1998, representing 88.9% and 61.0% of
professional service fee revenues for these periods, respectively. These
increases in cost of professional service fees were primarily due to the
expansion of our professional services staff. Cost of professional service fees
as a percentage of professional service fee revenues increased as a result of
reduced utilization of our staff due to year 2000 concerns of potential clients.
We anticipate that cost of professional service fees will increase in dollar
amount in future periods as professional service fee revenues increase.
Operating Expenses
Sales and marketing. Sales and marketing expenses consist primarily of
salaries, benefits, bonuses, commissions and travel and promotional expenses.
Sales and marketing expenses increased to $5.2 million for the three months
ended September 30, 1999 from $4.4 million for the three months ended September
30, 1998, representing 61.5% and 52.0% of total revenues for these periods,
respectively. Sales and marketing expenses increased as a percentage of total
revenues primarily due to slower revenue growth during the three months ended
September 30, 1999. Sales and marketing expenses increased to $10.5 million for
the six months ended September 30, 1999 from $8.8 million for the six months
ended September 30, 1998, representing 55.3% and 55.8% of total revenues for
these periods, respectively. These increases in sales and marketing expenses in
dollar amount reflect the hiring of additional sales and marketing personnel and
expanded promotional activities. We anticipate that sales and marketing expenses
will increase in dollar amount in future periods.
Product development. Product development expenses consist primarily of
development personnel compensation and related costs associated with the
development of new products, the enhancement of existing products, quality
assurance and testing. Product development expenses were $1.2 million for each
of the three months ended September 30, 1999 and 1998, representing 14.7% and
14.5% of total revenues for
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these periods, respectively. Product development expenses increased to $2.4
million for the six months ended September 30, 1999 from $2.2 million for the
six months ended September 30, 1999, representing 12.7% and 14.0% of total
revenues for these periods, respectively. These increases in dollar amount were
due to expenses associated with the development of new products and the hiring
of additional personnel. Product development expenses decreased as a percentage
of total revenues for the six months ended September 30, 1999 primarily due to
faster revenue growth during the three months ended June 30, 1999. We anticipate
that we will continue to devote substantial resources to product development
efforts and that product development expenses will increase in dollar amount in
future periods. To date, all product development costs have been expensed as
incurred.
General and administrative. General and administrative expenses consist
primarily of salaries of executive, financial, human resources and information
services personnel as well as outside professional fees. General and
administrative expenses increased to $1.1 million for the three months ended
September 30, 1999 from $0.7 million for the three months ended September 30,
1998, representing 13.4% and 8.9% of total revenues for these periods,
respectively. General and administrative expenses increased to $2.1 million for
the six months ended September 30, 1999 from $1.5 million for the six months
ended September 30, 1998, representing 10.9% and 9.4% of total revenues for
these periods, respectively. These increases in dollar amount were primarily due
to increased staffing and related expenses necessary to manage and support the
expansion of operations. General and administrative expenses increased as a
percentage of total revenues primarily due to slower revenue growth during the
three months ended September 30, 1999. We anticipate that general and
administrative expenses will increase in dollar amount in the future as a result
of increased personnel and infrastructure costs necessary to support the
expansion of operations.
Other Income
Other income for the periods ended September 30, 1999 and 1998
consisted primarily of interest income and interest expense. Other income
increased to $0.4 million for the three months ended September 30, 1999 from
$25,000 for the three months ended September 30, 1998. Other income increased to
$0.5 million for the six months ended September 30, 1999 from $0.1 for the six
months ended September 30, 1998. These increases were primarily due to interest
on the investment of the proceeds of our initial public offering of common stock
which closed on July 6, 1999.
Provision for Income Taxes
Income taxes increased to $0.2 million for the three months ended
September 30, 1999 from $45,000 for the three months ended September 30, 1998.
For the six months ended September 30, 1999, income taxes increased to $0.3
million from $85,000 for the six months ended September 30, 1999. These
increases were primarily due to a reduction in the deferred tax asset as a
result of the larger loss from operations.
Liquidity and Capital Resources
Historically, we have funded operations primarily through cash provided
by operations, the sale of equity securities and bank borrowings. Operating
activities used cash of $2.3 million for the six months ended September 30, 1999
and provided cash of $0.9 million for the six months ended September 30, 1998.
This decrease in cash from operating activities was due primarily to decreased
deferred revenue and a net loss of $1.4 million partially offset by a decrease
in accounts receivable.
Investing activities used cash of $25.8 million and $0.2 million for
the six months ended
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<PAGE>
September 30, 1999 and 1998, respectively. The principal use of cash in
investing activities for the six months ended September 30, 1999 was the
investment of the proceeds from our initial public offering and capital
expenditures related to the acquisition of computer equipment and furniture
required to support the expansion of our operations. The principal use of cash
in investing activities for the six months ended September 30, 1998 was capital
expenditures related to the acquisition of computer equipment and furniture
required to support the expansion of our operations.
Financing activities provided cash of $24.3 million and used cash of
$0.2 million in the six months ended September 30, 1999 and 1998, respectively.
For the six months ended September 30, 1999, cash provided by financing
activities consisted primarily of proceeds from our initial public offering. For
the six months ended September 30, 1998, cash used by financing activities
consisted primarily of long-term debt repayment, payments under capitalized
lease obligations and the receipt of proceeds from the exercise of stock
options.
Our sources of liquidity at September 30, 1999 consisted principally of
cash and marketable securities of $30.8 million. We believe that cash generated
from operations, existing cash and marketable securities will be sufficient to
fund operations for at least the next twelve months.
Year 2000
Many currently installed computer systems and software products store
dates using two digits of the calendar year. These date code fields will need to
accept four-digit entries to distinguish 21st century dates from 20th century
dates. This problem could result in system failures or miscalculations causing
disruptions of business operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in other similar
business activities. As a result, many companies' computer systems and software
will need to be upgraded or replaced in order to comply with Year 2000
requirements. The potential global impact of the Year 2000 problem is not known.
If Year 2000 problems are not corrected in a timely manner, they could affect us
and the U.S. and world economies generally.
Even though our current products are Year 2000 compliant, we have lost,
and may, in the future, lose potential sales because companies are diverting
resources to assess and fix their internal systems that may not be Year 2000
compliant.
We have surveyed and assessed our infrastructure that supports our
information technology and communication systems. All critical computer
hardware, databases, operating systems, network equipment and communication
equipment have been assessed and identified as Year 2000 compliant. Personal
computers and workstations have been inventoried and evaluated and all non-Year
2000 compliant hardware and software has been or is being replaced. Our Year
2000 compliance program for all of our significant internal systems will be
completed at a cost of approximately $65,000.
We surveyed our key suppliers to assess the potential impact on our
operations if these suppliers are not successful in converting their systems in
a timely manner. Responses received to date indicate that our suppliers are
aware of the Year 2000 issues and are implementing necessary changes. Suppliers
that have not responded to our surveys are being evaluated in greater detail,
and contingency plans are being developed as appropriate. It is impossible to
fully assess the potential consequences in the event interruptions from
suppliers occur or in the event that there are disruptions in infrastructure
areas as utilities, communications, transportation, banking or government.
Based on our Year 2000 compliance program, we believe we will not
experience any material
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<PAGE>
disruptions as a result of Year 2000 problems in internal processes, information
processing, interfaces with major clients or with processing orders and billing.
However, if suppliers or other third-party providers, such as those providing
electricity, water or telephone services, experience difficulties in providing
products or services to us because of their Year 2000 problems, we believe that
the most reasonably likely worst case scenario would be that our ability to
timely ship our products to our clients would be disrupted. This could result in
the loss of current or potential clients which could seriously harm our business
and results of operations. Assuming no major disruption in service from
suppliers or other third-parties, we believe that we will be able to manage our
total Year 2000 transition without any substantial harm to our business and
operating results.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 established methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. SFAS No. 133 will be
effective for us in April 2001. We are currently reviewing the potential impact
of this accounting standard.
Item 3. Quantitative and Qualitative Disclosure About Market Risks
There have been no material changes in our market risk during the three
and six months ended September 30, 1999 from that set forth on page 25 of the
Registration Statement under the heading "Quantitative and Qualitative
Disclosure About Market Risks."
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
We issued and sold during the quarter ended September 30, 1999 an
aggregate of 8,182 shares of our common stock to Comdisco, Inc. upon exercise of
an outstanding warrant. The warrant was exercised pursuant to a cashless
exercise provision and, as such, we received no proceeds from the exercise of
the warrant. The issuance of our common stock upon exercise of the warrant was
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act.
Our registration statement, filed on Form S-1 under the Securities Act
(File No. 333-77223), for our initial public offering became effective June 29,
1999. The closing of the sale of shares pursuant to the offering occurred on
July 6, 1999, at which time we issued 3,000,000 shares of our common stock for
an aggregate offering price of $27.0 million. Upon the closing of the offering,
all outstanding shares of our Series A and Series B convertible preferred stock
were automatically converted into 2,759,226 shares of our common stock.
Following the closing, we filed Amended and Restated Articles of Incorporation
with the Secretary of State of the State of Minnesota which eliminated the
previously authorized convertible preferred stock and increased the authorized
number of shares of capital stock to 50,000,000.
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<PAGE>
We received net proceeds from the initial public offering of
approximately $24.4 million. These proceeds are currently invested in marketable
securities pending the use of such proceeds.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 -- Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file any Current Report on Form 8-K during
the quarter ended September 30, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SHOWCASE CORPORATION
Date: November 10, 1999 By: /s/ Craig W. Allen
--------------------------------
Craig W. Allen
Chief Financial Officer
(Duly authorized officer and
principal financial and accounting
officer)
<PAGE>
EXHIBIT INDEX
Page
----
27.1 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-2000
<PERIOD-START> APR-01-1998 APR-01-1999
<PERIOD-END> SEP-30-1998 SEP-30-1999
<CASH> 0 5,138
<SECURITIES> 0 25,640
<RECEIVABLES> 0 7,651
<ALLOWANCES> 0 741
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 39,323
<PP&E> 0 4,394
<DEPRECIATION> 0 2,253
<TOTAL-ASSETS> 0 41,550
<CURRENT-LIABILITIES> 0 16,029
<BONDS> 0 25
0 0
0 0
<COMMON> 0 103
<OTHER-SE> 0 25,393
<TOTAL-LIABILITY-AND-EQUITY> 0 41,550
<SALES> 15,719 19,110
<TOTAL-REVENUES> 15,719 19,110
<CGS> 0 0
<TOTAL-COSTS> 4,176 5,556
<OTHER-EXPENSES> 12,448 14,995
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 102 10
<INCOME-PRETAX> (874) (1,079)
<INCOME-TAX> 85 300
<INCOME-CONTINUING> (959) (1,379)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (959) (1,379)
<EPS-BASIC> (.22) (.19)
<EPS-DILUTED> (.22) (.19)
</TABLE>
