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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT
OF 1934
For the fiscal year ended March 31, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
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)
41-162821
MINNESOTA (I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
4115 Highway 52 North, Suite 300
Rochester, Minnesota 55901-0144
(Address of principal executive offices, including zip code)
Registrants's telephone number, including area code: (507) 288-5922
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01
----------------
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of June 12, 2000, there were 10,568,873 shares of the registrant's Common
Stock, $.01 par value, outstanding. The aggregate market value of the
registrant's voting stock held by non-affiliates as of June 12, 2000 was
approximately $33.5 Million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for its 2000 annual Meeting of
Shareholders, scheduled to be held August 3, 2000, are incorporated by
reference in Part III hereof.
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PART I
Item 1. Business
General
We are the leading provider of fully integrated, end-to-end, business
intelligence solutions for IBM AS/400 customers. Our ShowCase STRATEGY 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 provide 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 nine years of experience
delivering business intelligence solutions to our clients. Our ShowCase
STRATEGY product suite, introduced in 1996, supports ad hoc information access,
enterprise reporting and analytics.
Industry Background
The rapid growth of the Internet and the proliferation of e-business are
transforming the way organizations conduct business, communicate and share
information. This transformation is driving broad and immediate demand for
better intelligence and information dissemination. In recent years, the
deployment of enterprise resource planning applications, the integration of
supply chains and the emergence of e-business have increased the amount of data
available to companies. Nevertheless, many companies have failed to organize,
manage and disseminate this data in an accessible, intuitive manner. Companies
require business intelligence to interpret and create value from the vast
amounts of available data by better tailoring products and services,
identifying business opportunities and improving operational efficiencies. In
addition, as organizations have become more closely linked with suppliers and
customers, there is an increasing need to extend business intelligence beyond
organizational boundaries.
Business Intelligence. Employees, customers and suppliers require business
intelligence to make faster, smarter business decisions. Business intelligence
software enables organizations to transform data from disparate sources into
accessible, understandable and useful information. It is also the foundation of
an enterprise information portal, a centralized location where users can access
necessary corporate information. Business intelligence solutions provide
employees, customers and suppliers with useful information through ad hoc
information access, enterprise reporting and analytics. Ad hoc information
access enables users to customize the manner in which information is viewed and
analyzed. Enterprise reporting delivers timely analysis and drill-down
capabilities on a structured basis to broad user populations. Finally, analytic
applications provide management insight by enabling users to analyze
transactional data to identify operational trends and variances. Examples of
analytic applications include fraud detection, credit scoring and budgeting
applications. To support these functional uses, effective business intelligence
solutions require a strong infrastructure of data warehouse generation and
management.
Business intelligence is deployed in many ways to increase revenues and
operating efficiencies. For instance, in e-commerce, companies can use business
intelligence to better manage customer relationships by analyzing past
purchases, service history, product utilization and demographics. Consumer
product companies and retailers use business intelligence to deploy management
applications to determine which products to promote in specific markets and
channels. Companies engaged in supply chain management use business
intelligence to more efficiently manage product and material order flow among
distribution facilities, multiple plants and suppliers. Companies from all
industries can use business intelligence to benchmark performance against goals
and best business practices.
Business intelligence solutions are data intensive and draw on a broad range
of data sources. A critical foundation technology for business intelligence
solutions is a scalable and reliable server platform capable of supporting a
broad array of users and environments.
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The IBM AS/400. The AS/400 is a leading server platform used by mid-market
companies to deploy enterprise resource planning, e-business and business
intelligence applications. The popularity of the AS/400 as an application and
e-business server is a function of its ease of use, reliability, security,
scalability and ability to deploy Java and Windows NT business applications.
Expanded interoperability with other systems facilitates the use of the AS/400
as a server in heterogeneous computing environments. New models of the AS/400
provide strong price performance and include an expanded multiprocessor
architecture and networking capabilities and software products for Internet
delivery of applications and e-business. The AS/400's integrated hardware,
operating system, database, middleware and software applications provide
organizations with the performance and tools to implement a robust business
intelligence solution.
Problems faced by traditional approaches to business intelligence. Companies
have spent extensive time and resources collecting, organizing and delivering
operational data through various applications. Nevertheless, many of these
companies have been unable to implement and realize the benefits of a business
intelligence solution because they lack the necessary technical expertise. This
problem is especially prevalent for AS/400 customers because they typically
have limited IT staff and resources. Traditionally, companies have implemented
business intelligence solutions through the purchase and integration of many
software products from multiple vendors. However, these companies are often
unable to realize the full potential of business intelligence because of the
following challenges:
Integrating components from multiple vendors. As a result of the
fragmented business intelligence market, implementing a business
intelligence solution has traditionally required the evaluation, selection,
purchase and integration of many different software products from multiple
vendors. Integrating these products requires extensive use of an
organization's IT staff and resources and often limits the overall
capability of the implemented solution. Furthermore, because these
components are supplied by multiple vendors, and use many different
interfaces, the solution is often difficult to use.
Adapting solutions to evolving end-user needs. The initial
implementation of a traditional business intelligence solution frequently
provides a limited set of functionality. As organizations realize the
benefits of business intelligence, they frequently wish to add more
business functionality to their solutions. Integrating this increased
functionality may not be possible with an organization's existing tools, or
may be extremely costly or laborious. Furthermore, the resulting solution
is often of limited overall effectiveness. As a result, end users
frequently require sustained IT staff involvement to perform the customized
reporting and follow-on analysis necessary to derive increased value from
corporate data.
Scaling across the enterprise. When implementing traditional business
intelligence solutions, organizations frequently do not recognize the
importance of strong data warehouse generation and management capabilities.
As a result, the data warehouse generation and management infrastructure of
a business intelligence solution is often unable to meet the demands placed
on it as the diversity and size of the end-user population grows. Without
this infrastructure, companies frequently experience significant data
integrity and performance problems when they attempt to scale their
business intelligence solutions to serve broader user populations.
Extending business intelligence through the Internet. Extending business
intelligence through the Internet exacerbates the limitations of
traditional business intelligence solutions. As companies implement
enterprise information portals in an e-business environment, business
intelligence solutions must be easy to use and provide a high degree of
scalability and adaptability to deliver business intelligence to a growing
population of employees, customers and suppliers with diverse needs. To
support this large-scale deployment, business intelligence solutions must
also have sufficient management, security, intuitive user interfaces and
Internet browser-based capabilities.
We believe that the demand for business intelligence, the limitations of
traditional approaches and the large and growing AS/400 installed base provide
a significant opportunity for fully integrated, end-to-end business solutions
for AS/400 customers.
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The ShowCase Solution
We are the leading provider of business intelligence solutions for AS/400
customers. Our ShowCase STRATEGY product suite and related services are
designed to enable organizations to rapidly implement and deploy business
intelligence solutions that create increased value from their operational and
customer data. We believe our solution provides the following key benefits:
Full integration and end-to-end business intelligence functionality. Our
product suite and professional services are designed to provide our clients
with a complete, fully integrated, end-to-end business intelligence
solution. Our products can be easily integrated with industry leading
enterprise software applications provided by vendors such as Fiserv,
Infinium Software, J.D. Edwards, Lawson Software, Lotus and SSA. Our end-
to-end solution provides each of the three functional business intelligence
uses--ad hoc information access, enterprise reporting and analytics. Our
business intelligence solutions incorporate a strong infrastructure of data
warehouse generation and management. This end-to-end approach eliminates
the need for AS/400 customers to evaluate, select, purchase and integrate
components from different vendors to realize the benefits of business
intelligence.
Easy deployment and expansion. Our comprehensive product suite and
accompanying professional services enable our clients to quickly and easily
deploy a manageable business intelligence solution that minimizes the
burden on their IT departments. Our clients can deploy our modular business
intelligence solution in stages as their business intelligence needs grow.
Companies can start with any one of the above three functional business
intelligence uses and extend their solutions to include the other two as
end users realize the benefits of and discover other uses for business
intelligence. We also offer Deployment Accelerators, which provide
adaptable applications for targeted business functions and allow some of
our clients to realize benefits of business intelligence within days of
deployment.
Robust scalability for enterprise-wide deployment. Our product suite
addresses the challenges faced by IT departments as business intelligence
solutions expand in functionality and in the number of applications and end
users supported. Our data warehouse generation and management capabilities
and our hub-and-spoke architecture enable modular expansion of data
warehouses and data marts, which are simpler implementations of data
warehouses, to support additional applications and end users. Further, our
product suite supports enterprise performance capabilities and scalability
through its tight integration with and leverage of the AS/400 platform.
Ease of use and Internet accessibility. Our product suite combines a
consistent and intuitive user interface with powerful functionality that
allows end users to easily access, customize and analyze information and
reports with minimal IT assistance. Because users can realize the benefits
of our solution through familiar applications, such as Microsoft Excel,
Lotus 1-2-3 and Microsoft Word, organizations are able to leverage existing
software applications and user skills. These capabilities are enhanced by
our easy-to-use Internet browser-based capabilities, including query and
user-defined calculations, powerful graphics and drag-and-drop features.
Products
The ShowCase STRATEGY product suite includes all of the elements of a
complete business intelligence solution. Typical configurations of business
intelligence solutions include the following components of our product suite:
Ad hoc information access, enterprise reporting and analytics
Query. Query provides end users high-performance access to relational data
on the AS/400 for ad hoc querying and results-oriented data analysis. Users may
access data warehouses and operational data through the product's interface on
their desktop computer, or through familiar applications, such as Microsoft
Excel, Lotus 1-2-3 and Microsoft Word. Query also provides scheduling and
sophisticated search functions for the advanced end user.
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Report Writer. Report Writer enables end users to create fast, specialized
reports for data analysis. Report Writer also combines drag-and-drop features,
graphics and calculation capabilities that make report design easy and
intuitive.
Enterprise Reporting. Enterprise Reporting enables end users to publish and
schedule queries and reports in a variety of industry-standard formats to a
Web-server. By using Web technology as a repository and gateway, Enterprise
Reporting improves information delivery in a cost-effective, managed and
secured manner.
Analyzer. Analyzer enables end users to analyze relational data--data with
two variables and/or multidimensional data--data with more than two variables--
through desktop computers. End users can display data as charts, spreadsheets
or custom report forms. The end user can drill down to the underlying data and
sort, rank, filter, calculate and graph this data for more in-depth analysis.
Analyzer for the Web. Analyzer for the Web is a "thin" version of Analyzer
that allows end users to conduct basic data analysis tasks over a company's
intranet or extranet. Analyzer for the Web is Java-based and accessible through
Internet browsers, such as Microsoft Explorer and Netscape Navigator.
Essbase/400. Essbase/400 is a 64-bit implementation of Hyperion Solutions'
online analytical processing product, Essbase, on the AS/400. Essbase/400
allows end users to perform multidimensional analysis on AS/400 data. It
consists of a multidimensional database server, a desktop-based tool for
creating and maintaining the database and Microsoft Excel and Lotus 1-2-3 add-
ins that provide end-user access. Essbase/400 can also be used with our
Analyzer and Analyzer for the Web products, as well as the many third-party
applications developed for use with Hyperion's Essbase product. Essbase/400 is
easy to use and deploy rapidly, has robust calculation capabilities, provides
rapid responses to end-user requests and incorporates user-generated scenario
data.
Data warehouse generation and management
Warehouse Builder. For clients desiring enterprise-wide business
intelligence solutions, Warehouse Builder automates the process of building a
centralized data warehouse. Warehouse Builder transforms online transaction
processing data from any AS/400 data source into data marts or data warehouses.
Warehouse Builder enables clients to create multidimensional data marts or data
warehouses by moving data from IBM's DB/2 database for the AS/400 to
Essbase/400.
Warehouse Manager. Warehouse Manager provides the tools to manage data
warehouses and data marts on a day-to-day basis by integrating data
simplification, warehouse security, resource allocation and user access.
Warehouse Manager also enables administrators to allow users easier access to
data in complicated databases and to create a simplified view of any AS/400
database, whether it is used for transaction processing or analysis. In
addition, Warehouse Manager provides capabilities to interact with most AS/400
data types and with many third-party database extensions, such as the J.D.
Edwards interactive data dictionary and Infinium's security system.
Deployment Accelerators
Sales and Financial Analysis Deployment Accelerators. ShowCase STRATEGY
Deployment Accelerators are pre-configured functional data models or templates
that may be used to quickly implement and adapt sales and/or financial analysis
applications. These adaptive applications are designed to serve as
architectural models for our clients' business intelligence solutions. Sales
Analysis Deployment Accelerators provide order and performance/variance
analysis, sales, customer and shipping tracking, sales history and forecasting
and impact analysis. Financial Analysis Deployment Accelerators provide
accounting and financial reporting, profit and loss analysis, budgeting,
forecasting and overhead calculation, variance and unit cost analysis and
business segmentation.
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Services
Customer Support. Our support team provides comprehensive support services
to our clients, including the following services:
. unlimited technical support via telephone, facsimile, the Internet and
e-mail;
. program temporary fixes;
. technical documents on demand; and
. product upgrades.
We have over 2,200 clients on our annual maintenance plan. We offer
maintenance support through our regional support centers in North America,
Europe, Malaysia and a partnership in Japan. Currently, our regional support
offices have access to an integrated customer database that provides each
office with real-time information regarding our clients and their installed
product base. A client that has a maintenance problem after hours and is unable
to contact its regional support office may contact any one of our other
regional support offices and obtain maintenance support.
Professional Services. Because they often have limited IT staff and
resources, our clients require a high level of service and support. To address
this need, we offer a full range of educational, consulting and support
services. We work with clients to design customized service plans that will
enable them to rapidly implement and realize the benefits of business
intelligence solutions that can evolve with end-user needs. As an example of
this approach, we recently introduced service offerings that allow clients to
leverage our Deployment Accelerators to quickly implement pilot applications.
For existing clients, we offer services designed to assist them in expanding
their use of our product suite and using our product suite in more
sophisticated applications. To increase the ability of end users to realize the
functionality provided by our product suite, our educational services provide
comprehensive, hands-on training through both public and onsite sessions. In
addition to our own professional services personnel, we have service partners
in North America, Europe and Asia Pacific that provide training and consulting
for our clients.
Product Development
Since our inception, we have made substantial investments in product
development. During this time, we have focused on delivering rapid return on
investment and enterprise-wide deployment capabilities for our clients. Our
core technology competence lies in extracting and transforming raw data from
IBM's DB/2 database and other unique AS/400 data structures into business
intelligence. We extend the AS/400 operating system to support business
intelligence with features such as data simplification, enhanced security and
resource management. We also tightly integrate these database management and
infrastructure technologies with end user query and reporting products and
multidimensional analytical technology.
Our product development group is organized into small teams and consists of
product managers, software engineers, quality assurance engineers, technical
documentation specialists and integration specialists. Our product development
process is intended to be repeatable yet flexible thereby allowing us to reuse
both source code and the processes used to develop source code. To better serve
client needs and incorporate those needs into new releases, we actively solicit
product enhancement requests from employees, clients, industry analysts,
partners and IBM.
Our product development efforts currently focus on continued compatibility
with and leverage of new developments in the AS/400. We intend to develop many
of our future products in Java, which will enable us to deliver our products to
additional platforms such as Microsoft NT or as the opportunity arises. One of
our initiatives is to strengthen our product suite's enterprise reporting
capabilities to publish specified business intelligence to defined users on a
regularly scheduled basis. We also intend to further leverage Internet browser
technologies to enable companies to disseminate business intelligence and non-
structured information through a
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portal framework that will enable growing user populations both within and
outside the organization to more easily search and receive information through
the Internet. We plan to increase our product suite's ability to access
additional data sources to ensure that a broad range of information is
available to end users. Although we expect that certain of our new products
will be developed internally, we may, based on timing and cost considerations,
acquire technology or products from third parties.
Sales and Marketing
Sales. We sell our products and services through our direct sales force and
distribution partners including IBM, software application vendors, distributors
and resellers. Our direct sales force operates in North America, Belgium,
France, Germany, the Netherlands and the United Kingdom. Our North American
direct sales force is divided into three units. Each salesperson in the new
accounts unit focuses on specific potential accounts. The existing accounts
unit targets existing clients. Because many of our clients initially deploy our
products on a departmental basis, we believe that our existing clients
represent a significant sales opportunity as they discover the potential of
business intelligence and look to leverage its benefits enterprise-wide to
increase operational efficiency and profitability. Our internal telesales unit
focuses primarily on smaller transactions, and generally sells individual
components of our product suite to new accounts, additional components of our
product suite to existing clients and maintenance services. Our overseas direct
sales force consists of a direct sales unit and a telesales unit that target
both new clients and existing accounts.
Our software application vendor distribution partners include vendors that
integrate our products within their own applications and sell the integrated
products to their customers, such as A3 Solutions, Fiserv, IBM, Infinium
Software, Lawson Software, Silverlake, TSG and Walker Interactive; and vendors
with which we have joint marketing and sales arrangements, such as Data Systems
International and J.D. Edwards. We also sell our products through IBM's sales
force and distributors located in countries not served by our direct sales
force, including Eastern European, African and Asian countries.
Marketing. We are focused on building market awareness and acceptance of our
product suite as the leading provider of business intelligence solutions for
the AS/400 customer. Our marketing organization provides a wide range of
programs, materials and events that support our sales force. These include
extensive public relations activities, user group meetings, conference and
trade show appearances, as well as programs to work closely with analysts and
other influential third parties. We use our Internet site to augment our market
presence, promote our products and services and generate sales leads.
Furthermore, we have invested in building a partner and channel marketing
function to help recruit, train, support and conduct cooperative marketing with
strategic partners, resellers and certified service providers.
Strategic Relationships
IBM
We have maintained a strategic relationship with IBM in sales and marketing
and research and development. Our close relationship with IBM's Rochester,
Minnesota facility, which has developed the AS/400, has enabled us to quickly
leverage new AS/400 capabilities and influence the future direction of the
AS/400 for the benefit of our clients. This association with IBM has resulted
in our products being recognized as a standard business intelligence technology
on the AS/400. For example, our ShowCase STRATEGY product suite is used by IBM
in new database release quality control efforts. We also participate in several
formal and informal programs with IBM which we believe afford us valuable
experience with AS/400 products and insights into IBM's product development and
marketing plans. We are one of IBM's designated "Premier Business Partners" and
have won several awards from IBM, including, IBM's Powered by AS/400e Award.
IBM has been a reseller of several of our products for several years. We
entered into an expanded agreement with IBM in December 1998, which was amended
in February 2000, under which certain products will be marketed and sold as OEM
products by IBM. This agreement has a term of seven years, and expands the
scope
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of our reseller relationship with IBM. Under this agreement, ShowCase has
agreed to perform several development enhancements to the Essbase/400 software.
Previously, ShowCase had not been a party to any other funded software
development arrangements.
Hyperion Solutions
Our relationship with Hyperion Solutions began in 1995 when we searched the
marketplace for a high-performance, multidimensional database server and
selected its online analytical processing product, Essbase. We expended
significant resources in 1995 and 1996 porting Essbase to and optimizing its
performance on the AS/400. We have the exclusive right to distribute the
resulting product, Essbase/400, subject to limited distribution rights retained
by Hyperion Solutions. The addition of Essbase/400 to our product line provides
us with the ability to access a broader customer base, including users of
multidimensional analyses. Furthermore, our Essbase/400 product provides us
with additional partnering opportunities by extending Essbase to the AS/400
platform. In addition, our Analyzer and Analyzer for the Web products are based
on technology licensed from Hyperion Solutions under a non-exclusive license
agreement that expires in January 2001.
Our exclusive Essbase/400 distribution rights are conditioned upon us paying
minimum royalties and are subject to a buy-back right. Hyperion Solutions must
give us notice 12 months before exercising this buyback right. If minimum
royalty payments are not made, we have the option of paying the remaining
balance to retain our exclusive distribution rights. If we do not retain our
exclusive distribution rights, we must pay Hyperion Solutions minimum royalty
payments to retain non-exclusive distribution rights to Essbase/400.
IntraNet Solutions
Our relationship with IntraNet Solutions began in late 1999 when we signed a
strategic agreement with IntraNet Solutions to resell their market leading
content management solution Xpedio to AS/400 customers. ShowCase has exclusive
sales and marketing rights to Xpedio for the AS/400 and non exclusive rights on
other platforms. The initial product integration development efforts with the
Microsoft NT version were completed in the March 31, 2000 quarter. This
agreement enables ShowCase to offer our clients the ability to more effectively
manage web site content in one integrated solution, including structured
business intelligence data and non structured content information. Our
exclusive Xpedio distribution rights for the AS/400 are conditioned upon us
paying minimum royalties in future years.
Competition
The markets for our products are intensely competitive and subject to
rapidly changing technology. We compete primarily against providers of decision
support software and data warehousing and data mart software. The bases of
competition in these markets include breadth of solution, functionality,
performance, scalability, ease of use, operating platform and cost. Our
competitors providing business intelligence solutions for AS/400 customers
include Silvon and Infomanager. We also compete with vendors that provide
business intelligence products implemented on Unix or Windows NT platforms and
then connected to the AS/400. These vendors include Brio Technology, Business
Objects, Cognos, Computer Associates, Hyperion Solutions, MicroStrategy,
Microsoft, Oracle, Sagent Technology and SAS Institute. In addition, enterprise
resource planning software vendors including Baan Company, PeopleSoft and SAP
offer decision support and analytical modules primarily to support the analysis
of data from their own operational systems. One or more of these companies may
expand their technologies to support greater business intelligence
functionality. Finally, in the future, IBM may expand the functionality of the
operating system for the AS/400, or of its database products, to provide some
of the functions provided by our products.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing or other resources and greater name
recognition than we do. As a result, they may be able to respond more quickly
to new or emerging technologies and changes in customer requirements. The
business intelligence
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software industry has recently experienced consolidation and many industry
analysts expect this trend to continue. This consolidation may provide our
competitors with expanded sales, distribution and marketing capabilities and
broader product offerings.
Intellectual Property
We attempt to protect our software, documentation and other written
materials primarily through a combination of trade secret, trademark and
copyright laws, confidentiality procedures and contractual provisions. For
example, we license rather than sell our software and require licensees to
enter into license agreements which impose restrictions on their use of the
software. In addition, we have made efforts to avoid disclosure of our trade
secrets, including requiring those persons with access to our proprietary
information to enter into confidentiality agreements with us and restricting
access to our source code.
We have one patent issued and one patent application pending in the United
States with respect to aspects of our software. The pending patent application
may not be issued. In addition, our patents may not survive a legal challenge
to their validity or provide us significant protection. Our means of protecting
our intellectual property rights may not be adequate or our competitors may
independently develop similar technology. Policing unauthorized use of our
products is difficult, particularly in foreign countries where the laws may not
protect our proprietary rights as fully as in the United States.
We anticipate that software product developers increasingly will be subject
to infringement claims as the number of products and competitors in our
industry segment grows and the functionality of products in different industry
segments overlaps. As a result, we may become involved in these claims. Any of
these claims, with or without merit, could result in costly litigation, divert
our management's time, attention and resources, delay our product shipments or
require us to enter into royalty or licensing agreements. If a claim of product
infringement against us is successful, our business and operating results could
be seriously harmed.
Employees
As of March 31, 2000, we had a total of 300 employees, including 124 in
sales and marketing, 63 in product development, 77 in professional services and
customer support and 36 in administration. Our future performance depends in
significant part on our ability to attract, train and retain highly qualified
personnel. None of our employees are represented by a labor union, and we
believe that our relations with our employees are good.
Executive Officers of the Company
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
President, Chief Executive Officer and
Kenneth H. Holec.......... 45 Director
Craig W. Allen............ 45 Chief Financial Officer
Jonathan P. Otterstatter.. 40 Executive Vice President, Technology
Executive Vice President, Worldwide Field
Patrick Dauga............. 40 Operations
Kevin R. Potrzeba......... 39 Vice President, North America Sales
Paul A. Hesser............ 34 Vice President, Global Services
Theresa Z. O'Neil......... 37 Vice President, Marketing
Alfreda A. Masse.......... 50 Vice President, Human Resources
</TABLE>
Kenneth H. Holec has been our President and Chief Executive Officer and a
member of our Board of Directors since November 1993. From 1985 to 1993, Mr.
Holec was president and chief executive officer of Lawson Software, a provider
of high-end financial and human resource management software solutions.
Currently, Mr. Holec is a director of IntraNet Solutions, Inc., a maker of Web-
based document management products for corporate intranets. Mr. Holec holds a
B.S. degree in business administration from the University of Minnesota.
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Craig W. Allen joined us as Controller in July 1993 and was promoted to
Chief Financial Officer in March 1997. From 1982 to 1993, Mr. Allen was vice
president of operations at Metafile Information Systems, Inc., a software
development and systems integration company. Prior to 1982, Mr. Allen was audit
manager at the accounting firm McGladrey Pullen & Co. in Rochester, Minnesota.
Mr. Allen holds a B.S. degree in business from the University of Minnesota and
is a certified public accountant.
Jonathan P. Otterstatter joined us as Vice President, Development in May
1994 and was promoted to Executive Vice President, Technology in May 1999. From
1983 to May 1994, Mr. Otterstatter was employed by IBM where his last position
was senior development manager. Mr. Otterstatter holds a B.S. degree in
computer science from the University of Wisconsin at LaCrosse and an M.S.
degree in management of technology from the Massachusetts Institute of
Technology.
Patrick Dauga joined us as Vice President, European Operations in June 1997
and was promoted to Vice President, International in March 1998 and recently
promoted to Executive Vice President, Worldwide Field Operations. From 1986 to
1997, Mr. Dauga worked at Comshare, Inc., a software company specializing in
decision support systems, where his last position was vice president for
southern Europe. Mr. Dauga holds a degree from Sup de Co Bordeaux, a business
school in France.
Kevin R. Potrzeba has been our Vice President, North America Sales since
September 1996. From 1987 to August 1996, Mr. Potrzeba was employed by Software
AG, a software products company, where his last position was vice president of
sales for eastern operations. Mr. Potrzeba holds a B.A. degree in advertising
and marketing from Northern Illinois University.
Paul A. Hesser has been our Vice President, Global Services since May 1999.
From August 1989 to May 1999, Mr. Hesser was employed by IBM, where his last
position was services executive for the New York metropolitan area. Mr. Hesser
holds an MBA in finance from the University of Minnesota, and a BS degree in
marketing from Illinois State University.
Theresa Z. O'Neil has been our Vice President, Marketing since November
1999. Ms. O'Neil was employed by Platinum Technology, Inc. from 1989 to 1999
where she held positions as vice president of corporate marketing and vice
president of marketing for data warehousing. Ms. O'Neil holds a M.A. degree in
English Literature from the University of Chicago and a B.A. degree in English
Literature, with Special Honors, from The George Washington University,
Washington, D.C..
Alfreda A. Masse has been our Vice President, Human Resources since November
1999. From 1989 to 1994 and again from 1997 until November 1999, Ms. Masse was
an organizational effectiveness consultant to companies including; Sun
Microsystems, Resource Information Management Systems, NEC Technology and
Tandem Corporation. From 1996 to 1997, Ms. Masse was employed by TriMark
Technologies, an application software development company, where her position
was vice president of organizational development. Ms. Masse holds a B.S. degree
in business administration from Northwood University in Michigan and is SPHR
certified.
Item 2. Facilities
Our principal offices currently occupy approximately 27,000 square feet in
Rochester, Minnesota under a lease which expires June 30, 2004. In addition, we
also lease offices domestically and internationally in a variety of locations,
including domestic offices in the metropolitan areas of Atlanta, Boston,
Chicago and Dallas and international offices in Belgium, France, Germany,
Japan, Malaysia, the Netherlands and the United Kingdom. We believe that our
facilities are adequate for the next 12 months and that, if required, suitable
additional or alternative space will be available on commercially reasonable
terms to accommodate expansion of our operations.
9
<PAGE>
Item 3. Legal Proceedings
From time to time, in the normal course of business, various claims are made
against the Company. At this time, in the opinion of management, there are no
pending claims the outcome of which is expected to result in a material adverse
effect on the financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock trades on the Nasdaq National Market under the
symbol SHWC. The following table sets forth, for the periods indicated, the
high and low sales prices of the common stock as reported on the Nasdaq
National Market since the Company's initial public offering of June 29, 1999.
<TABLE>
<CAPTION>
High Low
---- ----
<S> <C> <C>
Fiscal 2000
First quarter........................................ $9 5/8 $ 8
Second quarter....................................... 14 3/8 7 1/4
Third quarter........................................ 10 2 15/16
Fourth quarter....................................... 11 1/4 5 3/4
Fiscal 2001
First quarter (through June 12, 2000)................ $10 $ 3 7/8
</TABLE>
As of June 12, 2000, the Company had 109 shareholders of record and
approximately 2,200 beneficial holders of its common stock.
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain all earnings to finance future
growth and, therefore, does not anticipate paying any cash dividends in the
foreseeable future.
Our registration statement, filed on Form S-1 under the Securities Act (File
No. 333-77223), for the initial public offering of our common stock became
effective June 29, 1999. We have invested the net proceeds from the offering of
approximately $24.4 million in marketable securities pending the use of such
proceeds.
10
<PAGE>
Item 6. Selected Consolidated Financial Data
<TABLE>
<CAPTION>
Years Ended March 31,
------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Revenues:
License fees..................... $20,498 $21,021 $14,279 $11,639 $ 9,451
Maintenance and support.......... 13,789 10,390 6,651 4,888 2,707
Professional service fees........ 5,236 4,108 2,825 1,500 1,120
------- ------- ------- ------- -------
Total revenues................. 39,523 35,519 23,755 18,027 13,278
------- ------- ------- ------- -------
Cost of revenues:
License fees..................... 3,837 3,809 2,645 1,365 1,145
Maintenance and support.......... 3,429 2,646 1,572 990 520
Professional service fees........ 4,873 2,990 2,005 1,172 676
------- ------- ------- ------- -------
Total cost of revenues......... 12,139 9,445 6,222 3,527 2,341
------- ------- ------- ------- -------
Gross margin....................... 27,384 26,074 17,533 14,500 10,937
Operating expenses:
Sales and marketing.............. 22,245 19,050 15,494 9,940 6,661
Product development.............. 5,482 4,371 3,051 2,553 2,070
General and administrative....... 4,466 3,212 2,590 1,971 1,380
------- ------- ------- ------- -------
Total operating expenses....... 32,193 26,633 21,135 14,464 10,111
------- ------- ------- ------- -------
Operating income (loss)............ (4,809) (559) (3,602) 36 826
Other income (expense), net........ 1,415 143 543 14 138
------- ------- ------- ------- -------
Net income (loss) before income
taxes............................. (3,394) (416) (3,059) 50 964
Income taxes....................... 700 200 175 -- 150
------- ------- ------- ------- -------
Net income (loss).................. $(4,094) $ (616) $(3,234) $ 50 $ 814
======= ======= ======= ======= =======
Net income (loss) per share
Basic............................ $ (0.46) $ (0.14) $ (0.82) $ 0.01 $ 0.21
Diluted.......................... $ (0.46) $ (0.14) $ (0.82) $ 0.01 $ 0.13
Shares used in computing basic net
income (loss) per share........... 8,884 4,384 3,928 3,847 3,850
Shares used in computing diluted
net income (loss) per share....... 8,884 4,384 3,928 6,445 6,457
<CAPTION>
As of March 31,
------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance sheet data:
Cash and marketable securities..... $30,064 $ 9,039 $ 5,847 $ 2,989 $ 2,587
Working capital.................... 22,129 997 1,579 1,060 1,165
Long-term debt and capital lease
obligations, less current
portion........................... -- 87 1,157 682 446
Total stockholders' equity......... 23,359 2,272 3,105 2,602 2,519
</TABLE>
11
<PAGE>
Item 7. 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. 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 this Annual Report on Form 10-K (this "Report"). 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
ShowCase develops, markets and supports a fully integrated, end-to-end,
business intelligence solutions for IBM AS/400 customers. Our ShowCase STRATEGY
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 provide 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.
Results of Operations
The following table indicates the percentage of total revenues represented
by items reflected in our consolidated statements of operations.
<TABLE>
<CAPTION>
Years Ended March
31,
---------------------
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
As a Percentage of Total
Revenues:
Revenues
License fees.............. 51.9% 59.2% 60.1%
Maintenance and support... 34.9 29.3 28.0
Professional service
fees..................... 13.2 11.6 11.9
----- ----- -----
Total revenues.......... 100.0 100.0 100.0
Cost of revenues:
License fees.............. 9.7 10.7 11.1
Maintenance and support... 8.7 7.5 6.6
Professional service
fees..................... 12.3 8.4 8.4
----- ----- -----
Total cost of revenues.. 30.7 26.6 26.2
----- ----- -----
Gross margin................ 69.3 73.4 73.8
Operating expenses:
Sales and marketing....... 56.3 53.6 65.2
Product development....... 13.9 12.3 12.8
General and
administrative........... 11.3 9.0 10.9
----- ----- -----
Total operating
expenses............... 81.5 75.0 89.0
----- ----- -----
Operating loss.............. (12.2) (1.6) (15.2)
Other income (expense),
net........................ 3.6 0.4 2.3
----- ----- -----
Net loss before income
taxes...................... (8.6) (1.2) (12.9)
Income taxes................ 1.8 0.6 0.7
----- ----- -----
Net loss.................... (10.4)% (1.7)% (13.6)%
===== ===== =====
</TABLE>
12
<PAGE>
Revenues
Total revenues. Revenues increased to $39.5 million in fiscal 2000 from
$35.5 million in fiscal 1999 and from $23.8 million in fiscal 1998,
representing increases of 11.3% in fiscal 2000 and 49.5% in fiscal 1999.
License fees. License fee revenues decreased to $20.5 million in fiscal 2000
from $21.0 million in fiscal 1999, representing a decrease of 2.5%. The license
revenues declined in fiscal year 2000 primarily as a result of a decrease in
the number of licenses sold, due primarily to the impact of clients and
prospects delaying or canceling purchase decisions due to Year 2000.
In fiscal year 1999, license fee revenues increased to $21.0 million from
$14.3 million in fiscal 1998, representing an increase of 47.2%. This increase
is largely attributable to increases in the number of licenses sold, reflecting
the results of an expanded direct field sales force and the introduction of new
products and product enhancements. We introduced Enterprise Reporting to the
market in fiscal year 2000, Analyzer for the Web and Deployment Accelerators to
the market in fiscal 1999 and Warehouse Builder to the market in fiscal 1998.
Revenues from Essbase/400 licenses comprise a significant percentage of
total license fee revenues. License fees for this product were 42.2% of our
total license revenue for fiscal 2000, 41.0% for fiscal 1999 and 39.5% for
fiscal 1998.
License fee revenues derived from our indirect distribution channels were
23.5% of license fee revenues for fiscal 2000, 21.2% for fiscal 1999 and 19.9%
for fiscal 1998.
Maintenance and support. Maintenance and support revenues increased to $13.8
million in fiscal 2000 from $10.4 million in fiscal 1999 and from $6.7 million
in fiscal 1998, representing increases of 32.7 % in fiscal 2000 and 56.2% in
fiscal 1999. These increases in maintenance and support revenues were largely a
result of the renewal of maintenance and support contracts as our installed
base continued to grow, as well as new maintenance and support contracts
associated with new product licenses.
Professional service fees. Professional service fee revenues increased to
$5.2 million in fiscal 2000 from $4.1 million in fiscal 1999 and from $2.8
million in fiscal 1998, representing increases of 27.5% in fiscal 2000 and
45.4% in fiscal 1999. These increases in professional service fee revenues were
largely a result of the service revenues associated with the sale of new
product licenses.
Revenues from clients outside North America represented 39.2% of our total
revenues for fiscal 2000, 38.2% of our total revenue for fiscal 1999 and 34.4%
of our total revenue for fiscal 1998. A majority of these sales was derived
from European sales.
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. 98-9, Modification of SOP 97-2, Software
Revenue Recognition, with respect to Certain Transactions, effective April 1,
1999. Under SOP No. 97-2, as amended by SOP No. 98-9, 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 maintenance contracts are
deferred and recognized ratably over the contract period. Professional service
revenue is recognized when services are performed. Revenues related to multiple
element arrangements are allocated to each element of the arrangement based on
the fair values of elements such as license fees, maintenance and support and
professional services. The determination of fair value is based on vendor
specific objective evidence. When fair value does not exist for one or more of
the delivered elements in the arrangement, the "residual method" is used. Under
the "residual method", the total fair value of the undelivered elements is
deferred and recognized ratably over the contract period and the remaining
residual
13
<PAGE>
amount is recognized with respect to the delivered elements. The adoption of
SOP No. 98-9 did not have a material effect on our operating results.
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 was $3.8 million in fiscal 2000 and in fiscal
1999 and to $2.6 million in fiscal 1998. The cost of license fees increased to
$3.8 million in fiscal year 1999 from $2.6 million in fiscal year 1998,
representing an increase of 44.0% in fiscal 1999. This increase in cost of
license fees was attributable to the increase in the number of licenses sold
and to the increase in the percentage of our revenues from our Essbase/400
product, which requires us to pay royalties.
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,
primarily with respect to our Essbase/400 product. Cost of maintenance and
support increased to $3.4 million in fiscal 2000 from $2.6 million in fiscal
1999 and from $1.6 million in fiscal 1998, representing increases of 29.6% in
fiscal 2000 and 68.3% in fiscal 1999. The increases in cost of maintenance and
support are primarily due to additional staffing and the increase in the
payment of third party maintenance and support fees with respect to
Essbase/400.
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 $4.9 million in fiscal 2000 from
$3.0 million in fiscal 1999 and from $2.0 million in fiscal 1998, representing
increases of 63.0% in fiscal 2000 and 49.1% in fiscal 1999. The increases are
primarily due to the expansion of our professional services staff.
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 have increased to $22.2 million in fiscal 2000
from $19.0 million in fiscal 1999 and from $15.5 million in fiscal 1998,
representing increases of 16.8 % in fiscal 2000 and 23.0% in fiscal 1999. The
increases reflect the expansion of a direct field sales force and the hiring of
additional sales and marketing personnel and, to a lesser extent, the increase
of promotional activities.
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 increased to $5.5 million
in fiscal 2000 from $4.4 million in fiscal 1999 and from $3.1 million in fiscal
1998, representing increases of 25.4% in fiscal 2000 and 43.3% in fiscal 1999.
The increases are due to expenses associated with the development of new
products and the hiring of additional personnel. Product development costs are
expensed as incurred.
General and administrative. General and administrative expenses consist
primarily of salaries of executive, financial, human resource and information
services personnel as well as outside professional fees. General and
administrative expenses increased to $4.5 million in fiscal 2000 from $3.2
million in fiscal 1999 and from $2.6 million in fiscal 1998, representing
increases of 39.0% in fiscal 2000 and 24.0% in fiscal 1999. The increases are
primarily due to increased staffing and related expenses necessary to manage
and support the expansion of our operations.
Other Income (Expense)
Other income consists primarily of earnings from investments and sales of
securities, equity in net income of unconsolidated affiliates and gains or
losses from disposal of fixed assets, net of any interest expense. Other income
increased to $1.4 million in fiscal 2000 from $143,000 in fiscal 1999 and from
$543,000 in fiscal 1998.
14
<PAGE>
The increase in other income in fiscal 2000 is primarily due to earnings on the
proceeds from the Company's initial public offering. The decrease in fiscal
1999 was primarily due to the gain on the sale of a security of a third party
which occurred in fiscal 1998.
Provision (Benefit) for Income Taxes
Income taxes increased to $700,000 in fiscal 2000 from $200,000 in fiscal
1999 and from $175,000 in fiscal year 1998. The taxes and the increase are
primarily due to foreign income taxes paid which could not be realized as tax
credits in the United States due to our consolidated losses from operations.
We have deferred tax assets for temporary differences of $4.0 million as of
March 31, 2000 and $2.7 million as of March 31, 1999, primarily related to
deferred revenue on which taxes have been paid. We periodically evaluate the
need for a valuation allowance against these deferred tax assets. Due to
uncertainty regarding future taxable income and our operating losses in each of
the past three fiscal years, we have determined that it is more likely than not
that only a portion of the deferred tax assets will be realized and
accordingly, there is a corresponding valuation allowance of $4.0 million as of
March 31, 2000 and $2.2 million as of March 31, 1999. The amount recognized as
a deferred tax asset at March 31, 1999 approximates the amount of cash
refundable that could be generated if we were to continue our operating loss
position.
Liquidity and Capital Resources
To date, the Company has financed its business primarily through cash
provided by operations, the sale of equity securities and bank borrowings. Our
operating activities used cash of $3.1 million in fiscal 2000, provided cash of
$5.3 million in fiscal 1999 and used cash of $817,000 in fiscal 1998. The
decrease in cash from operations for fiscal 2000 was due primarily to our net
loss in that year, offset in part by an increase in deferred revenue. The
increase in cash from operations for fiscal 1999 was due primarily to improved
results of operations an increase in deferred revenue, offset in part by an
increase in accounts receivable. The decrease in cash from operations for
fiscal 1998 was due primarily to our net loss in that year, offset in part by
an increase in deferred revenue. In each period, the increase in deferred
revenue consisted primarily of prepayment of clients' maintenance and support
fees.
Our investing activities used cash of $18.7 million in fiscal 2000, $487,000
in fiscal 1999 and $566,000 in fiscal 1998. In fiscal year 2000, $17.9 million
of the proceeds from the initial public offering were used to invest in
marketable securities and the balance of the cash used for investing activities
was for the purchase of equipment. In fiscal 1999 and 1998, the principal use
of cash in investing activities was for capital expenditures related to the
expansion of our operations.
Our financing activities provided cash of $24.6 million in fiscal 2000 used
$1.4 million in 1999 and provided $3.8 million in fiscal 1999. For fiscal 2000,
financing activities provided cash primarily from issuance of common stock in
connection with our initial public offering, which resulted in net proceeds to
the Company of $24.4 million. For fiscal 1999, cash used by financing
activities consisted primarily of long-term debt repayment and payments under
capital lease obligations. For fiscal 1998, financing activities provided cash
primarily from proceeds received from the issuance of preferred stock, offset
in part by long-term debt repayment and payments under capital lease
obligations.
Our sources of liquidity as of March 31, 2000 consisted principally of cash,
cash equivalents, and marketable securities of $30.0 million. Cash equivalents
are comprised primarily of investment-grade commercial paper with varying terms
of three months or less. The Company intends to continue to review potential
acquisitions and business alliances that it believes would enhance its growth
or profitability. We believe that current cash, cash equivalents, and
marketable securities, and the funds generated from our operations, if any,
will be sufficient to fund operations for at least the next twelve months.
15
<PAGE>
Selected Quarterly Operating Results
The following table shows unaudited consolidated financial information for
each of the four quarters in our fiscal years ended March 31, 2000 and 1999. In
management's opinion, this unaudited quarterly information has been prepared on
the same basis as the audited consolidated financial statements and related
notes and includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information for the
quarters presented in accordance with generally accepted accounting principles.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------
Mar. 31, Dec. 31, Sept 30, June 30, Mar. 31, Dec. 31, Sept 30, June 30,
2000 1999 1999 1999 1999 1998 1998 1998
-------- -------- -------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenues:
License fees........... $ 5,416 $ 4,990 $ 4,027 $6,065 $5,944 $5,834 $5,019 $4,224
Maintenance and
support............... 3,826 3,456 3,301 3,206 3,088 2,776 2,365 2,161
Professional service
fees.................. 1,623 1,201 1,178 1,234 1,225 933 1,037 913
------- ------- ------- ------ ------ ------ ------ ------
Total revenues......... 10,865 9,647 8,506 10,505 10,257 9,543 8,421 7,298
Cost of revenues:
License fees........... 1,017 985 766 1,068 915 1,077 1,000 817
Maintenance and
support............... 997 855 753 824 818 658 605 565
Professional service
fees.................. 1,531 1,199 1,112 1,032 995 805 577 613
------- ------- ------- ------ ------ ------ ------ ------
Total cost of
revenues.............. 3,545 3,039 2,631 2,924 2,728 2,540 2,182 1,995
------- ------- ------- ------ ------ ------ ------ ------
Gross margin............ 7,320 6,608 5,875 7,581 7,529 7,003 6,239 5,303
Operating expenses:
Sales and marketing.... 6,046 5,691 5,234 5,275 5,327 4,958 4,378 4,387
Product development.... 1,616 1,457 1,247 1,163 1,135 1,038 1,219 979
General and
administrative........ 1,228 1,160 1,136 941 873 855 748 736
------- ------- ------- ------ ------ ------ ------ ------
Total operating
expenses.............. 8,890 8,308 7,617 7,379 7,335 6,851 6,345 6,102
------- ------- ------- ------ ------ ------ ------ ------
Operating income
(loss)................. (1,570) (1,700) (1,742) 202 194 152 (106) (799)
Other income (expense),
net.................... 560 395 362 98 89 23 25 6
------- ------- ------- ------ ------ ------ ------ ------
Net income (loss) before
income taxes........... (1,010) (1,305) (1,380) 300 283 175 (81) (793)
Income taxes............ 200 200 185 115 65 50 45 40
Net income (loss)....... $(1,210) $(1,505) $(1,565) $ 185 $ 218 $ 125 $ (126) $ (833)
Basic income (loss) per
share.................. $ (.12) $ (.15) $ (.15) $ .04 $ .05 $ .03 $ (.03) $ (.20)
Diluted income (loss)
per share.............. $ (.12) $ (.15) $ (.15) $ .02 $ .03 $ .02 $ (.03) $ (.20)
Shares used in basic
share calculation...... 10,485 10,368 10,139 4,542 4,495 4,348 4,409 4,190
Shares used in diluted
share calculation...... 10,485 10,368 10,139 8,371 8,063 6,906 4,409 4,190
</TABLE>
Our operating results have varied and may in the future vary significantly
from quarter to quarter. These fluctuations may result in volatility in the
price of our common stock. We believe that quarter-to-quarter comparisons of
our financial results are not necessarily meaningful and should not be relied
upon as an indication of future performance.
16
<PAGE>
Item 7A. Quantitative and Qualitative Disclosure About Market Risks
We are exposed to market risk from changes in interest rates on borrowings
under our revolving line of credit that bear interest from time to time at a
variable rate based on a prime rate. In addition, our Belgian subsidiary
maintains a small line of credit with a variable interest rate and maximum
available borrowings which we do not believe are material. As of March 31,
2000, we had no borrowings outstanding under either of these lines of credit.
Because we have no borrowings outstanding under our lines of credit, we believe
that the effect, if any, of reasonably possible near-term changes in interest
rates on our financial position would not be material.
We are exposed to market risk from fluctuations in foreign currency exchange
rates. We manage exposure to variability in foreign currency exchange rates
primarily through the use of natural hedges, whereby funding obligations and
assets are both managed in the local currency. However, different durations in
our funding obligations and assets may expose us to the risk of foreign
exchange rate fluctuations. We have not entered into any derivative
transactions to manage this risk. Based on our overall foreign currency rate
exposure at March 31, 2000, we do not believe that a hypothetical 10% change in
foreign currency rates would materially adversely affect our financial
position.
17
<PAGE>
Item 8. Financial Statements and Supplemental Data
Independent Auditors' Report
The Board of Directors and Stockholders
of ShowCase Corporation:
We have audited the accompanying consolidated balance sheets of ShowCase
Corporation and subsidiaries (the Company) as of March 31, 2000 and 1999, and
the related consolidated statements of operations and comprehensive income
(loss), stockholders' equity, and cash flows for each of the years in the
three-year period ended March 31, 2000. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the accompanying consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
ShowCase Corporation and subsidiaries as of March 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
Minneapolis, Minnesota
May 2, 2000
18
<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
March 31,
----------------
2000 1999
------- -------
<S> <C> <C>
Assets
Current assets:
Cash and equivalents....................................... $11,677 $ 8,900
Marketable securities...................................... 18,387 139
Accounts receivable, net................................... 8,848 7,070
Prepaid expenses and other current assets.................. 1,380 1,059
Income taxes receivable.................................... 351 --
Deferred income taxes...................................... -- 550
------- -------
Total current assets................................... 40,643 17,718
------- -------
Property and equipment, net................................ 2,088 2,092
Goodwill, net of accumulated amortization.................. 56 116
------- -------
Total assets........................................... $42,787 $19,926
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable........................................... $ 1,323 $ 1,373
Accrued liabilities........................................ 4,333 4,121
Current portion of long-term debt.......................... 2 5
Current portion of obligations under capital leases........ 78 127
Income taxes payable....................................... -- 295
Deferred revenue........................................... 12,778 10,800
------- -------
Total current liabilities.............................. 18,514 16,721
------- -------
Deferred revenue, less current portion....................... 914 846
Long-term debt, less current portion......................... -- 2
Capital lease obligations, less current portion.............. -- 85
------- -------
Total liabilities...................................... 19,428 17,654
------- -------
Commitments (note 12)
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 shares issued and
outstanding; total liquidation preference of $3,500....... -- 9
Common stock, $.01 par value, 10,000,000 shares authorized,
10,522,113 and 4,502,867 shares issued and outstanding.... 105 45
Additional paid-in capital................................. 31,443 6,452
Accumulated other comprehensive income (loss):
Cumulative translation adjustment........................ 123 47
Unrealized holding loss on securities.................... (9) (181)
Deferred compensation...................................... (426) (322)
Accumulated deficit........................................ (7,877) (3,783)
------- -------
Total stockholders' equity............................. 23,359 2,272
------- -------
Total liabilities and stockholders' equity............. $42,787 $19,926
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended March 31,
-------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Revenues:
License fees..................................... $20,498 $21,021 $14,279
Maintenance and support.......................... 13,789 10,390 6,651
Professional service fees........................ 5,236 4,108 2,825
------- ------- -------
Total revenues................................. 39,523 35,519 23,755
------- ------- -------
Cost of revenues:
License fees..................................... 3,837 3,809 2,645
Maintenance and support.......................... 3,429 2,646 1,572
Professional service fees........................ 4,873 2,990 2,005
------- ------- -------
Total cost of revenues......................... 12,139 9,445 6,222
------- ------- -------
Gross margin....................................... 27,384 26,074 17,533
------- ------- -------
Operating expenses:
Sales and marketing.............................. 22,245 19,050 15,494
Product development.............................. 5,482 4,371 3,051
General and administrative....................... 4,466 3,212 2,590
------- ------- -------
Total operating expenses....................... 32,193 26,633 21,135
------- ------- -------
Operating loss..................................... (4,809) (559) (3,602)
------- ------- -------
Other income (expense), net:
Interest expense................................. (21) (164) (123)
Interest and investment income................... 1,289 277 74
Equity in income of unconsolidated affiliates.... -- 26 27
Gain on sales of securities...................... 151 32 551
Other income (expense), net...................... (4) (28) 14)
------- ------- -------
Total other income (expense), net.............. 1,415 143 543
------- ------- -------
Net loss before income taxes....................... (3,394) (416) (3,059)
Income taxes....................................... 700 200 175
------- ------- -------
Net loss........................................... $(4,094) $ (616) $(3,234)
------- ------- -------
Other comprehensive income (loss):
Foreign currency translation adjustment.......... 76 (60) 81
Unrealized holding gain (loss) on securities
arising during the year......................... 291 (304) 123
Reclassification adjustment for gains included in
net loss........................................ (119) -- --
------- ------- -------
Comprehensive loss................................. $(3,846) $ (980) $(3,030)
======= ======= =======
Net loss per share (note 10):
Basic............................................ $ (0.46) $ (0.14) $ (0.82)
======= ======= =======
Diluted.......................................... $ (0.46) $ (0.14) $ (0.82)
======= ======= =======
Weighted average shares outstanding used in
computing basic net loss per share................ 8,884 4,384 3,928
Weighted average shares outstanding used in
computing diluted net loss per share.............. 8,884 4,384 3,928
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
Series A Series B
convertible convertible
preferred stock preferred stock Common Stock
---------------- ---------------- ----------------- Accumulated Retained
Number Number Additional other earnings
of of Number of paid-in comprehensive Deferred (accumulated
shares Amount shares Amount shares Amount capital income (loss) compensation deficit)
-------- ------ -------- ------ ---------- ------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
March 31, 1997.. 473,757 $ 5 -- $ -- 3,852,731 $ 39 $ 2,465 $ 26 $ -- $ 67
Net loss........ -- -- -- -- -- -- -- -- -- (3,234)
Change in
foreign currency
translation
adjustment...... -- -- -- -- -- -- -- 81 -- --
Unrealized
holding gain on
marketable
securities...... -- -- -- -- -- -- -- 123 -- --
Stock issued
pursuant to
stock option
plan............ -- -- -- -- 135,829 1 32 -- -- --
Preferred Series
B stock issued.. -- -- 875,000 9 -- -- 3,491 -- -- --
-------- ----- -------- ----- ---------- ----- ------- ----- ----- -------
Balances at
March 31, 1998.. 473,757 5 875,000 9 3,998,560 40 5,988 230 -- (3,167)
Net loss........ -- -- -- -- -- -- -- -- -- (616)
Change in
foreign currency
translation
adjustment...... -- -- -- -- -- -- -- (60) -- --
Unrealized
holding gain
(loss) on
marketable
securities...... -- -- -- -- -- -- -- (304) -- --
Stock issued
pursuant to
stock option
plan............ -- -- -- -- 514,307 5 109 -- -- --
Deferred
compensation.... -- -- -- -- -- -- 355 -- (355) --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- 33 --
-------- ----- -------- ----- ---------- ----- ------- ----- ----- -------
Balances at
March 31, 1999.. 473,757 5 875,000 9 4,502,867 45 6,452 (134) (322) (3,783)
Net loss........ -- -- -- -- -- -- -- -- -- (4,094)
Conversion of
preferred to
common.......... (473,757) (5) (875,000) (9) 2,759,226 28 (14) -- -- --
Change in
foreign currency
translation
adjustment...... -- -- -- -- -- -- -- 76 -- --
Unrealized
holding gain on
marketable
securities, net
of
reclassification
adjustment...... -- -- -- -- -- -- -- 172 -- --
Stock issued
pursuant to
initial public
offering........ -- -- -- -- 3,000,000 30 24,320 -- -- --
Stock issued
pursuant to
exercise of
warrant......... -- -- -- -- 8,182 -- 78 -- -- --
Stock issued
pursuant to
stock option
plan............ -- -- -- -- 251,838 2 395 -- -- --
Stock options
issued to
consultant...... -- -- -- -- -- -- 60 -- (60) --
Deferred
compensation.... -- -- -- -- -- -- 152 -- (152) --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- 108 --
-------- ----- -------- ----- ---------- ----- ------- ----- ----- -------
Balances at
March 31, 2000.. -- $ -- -- $ -- 10,522,113 $ 105 $31,443 $ 114 $(426) $(7,877)
======== ===== ======== ===== ========== ===== ======= ===== ===== =======
<CAPTION>
Total
stockholders'
equity
-------------
<S> <C>
Balances at
March 31, 1997.. $ 2,602
Net loss........ (3,234)
Change in
foreign currency
translation
adjustment...... 81
Unrealized
holding gain on
marketable
securities...... 123
Stock issued
pursuant to
stock option
plan............ 33
Preferred Series
B stock issued.. 3,500
-------------
Balances at
March 31, 1998.. 3,105
Net loss........ (616)
Change in
foreign currency
translation
adjustment...... (60)
Unrealized
holding gain
(loss) on
marketable
securities...... (304)
Stock issued
pursuant to
stock option
plan............ 114
Deferred
compensation.... --
Amortization of
deferred
compensation.... 33
-------------
Balances at
March 31, 1999.. 2,272
Net loss........ (4,094)
Conversion of
preferred to
common.......... --
Change in
foreign currency
translation
adjustment...... 76
Unrealized
holding gain on
marketable
securities, net
of
reclassification
adjustment...... 172
Stock issued
pursuant to
initial public
offering........ 24,350
Stock issued
pursuant to
exercise of
warrant......... 78
Stock issued
pursuant to
stock option
plan............ 397
Stock options
issued to
consultant...... --
Deferred
compensation.... --
Amortization of
deferred
compensation.... 108
-------------
Balances at
March 31, 2000.. $23,359
=============
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended March 31,
-------------------------
2000 1999 1998
-------- ------ -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (4,094) $ (616) $(3,234)
Adjustments to reconcile net loss to cash provided
by (used in) operating activities:
Depreciation and amortization..................... 957 925 749
Provision for returns and doubtful accounts, net
of returns and write-offs........................ (90) 305 200
Equity in income of unconsolidated affiliates..... -- (26) (27)
Deferred income taxes............................. 550 (210) 300
Gain on sale of securities........................ (151) (32) (551)
Deferred compensation amortization and expense
related to cashless exercise of warrants 188 33 --
Loss on disposition of property and equipment..... 12 35 14
Changes in operating assets and liabilities, net
of effect of foreign exchange rate changes:
Accounts receivable.............................. (1,688) (1,214) (1,455)
Prepaid expenses and other current assets........ (321) (27) (376)
Income taxes receivable.......................... (351) 251 (251)
Accounts payable................................. (50) 279 27
Accrued liabilities.............................. 212 1,236 1,375
Deferred revenue................................. 2,046 4,104 2,707
Income taxes payable............................. (295) 295 (295)
-------- ------ -------
Net cash provided by (used in) operating
activities.................................... (3,075) 5,338 (817)
-------- ------ -------
Cash flows from investing activities:
Purchase of property and equipment................ (786) (925) (822)
Proceeds from dissolution of affiliate............ -- 218 --
Purchase of marketable securities................. (133,496) -- --
Proceeds from maturities and sale of marketable
securities....................................... 115,571 32 256
Proceeds from sale of property and equipment...... 6 188 --
-------- ------ -------
Net cash used in investing activities.......... (18,705) (487) (566)
-------- ------ -------
Cash flows from financing activities:
Proceeds from stock issued pursuant to stock
option and employee stock purchase plans......... 397 114 33
Proceeds from initial public offering, net of
expenses......................................... 24,350 -- --
Proceeds from issuance of preferred stock......... -- -- 3,500
Proceeds from issuance of long-term debt.......... -- -- 784
Payments on long-term debt........................ (5) (1,334) (342)
Payments under capital lease obligations.......... (134) (136) (161)
-------- ------ -------
Net cash provided by (used in) financing
activities.................................... 24,608 (1,356) 3,814
-------- ------ -------
Effect of foreign exchange rate changes on cash..... (51) 1 (16)
-------- ------ -------
Net increase in cash................................ 2,777 3,496 2,415
Cash and equivalents, beginning of year............. 8,900 5,404 2,989
-------- ------ -------
Cash and equivalents, end of year................... $ 11,677 $8,900 $ 5,404
======== ====== =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest......................................... $ 21 $ 164 $ 123
======== ====== =======
Income taxes..................................... $ 822 $ 259 $ 240
======== ====== =======
Cash received during the year from income tax
refunds.......................................... $ 26 $ 395 $ --
======== ====== =======
</TABLE>
<TABLE>
<S> <C> <C> <C>
Supplemental disclosure of noncash investment and financing activities:
The Company acquired property and equipment totaling $317 under capital lease
during 1998.
During 1998, the Company sold stock purchase warrants in another company with
a basis of $25 in exchange for marketable securities with a fair market value
of $320 and cash.
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
ShowCase Corporation (the "Company" or "ShowCase") was incorporated in
1988, and in 1991, introduced a Windows-based query tool for the IBM
AS/400, ShowCase Vista. The Company has subsequently introduced additional
products and services to support an end-to-end business intelligence
solution for IBM AS/400 customers. The Company's product suite is sold
under the name ShowCase STRATEGY.
The Company has wholly owned subsidiaries in Germany, the United
Kingdom, Belgium, and France that distribute ShowCase products and provide
related services to clients in these countries.
During fiscal year 1999, the Company dissolved its 40% ownership
position in ShowCase Japan and received an amount equal to the carrying
value of the Company's ShowCase Japan investment. In addition, during the
fiscal year 1999, the Company also dissolved its 20% ownership interest in
ShowCase Italia SpA. The Company's carrying value of its investment in
ShowCase Italia SpA was zero prior to dissolution. The Company received no
proceeds nor was it required to assume any obligations as a result of the
ShowCase Italia SpA dissolution. Prior to dissolution, the Company used the
equity method to account for its investment in these two affiliates.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of ShowCase
Corporation and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
(c) Revenue Recognition
The Company recognizes license revenue under 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. SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements to be allocated to each element
based on its relative fair value. The fair value of the element must be
based on objective evidence that is specific to the vendor. The Company
adopted the provisions of SOP No. 98-9, Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions, effective April
1, 1999. The adoption of SOP No. 98-9 did not have a material effect on the
Company's operating results.
Under SOP No. 97-2, as amended by SOP Nos. 98-4 and 98-9, the Company
recognizes license revenue when the software 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 fees that are contingent upon sale to an end user by
distributors and other channel partners are recognized upon receipt of a
report of delivery to the end user. Maintenance and support fees including
product upgrade rights, when and if available, committed as part of new
product licenses and maintenance resulting from renewed maintenance
contracts are deferred and recognized ratably over the contract period.
Professional service revenue is recognized when services are performed.
Revenues related to multiple element arrangements are allocated to each
element of the arrangement based on the fair values of elements such as
license fees, maintenance and support and professional services. The
determination of fair value is based on vendor specific objective evidence.
When fair value
23
<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
does not exist for one or more of the delivered elements in the
arrangement, the "residual method" is used. Under the "residual method,"
the total fair value of the undelivered elements is deferred and recognized
ratably over the contract period and the remaining residual amount is
recognized with respect to the delivered elements. Such arrangements
typically do not involve end user cancellation rights, rights of return, or
significant acceptance periods. The Company accrues license revenue through
the end of the reporting period based upon reseller royalty reports or
other forms of customer-specific historical information.
The Company does not provide a contractual right of return. However, in
limited circumstances, and on a discretionary basis, the Company may grant
concessions to its clients. Such concessions are granted to relatively few
clients. The Company records an allowance for sales returns to account for
estimated concessions.
(d) Capitalized Software Costs
Costs associated with the planning and designing phase of software
development, including coding and testing activities necessary to establish
technological feasibility, are classified as research and development and
expensed as incurred. Once technological feasibility has been determined,
additional costs incurred in development, including coding, testing, and
product quality assurance are capitalized. With regard to funded software
development arrangements to which the Company is a party for which
technological feasibility has been established before the arrangement was
entered into, proceeds from the funding party are (i) offset against
capitalized costs, (ii) any excess is deferred and credited against future
capitalized costs, and (iii) any remaining deferred amount is credited to
income upon completion of the related project. During 2000, 1999 and 1998,
no software development costs were capitalized.
Under a December 1998 agreement, which was amended in February 2000 with
IBM, the Company has agreed to perform several development enhancements to
its Essbase/400 software. The Company has not completed this project as of
March 31, 2000 and therefore has not recognized any income from this
arrangement.
The Company adopted SOP No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, and SOP No. 98-5,
Reporting on the Costs of Start-up Activities, effective April 1, 1999. SOP
No. 98-1 requires that entities capitalize certain costs related to
internal-use software once certain criteria have been met. SOP No. 98-5
requires that all start-up costs related to new operations must be expensed
as incurred. In addition, all start-up costs that were capitalized in the
past must be written off when SOP No. 98-5 is adopted. The adoption of SOP
Nos. 98-1 and 98-5 did not have a material impact on the Company's
financial position, results of operations or cash flows.
(e) Goodwill
The excess of the cost over fair value of net assets acquired is
recorded as goodwill and amortized on a straight-line basis over five
years. Unamortized goodwill balances are reviewed periodically to determine
recoverability based upon forecasted undiscounted cash flows. If it is
determined that the asset is believed to be impaired, the Company
recognizes an impairment charge to reduce the unamortized balance to its
net realizable value. As of March 31, 2000, no impairment charges have been
recognized. Accumulated amortization was $244,000 and $184,000 as of March
31, 2000 and 1999, respectively.
(f) Income Taxes
Deferred taxes are provided on an asset and liability method for
temporary differences and operating loss and tax credit carryforwards.
Temporary differences are the differences between the reported amounts
24
<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of enactment.
(g) Foreign Currency Translation
Exchange adjustments resulting from foreign currency transactions are
generally recognized in net income (loss), whereas adjustments resulting
from the translation of financial statements are reflected as a separate
component of accumulated other comprehensive income within stockholders'
equity. Revenues and expenses of foreign subsidiaries are translated at the
average exchange rates that prevail over the applicable year. The
functional currency of each foreign operation is the local currency.
(h) Use of Estimates
Management of the Company has made certain estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the
periods. Actual results could differ from those estimates.
(i) Stock-based Compensation
Compensation expense for stock option grants is recognized in accordance
with Accounting Principles Board ("APB") Opinion 25, Accounting for Stock
Issued to Employees. The pro forma effect on net income (loss) is provided
as if the fair value based method defined in Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-based
Compensation, had been applied.
(j) Cash and Equivalents
The Company considers all short-term, highly liquid investments that are
readily convertible into known amounts of cash and have original maturities
of three months or less to be cash equivalents.
(k) Marketable Securities
All marketable securities are classified as available-for-sale and
available to support current operations or to take advantage of other
investment opportunities. These securities are stated at the estimated fair
value based upon market quotes with unrealized holding gains or losses
reported as a separate component of accumulated other comprehensive income
within stockholders' equity. Realized gains and losses are included in
other income (expense). The cost of securities sold is based on the
specific identification method. The cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity. This
amortization and accretion is included in interest and investment income.
(l) Comprehensive Income (Loss)
Comprehensive income (loss) represents the change in stockholders'
equity resulting from other than stockholder investments and distributions.
For ShowCase, comprehensive income (loss) consists of net earnings or loss
plus changes in foreign currency translation adjustment and unrealized
holding gains (losses) on marketable securities available for sale as
displayed in the accompanying consolidated statements of operations and
comprehensive income (loss). Amounts recognized in net income (loss), which
previously were reported as other comprehensive income (loss), are
reclassified to avoid duplication. The effect of deferred income taxes on
other comprehensive income (loss) is not material.
25
<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(m) Reclassifications
Certain amounts previously reported have been reclassified to conform to
the 2000 presentation.
(n) New Accounting Pronouncements
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities (as amended by SFAS No. 137 with respect to the effective date)
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 the Company in April 2001.
The Company is currently reviewing the potential impact of this accounting
standard.
In December 1999, the SEC staff issued Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101, as
amended by SAB 101A, summarizes certain views of the SEC staff in applying
generally accepted accounting principles to revenue recognition in
financial statements. Certain aspects of SAB 101 relate to the timing of
recognition of revenue and certain expenses with respect to arrangements
that involve the receipt of nonrefundable up-front fees. SAB 101 requires
that in particular situations the nonrefundable fees and certain associated
expenses be recognized over the contractual terms or average life of the
underlying arrangement. SAB 101 will be effective for the Company in the
first quarter of fiscal year 2001. The Company does not expect SAB 101 to
have a material impact on its financial condition or results of operations.
(2)Accounts Receivable
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31,
--------------
2000 1999
------ ------
<S> <C> <C>
Accounts receivable....................................... $9,578 $7,875
Less allowance for sales returns.......................... (400) (520)
Less allowance for doubtful accounts...................... (330) (285)
------ ------
Accounts receivable, net.................................. $8,848 $7,070
====== ======
</TABLE>
(3)Profit Sharing and Savings Plan
The Company has adopted a profit sharing plan under Section 401(k) of the
Internal Revenue Code. This plan allows employees to defer a portion of their
income through contributions to this plan. At the Company's board of directors'
discretion, the Company may match a percentage of employees' voluntary
contributions or may make additional contributions based on profits. In fiscal
1998, the Company initiated a Company match determined annually by the
Company's board of directors. This Company match was approximately $193,000,
$50,000 and $44,000 in fiscal years 2000, 1999 and 1998, respectively.
(4)Significant Customers
Revenues from transactions with one of the Company's distributors comprised
approximately 11% of total revenues for fiscal year 2000. Accounts receivable
from this distributor comprised approximately 18% of total accounts receivable
at March 31, 2000. Revenues from the Company's former Japan affiliate comprised
approximately 6% of total revenues for fiscal year 1998.
26
<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(5) Marketable Securities
As of March 31, 2000, the Company's marketable securities were comprised of
corporate commercial paper with contractual maturities of less than one year.
The amortized cost basis, gross unrealized holding loss, and estimated fair
value of such securities were approximately $18,396,000, $9,000, and
$18,387,000, respectively, as of March 31, 2000.
As of March 31, 1999, the Company's marketable securities were comprised of
common stock of one of the Company's vendors. The cost basis, gross unrealized
holding loss, and estimated fair value of such stock were approximately
$320,000, $181,000, and $139,000, respectively, as of March 31, 1999. The
Company sold this stock in January 2000. The gross realized gain related to the
sale of this stock was approximately $151,000.
(6) Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets. Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
March 31,
Estimated ----------------
useful life 2000 1999
------------- ------- -------
<S> <C> <C> <C>
Computers and software.................. 3 to 5 years $ 3,828 $ 3,314
Office furniture and equipment.......... 4 to 10 years 778 610
Leasehold improvements.................. 5 to 9 years 315 172
------- -------
4,921 4,096
Less accumulated depreciation and
amortization .......................... (2,833) (2,004)
------- -------
Net property and equipment.............. $ 2,088 $ 2,092
======= =======
</TABLE>
(7) Long-term Debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31,
----------
2000 1999
---- ----
<S> <C> <C>
Note payable to IBM, interest at 6.25%, principal and
interest payable quarterly through November 2000........... $ 2 $ 7
Less current portion........................................ (2) (5)
---- ---
$-- $ 2
==== ===
</TABLE>
The Company has a $3,000,000 revolving line of credit agreement with a bank
through August 30, 2001, bearing interest at the bank's base rate (9.0% at
March 31, 2000) plus .25%. Borrowings are limited to 75% of eligible accounts
receivable and are payable on demand. The revolving line of credit note is
secured by substantially all of the Company's assets and contains certain
restrictive financial covenants, including liquidity, profitability and the
maintenance of prescribed tangible net worth and debt to tangible net worth
ratios. No borrowings were outstanding under the line of credit at March 31,
2000.
27
<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(8) Income Taxes
Loss before income taxes was derived from the following sources (in
thousands):
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------
2000 1999 1998
------- ----- -------
<S> <C> <C> <C>
Domestic......................................... $(3,318) $(421) $(2,597)
Foreign.......................................... (76) 5 (462)
------- ----- -------
$(3,394) $(416) $(3,059)
======= ===== =======
</TABLE>
The provision for current income tax expense consists of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended
March 31,
-----------------
<S> <C> <C> <C>
<CAPTION>
2000 1999 1998
---- ---- -----
<S> <C> <C> <C>
Current:
Federal............................................. $(70) $220 $(325)
State and local..................................... -- 35 --
Foreign............................................. 220 155 200
Deferred:
Federal............................................. 550 (210) 300
---- ---- -----
$700 $200 $ 175
==== ==== =====
</TABLE>
The provision for income taxes differs from the expected tax expense,
computed by applying the federal corporate tax rate of 34% to earnings before
income taxes, as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------
2000 1999 1998
------- ----- -------
<S> <C> <C> <C>
Expected federal income tax benefit............. $(1,154) $(142) $(1,040)
State taxes, net of federal benefit............. (40) 23 (52)
Change in valuation allowance................... 1,829 678 1,085
Research and experimentation credits............ (189) (203) --
Foreign sales corporation....................... -- (61) --
Foreign operations and withholding taxes........ 246 (135) 152
Other........................................... 8 40 30
------- ----- -------
$ 700 $ 200 $ 175
======= ===== =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at March 31, 2000
and 1999 are presented below (in thousands):
<TABLE>
<CAPTION>
March 31,
-----------
2000 1999
----- -----
<S> <C> <C>
Deferred tax assets:
Accounts receivable allowances............................. $ 211 $ 241
Vacation and other accruals................................ 204 163
Deferred revenues.......................................... 2,828 2,153
Foreign net operating loss carryforwards................... 204 204
Research and experimentation credit carryforwards.......... 378 38
Foreign tax credit carryforwards........................... 220 --
</TABLE>
28
<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
March 31,
----------------
2000 1999
------- -------
<S> <C> <C>
Other................................................. 39 42
------- -------
4,084 2,841
Valuation allowance..................................... (4,007) (2,178)
------- -------
77 663
Deferred tax liabilities:
Depreciation.......................................... (77) (113)
------- -------
Net deferred tax asset.................................. $ -- $ 550
======= =======
</TABLE>
In assessing the realization of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of the deferred tax asset
is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Based on the level of
historical taxable income and projections of future taxable income over the
periods in which the deferred tax assets are deductible, management does not
believe that it is more likely than not the Company will realize the benefits
of these deductible differences. Accordingly, the Company has provided a
valuation allowance against the gross deferred tax assets as of March 31, 2000.
At March 31, 2000, there are foreign net operating loss carryforwards of
approximately $600,000, a portion of which will expire in 2005.
(9)Stockholders' Equity
(a) Initial Public Offering
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. On July 6,
1999, the closing date of the sale of such securities, the Company issued
3,000,000 shares of common stock and received proceeds, net of underwriting
discount, of $25,110,000. In connection with the initial public offering,
the Company amended and restated its articles of incorporation and
increased the number of authorized shares of capital stock to 50,000,000
shares.
(b) Series A Convertible Preferred Stock
In 1991, the Company issued convertible preferred stock under the terms
of an investment agreement. Each preferred share was convertible at the
option of the holder at any time at a rate of four shares of common stock
for each preferred share, subject to certain adjustments. The Series A
convertible preferred stock was converted into 1,895,028 common shares on
July 6, 1999.
(c) Series B Convertible Preferred Stock
In 1998, the Company issued convertible preferred stock under the terms
of an investment agreement. Each preferred share was convertible at the
option of the holder at any time at a rate of one share of common stock for
each preferred share, subject to certain adjustments. The Series B
convertible preferred stock was converted into 864,198 common shares on
July 6, 1999.
29
<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(d) Stock Purchase Warrants
In May 1998, the Company issued a warrant to purchase 13,750 shares of
Series B Convertible Preferred Stock at an exercise price of $4.00 per
share in consideration for the warrant-holder executing certain equipment
leases with the Company. The warrant was exercisable through the earlier of
May 13, 2008 or five years from the effective date of the Company's initial
public offering. The aggregate fair value of the warrant, approximately
$9,000 as determined on the date of grant using a Black-Scholes pricing
model, is being recognized by the Company as additional lease expense over
the related lease term. During fiscal year 2000, the warrant was exercised
by the warrant holder pursuant to a cashless exercise provision. The
Company recognized an expense of approximately $78,000 and issued an
aggregate of 8,182 shares of its common stock as a result of this exercise.
(e) Employee Stock Purchase Plan
Under the Company's 1999 Employee Stock Purchase Plan, which became
effective upon consummation of the initial public offering, substantially
all employees may purchase shares of common stock at the end of semiannual
purchase periods at a price equal the lower of 85% of the stock's fair
market value on the first day or the last day of that period. Plan funding
occurs throughout the purchase period by pre-elected payroll deductions of
up to 15% of pay. No compensation expense results from the plan. Shares
issued under the plan were 35,647 at an average price of $4.91 per share in
2000. At March 31, 2000, 464,353 shares remain reserved for future issuance
under the plan.
(f) Deferred Compensation
In connection with the grant to employees of options to purchase 81,000
shares of common stock in fiscal year 2000 and 527,900 shares of common
stock in fiscal year 1999, the Company recorded deferred compensation of
$152,000 in fiscal year 2000 and $355,000 in fiscal year 1999. This
represents 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 based upon the intrinsic value method in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees. Additionally, the
Company recorded approximately $60,000 of deferred compensation in fiscal
year 2000 related to stock options issued to a consultant as described in
Note 9(g). The Company recognized an expense of approximately $108,000 and
$33,000 for the fiscal years ended March 31, 2000 and 1999, respectively,
for these stock option grants and will recognize the remainder of the
deferred compensation cost over the respective vesting periods (four to
five years) of the options granted.
(g) Stock Options
The Company's 1991 Long-Term Incentive and Stock Option Plan and 1999
Stock Incentive Plan (collectively, the "Plan") provides for the granting
of incentive and nonqualified stock options, stock appreciation rights,
restricted stock, restricted stock units, performance awards and other
stock based awards to eligible participants. The terms and vesting
requirements of the awards are subject to the determination of the
compensation committee of the Company's board of directors.
Options granted under the Company's stock option plan may be incentive
stock options or non-qualified stock options. Incentive stock options may
be granted to certain employees and directors at a price not less than the
fair market value of the common stock on the day the option is granted and
must be exercisable no later than ten years after the date of grant.
Nonqualified stock options may be granted for terms up to ten years after
the date of grant, at prices determined by the stock option committee.
30
<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During fiscal year 2000, the Company granted options to purchase 37,500
shares of the Company's common stock at $8.00 per share to a consultant for
services to be received over the four-year vesting period of such options.
The Company recorded approximately $60,000 of deferred compensation in
fiscal year 2000 related to the fair value of these options as determined
by use of a Black-Scholes valuation model, considering the following
assumptions: expected dividend yield 0%, risk-free interest rate of 5.65%,
and expected option life of four years (see Note 9(f)).
At March 31, 2000, the Company has 3,948,619 shares of its common stock
reserved for issuance upon the exercise of options granted under the
Company's stock option plans. The following table summarizes the activity
of the Company's stock option plan:
<TABLE>
<CAPTION>
Weighted average
Shares exercise price
--------- ----------------
<S> <C> <C>
Outstanding--March 31, 1997................... 1,372,953 $ .53
Options granted............................... 181,400 1.42
Options exercised............................. (135,829) .25
Options canceled.............................. (53,740) 1.04
---------
Outstanding--March 31, 1998................... 1,364,784 .65
Options granted............................... 820,900 3.61
Options exercised............................. (514,307) .22
Options canceled.............................. (125,570) 1.10
---------
Outstanding--March 31, 1999................... 1,545,807 2.32
Options granted............................... 430,500 5.04
Options exercised............................. (216,191) 1.03
Options canceled.............................. (203,700) 2.40
---------
Outstanding--March 31, 2000................... 1,556,416 3.23
=========
</TABLE>
The following table summarizes the Company's stock options outstanding
at March 31, 2000:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
---------------------------------------------- -----------------------------
Range of Number Weighted average Weighted Number Weighted
exercise outstanding at remaining average exercisable at average
price March 31, 2000 contractual life exercise price March 31, 2000 exercise price
-------- -------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ .07--$1.08 411,032 5.3 years $ .76 264,721 $ .66
$1.42--$1.50 360,084 7.9 years 1.47 95,468 1.46
$2.72--$5.35 569,800 9.2 years 4.61 30,672 4.78
$5.38--$7.12 164,000 9.1 years 7.01 15,300 7.12
$8.00 51,500 9.3 years 8.00 6,249 8.00
--------- -------
1,556,416 412,410
========= =======
</TABLE>
The Company accounts for options issued to employees in connection with
its Plan under APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. The following pro forma amounts, in
accordance with the disclosure requirements of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-based Compensation (SFAS
123), were determined as if the Company had accounted for its stock options
issued to employees and for the discount offered to its
31
<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
employees under the employee stock purchase plan using the fair value
method as described in that statement:
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------
2000 1999 1998
------- ------ -------
<S> <C> <C> <C>
Net loss (in thousands):
As reported................................... $(4,094) $ (616) $(3,234)
Pro forma..................................... (4,608) (677) (3,266)
Diluted loss per share:
As reported................................... $ (0.46) $(0.14) $ (0.82)
Pro forma..................................... (0.52) (0.15) (0.83)
</TABLE>
Because the method of accounting under SFAS 123 has not been applied to
stock options granted prior to April 1, 1995, the resulting pro forma
compensation cost may not be representative of compensation cost to be
disclosed in future years.
The weighted average grant date fair value of stock options granted was
$4.64, $1.19 and $.39 per option in 2000, 1999 and 1998, respectively. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes stock option pricing model with the following average
assumptions: risk-free interest rate ranging from 6.0% to 6.5%, expected
dividend yields of 0%, and weighted average expected lives of five years,
for 2000, 1999, and 1998; and expected volatility of 121% for 2000 and 0%
for both 1999 and 1998.
(10) Net Loss per Share
For ShowCase, 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 ShowCase, 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 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.
The total number of weighted average option and warrant shares excluded from
the calculation of potentially dilutive securities either because the exercise
price exceeded the average market price or because their inclusion in the
calculation of net loss per share would have been antidilutive were 1,052,523,
792,138 and 902,469 for fiscal years 2000, 1999 and 1998, respectively.
For the years ended March 31, 1999 and 1998, the effect of conversion of the
Company's Series A and Series B convertible preferred stock was excluded from
the calculation of net loss per diluted share because the resulting impact
would have been antidilutive. The Series A and Series B convertible preferred
stock were convertible into 1,895,028 and 864,198 common shares, respectively.
32
<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(11) Geographic Segment Data
The operations of the Company are primarily conducted in the United States,
the Company's domicile. Geographic data, determined by references to the
location of the Company's operations, as of March 31, 2000 and 1999 and for
each of the years for the three-year period ended March 31, 2000 is as follows
(in thousands):
<TABLE>
<CAPTION>
Year ended March 31,
-----------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Revenues:
U.S. operations................................ $27,662 $24,894 $17,890
United Kingdom................................. 3,058 3,695 2,751
France......................................... 3,528 3,166 360
Germany........................................ 2,882 1,777 1,102
Other non-U.S. operations...................... 2,393 1,987 1,652
------- ------- -------
$39,523 $35,519 $23,755
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
March 31,
2000
-------------
2000 1999
------ ------
<S> <C> <C>
Tangible long-lived assets:
U. S. operations......................................... $1,693 $1,736
Non-U.S. operations...................................... 395 356
------ ------
$2,088 $2,092
====== ======
</TABLE>
(12) Commitments
(a) Capital Leases
The Company has entered into capital lease agreements for computers and
software and office furniture and equipment. The following is a summary of
the leased property (in thousands):
<TABLE>
<CAPTION>
March 31,
------------
2000 1999
----- -----
<S> <C> <C>
Computers and software...................................... $ 309 $ 645
Office furniture and equipment.............................. 7 52
----- -----
316 697
Less accumulated amortization............................... (188) (419)
----- -----
Net property and equipment.................................. $ 128 $ 278
===== =====
</TABLE>
The following is a schedule of future minimum lease payments under
capital leases with the present value of the minimum lease payments as of
March 31, 2000 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Total minimum lease payments for year ending March 31, 2001......... $ 83
Less amount representing interest at 5% to 16%...................... (5)
Present value of minimum lease payments............................. 78
Less current portion................................................ (78)
----
$--
====
</TABLE>
33
<PAGE>
SHOWCASE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(b) Operating Leases
The Company leases certain office facilities and equipment under
operating leases. Total lease expense aggregated $2,160,000, $1,858,000 and
$1,363,000 in 2000, 1999 and 1998, respectively. Minimum future obligations
as of March 31, 2000, including operating costs under non-cancelable
leases, are approximately as follows (in thousands):
<TABLE>
<S> <C>
Years ending March 31:
2001............................................................. $1,345
2002............................................................. 863
2003............................................................. 422
2004............................................................. 328
Thereafter....................................................... 67
------
$3,025
======
</TABLE>
(c) Royalty Agreement
The company is obligated to make royalty payments under certain
distribution and license agreements. Minimum royalties required by these
agreements in order for them to remain exclusive are $3,300,000 in 2001,
increased by 30% per year for each year from 2002 to 2004. One of these
agreements contains a buy-back clause under which the vendor would be
required to pay the Company an amount, as defined in the agreement, to
revoke the exclusive rights. This amount would be recognized as revenue if
such revocation should occur. Royalty expense under these agreements was
$2,841,000, $3,069,000 and $2,144,000 for years ending March 31, 2000, 1999
and 1998, respectively.
During fiscal 2000, ShowCase entered into a distribution and license
agreements with another software company, the board of directors of which
includes the CEO of ShowCase. The Company prepaid royalties of $250,000 and
there was no royalty expense under this agreement for the year ending
March 31, 2000.
34
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
See the sections entitled "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance," which are incorporated herein by
reference to the Company's Proxy Statement for its 2000 Annual Meeting of
Shareholders. See also the section entitled "Executive Officers of the Company"
appearing in Part I hereof.
Item 11. Executive Compensation
See the section entitled "Director Compensation" and "Executive Compensation
and Related Information," which are incorporated herein by reference to the
Company's Proxy Statement for its 2000 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See the section entitled "Stock Ownership of Certain Beneficial Owners and
Management," which is incorporated herein by reference to the Company's Proxy
Statement for its 2000 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Party Transactions
See the section entitled "Certain Relationships and Related Party
Transactions," which is incorporated herein by reference to the Company's Proxy
Statement for its 2000 Annual Meeting of Shareholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) The following consolidated financial statements are filed herewith
in Item 8.
(i) Balance Sheets as of March 31, 2000 and 1999.
(ii) Statements of Operations and Comprehensive Income (Loss) for
the years ended March 31, 2000, 1999 and 1998.
(iii) Statements of Stockholders' Equity for the years ended March
31, 2000, 1999 and 1998.
(iv) Statements of Cash Flows for the years ended March 31, 2000,
1999 and 1998.
(v) Notes to consolidated financial statements.
(a)(2) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
(a)(3) Exhibits
3.1 Amended and Restated Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1 filed with the
SEC on April 28, 1999 (File No. 333-77223)).
35
<PAGE>
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.4 to the Company's Registration
Statement on Form S-1 filed with the SEC on April 28, 1999
(File No. 333-77223)).
4.1 Specimen of Common Stock certificate (incorporated by
reference to Exhibit 4.1 to Amendment No. 2 to the Company's
Registration Statement on Form S-1 filed with the SEC on
June 28, 1999 (File No. 333-77223)).
4.2 Registration Rights Provisions for former preferred
shareholders (incorporated by reference to Exhibit 4.3 to
the Company's Registration Statement on Form S-1 filed with
the SEC on April 28, 1999 (File No. 333-77223)).
10.1 Amended 1991 Long-Term Incentive and Stock Option Plan
(incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1 filed with the SEC on
April 28, 1999 (File No. 333-77223)).
10.2 1999 Stock Incentive Plan (incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form
S-1 filed with the SEC on April 28, 1999 (File No. 333-
77223)).
10.3 1999 Employee Stock Purchase Plan, as amended (incorporated
by reference to Exhibit 10.3 to Amendment No. 2 to the
Company's Registration Statement on Form S-1 filed with the
SEC on June 28, 1999 (File No. 333-77223)).
10.4 Lease Agreement dated as of November 30, 1998 between
Mortenson Properties, Inc. as Landlord and the Company as
Tenant (incorporated by reference to Exhibit 10.4 to the
Company's Registration Statement on Form S-1 filed with the
SEC on April 28, 1999 (File No. 333-77223)).
10.5 Employment Agreement dated as of November 22, 1993, between
the Company and Kenneth H. Holec (incorporated by reference
to Exhibit 10.5 to the Company's Registration Statement on
Form S-1 filed with the SEC on April 28, 1999 (File No. 333-
77223)).
10.6 Service Agreement dated as of March 17, 1998, between the
Company and Patrick Dauga (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on Form
S-1 filed with the SEC on April 28, 1999 (File No. 333-
77223)).
10.7 Employment offer letter to Kevin R. Potrzeba dated as of
August 23, 1996 (incorporated by reference to Exhibit 10.7
to the Company's Registration Statement on Form S-1 filed
with the SEC on April 28, 1999 (File No. 333-77223)).
10.8 Employment offer letter to Theresa Z. O'Neil dated as of
October 28, 1999 (filed herewith).
10.9 License Agreement, effective as of April 1, 1998, between
the Company and Arbor Software Corporation (the "Hyperion
License Agreement") (incorporated by reference to Exhibit
10.9 to Amendment No. 2 to the Company's Registration
Statement on Form S-1 filed with the SEC on June 28, 1999
(File No. 333-77223)).
10.10 Amendment No. 1 to the Hyperion License Agreement,
effective as of September 14, 1998, between the Company and
Hyperion Solutions Corporation (incorporated by reference
to Exhibit 10.10 to Amendment No. 2 to the Company's
Registration Statement on Form S-1 filed with the SEC on
June 28, 1999 (File No. 333-77223)).
36
<PAGE>
10.11 Software License and Marketing Agreement, effective as of
January 4, 1996, between the Company and AppSource
(incorporated by reference to Exhibit 10.11 to the
Company's Registration Statement on Form S-1 filed with the
SEC on April 28, 1999 (File No. 333-77223)).
10.12 Amendment to AppSource/Showcase License Agreement,
effective as of March 7, 1997 (incorporated by reference to
Exhibit 10.12 to the Company's Registration Statement on
Form S-1 filed with the SEC on April 28, 1999 (File No.
333-77223)).
10.13 Amended and Restated License Agreement, dated as of
February 16, 2000, between the Company and International
Business Machines Corporation ("IBM") (filed herewith).*
10.14 Outbound License Agreement, dated as of December 9, 1998,
between the Company and IBM (incorporated by reference to
Exhibit 10.14 to Amendment No. 2 to the Company's
Registration Statement on Form S-1 filed with the SEC on
June 28, 1999 (File No. 333-77223)).
10.15 Marketing Relationship Agreement, dated as of May 22, 1997,
between the Company and IBM (the "Marketing Relationship
Agreement") (incorporated by reference to Exhibit 10.15 to
the Company's Registration Statement on Form S-1 filed with
the SEC on April 28, 1999 (File No. 333-77223)).
10.16 Amendment No. 1, dated as of October 28, 1998, to Marketing
Relationship Agreement between the Company and IBM
(incorporated by reference to Exhibit 10.16 to Amendment
No. 2 to the Company's Registration Statement on Form S-1
filed with the SEC on June 28, 1999 (File No. 333-77223)).
10.17 Amendment No. 2, dated as of March 15, 1999, to Marketing
Relationship Agreement between the Company and IBM
(incorporated by reference to Exhibit 10.17 to Amendment
No. 2 to the Company's Registration Statement on Form S-1
filed with the SEC on June 28, 1999 (File No. 333-77223)).
10.18 License and Distribution Agreement, dated as of December
31, 1999, between the Company and IntraNet Solutions, Inc.
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report for the quarter ended December 31, 1999).
21.1 Subsidiaries of the Company (incorporated by reference to
Exhibit 21.1 to the Company's Registration Statement on Form
S-1 filed with the SEC on April 28, 1999 (File No. 333-
77223)).
23.1 Consent of Independent Auditors (filed herewith).
24.1 Power of Attorney (filed herewith).
27.1 Financial Data Schedule (filed herewith).
99.1 Cautionary Statement (filed herewith).
--------
* Confidential information has been omitted from such Exhibit and
filed separately with the Commission pursuant to a confidential
treatment request under Rule 24b-2 of the Exchange Act.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of fiscal
2000.
(c) See subitem (a.) above.
(d) See subitem (a.) above.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SHOWCASE CORPORATION
Dated: June 20, 2000 By /s/ Kenneth H. Holec
___________________________________
Kenneth H. Holec
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ Kenneth H. Holec Chief Executive Officer June 20,
------------------------------------- and Director (Principal 2000
Kenneth H. Holec Executive Officer and
Director)
/s/ Craig W. Allen Chief Financial Officer June 20,
------------------------------------- and Secretary 2000
Craig W. Allen (Principal Financial
and Accounting Officer)
* Director
-------------------------------------
Promod Haque
* Director
-------------------------------------
C. McKenzie Lewis III
* Director
-------------------------------------
Jack Noonan
* Director
-------------------------------------
William Binch
/s/ Craig W. Allen Dated: June 20, 2000
*By: ________________________________
Craig W. Allen
Attorney-in-Fact
38
<PAGE>
Item 14(a) (2). Financial Statement Schedule
INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors
of ShowCase Corporation:
Under date of May 2, 2000, we reported on the consolidated balance
sheets of ShowCase Corporation and subsidiaries as of March 31, 2000 and 1999,
and the related consolidated statements of operations and comprehensive income
(loss), stockholders' equity and cash flows for each of the years in the
three-year period ended March 31, 2000, as included in ShowCase Corporation's
Annual Report on Form 10-K for the fiscal year ended March 31, 2000. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule as listed in the accompanying index (see Item 14(a)(2)). This financial
statement schedule is the responsibility of ShowCase Corporation's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Minneapolis, Minnesota
May 2, 2000
<PAGE>
SHOWCASE CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Year ended March 31,
------------------------
2000 1999 1998
------ ------ ------
Allowance for Sales Returns:
Balance at beginning of year.................... $ 520 $ 320 $ 175
Additions charged to revenue.................... 472 319 445
Returns......................................... (592) (119) (300)
------ ------ ------
$ 400 $ 520 $ 320
====== ====== ======
Allowance for Doubtful Accounts:
Balance at beginning of year.................... $ 285 $ 180 $ 125
Additions charged to costs and expenses......... 45 163 55
Write-offs...................................... - (58) -
------ ------ ------
$ 330 $ 285 $ 180
====== ====== ======
<PAGE>
EXHIBIT INDEX
Number Description
------ -----------
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1 filed with the SEC on April 28,
1999 (File No. 333-77223)).
3.2 Amended and Restated Bylaws of the Company (incorporated by reference
to Exhibit 3.4 to the Company's Registration Statement on Form S-1
filed with the SEC on April 28, 1999 (File No. 333-77223)).
4.1 Specimen of Common Stock certificate (incorporated by reference to
Exhibit 4.1 to Amendment No. 2 to the Company's Registration Statement
on Form S-1 filed with the SEC on June 28, 1999 (File No. 333-77223)).
4.3 Registration Rights Provisions for former preferred shareholders
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-1 filed with the SEC on April 28,
1999 (File No. 333-77223)).
10.1 Amended 1991 Long-Term Incentive and Stock Option Plan (incorporated
by reference to Exhibit 10.1 to the Company's Registration Statement
on Form S-1 filed with the SEC on April 28, 1999 (File No.
333-77223)).
10.2 1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.2
to the Company's Registration Statement on Form S-1 filed with the SEC
on April 28, 1999 (File No. 333-77223)).
10.3 1999 Employee Stock Purchase Plan, as amended (incorporated by
reference to Exhibit 10.3 to Amendment No. 2 to the Company's
Registration Statement on Form S-1 filed with the SEC on June 28, 1999
(File No. 333-77223)).
10.4 Lease Agreement dated as of November 30, 1998 between Mortenson
Properties, Inc. as Landlord and the Company as Tenant (incorporated
by reference to Exhibit 10.4 to the Company's Registration Statement
on Form S-1 filed with the SEC on April 28, 1999 (File No.
333-77223)).
10.5 Employment Agreement dated as of November 22, 1993, between the
Company and Kenneth H. Holec (incorporated by reference to Exhibit
10.5 to the Company's Registration Statement on Form S-1 filed with
the SEC on April 28, 1999 (File No. 333-77223)).
10.6 Service Agreement dated as of March 17, 1998, between the Company and
Patrick Dauga (incorporated by reference to Exhibit 10.6 to the
Company's Registration Statement on Form S-1 filed with the SEC on
April 28, 1999 (File No. 333-77223)).
10.7 Employment offer letter to Kevin R. Potrzeba dated as of August 23,
1996 (incorporated by reference to Exhibit 10.7 to the Company's
Registration Statement on Form S-1 filed with the SEC on April 28,
1999 (File No. 333-77223)).
10.8 Employment offer letter to Theresa Z. O'Neil dated as of October 28,
1999 (filed herewith).
10.9 License Agreement, effective as of April 1, 1998, between the Company
and Arbor Software Corporation (the "Hyperion License Agreement")
(incorporated by reference to Exhibit 10.9 to Amendment No. 2 to the
Company's Registration Statement on Form S-1 filed with the SEC on
June 28, 1999 (File No. 333-77223)).
10.10 Amendment No. 1 to the Hyperion License Agreement, effective as of
September 14, 1998, between the Company and Hyperion Solutions
Corporation (incorporated by reference to Exhibit 10.10 to Amendment
No. 2 to the Company's Registration Statement on Form S-1 filed with
the SEC on June 28, 1999 (File No. 333-77223)).
10.11 Software License and Marketing Agreement, effective as of January 4,
1996, between the Company and AppSource (incorporated by reference to
Exhibit 10.11 to the Company's Registration Statement on Form S-1
filed with the SEC on April 28, 1999 (File No. 333-77223)).
<PAGE>
10.12 Amendment to AppSource/Showcase License Agreement, effective as of
March 7, 1997 (incorporated by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-1 filed with the SEC on
April 28, 1999 (File No. 333-77223)).
10.13 Amended and Restated License Agreement, dated as of February 16, 2000,
between the Company and International Business Machines Corporation
("IBM") (filed herewith).*
10.14 Outbound License Agreement, dated as of December 9, 1998, between the
Company and IBM (incorporated by reference to Exhibit 10.14 to
Amendment No. 2 to the Company's Registration Statement on Form S-1
filed with the SEC on June 28, 1999 (File No. 333-77223)).
10.15 Marketing Relationship Agreement, dated as of May 22, 1997, between
the Company and IBM (the "Marketing Relationship Agreement")
(incorporated by reference to Exhibit 10.15 to the Company's
Registration Statement on Form S-1 filed with the SEC on April 28,
1999 (File No. 333-77223)).
10.16 Amendment No. 1, dated as of October 28, 1998, to Marketing
Relationship Agreement between the Company and IBM (incorporated by
reference to Exhibit 10.16 to Amendment No. 2 to the Company's
Registration Statement on Form S-1 filed with the SEC on June 28, 1999
(File No. 333-77223)).
10.17 Amendment No. 2, dated as of March 15, 1999, to Marketing Relationship
Agreement between the Company and IBM (incorporated by reference to
Exhibit 10.17 to Amendment No. 2 to the Company's Registration
Statement on Form S-1 filed with the SEC on June 28, 1999 (File No.
333-77223)).
10.18 License and Distribution Agreement, dated as of December 31, 1999,
between the Company and IntraNet Solutions, Inc. (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report for the
quarter ended December 31, 1999).
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1
to the Company's Registration Statement on Form S-1 filed with the SEC
on April 28, 1999 (File No. 333-77223)).
23.1 Consent of Independent Auditors (filed herewith).
24.1 Power of Attorney (filed herewith).
27.1 Financial Data Schedule (filed herewith).
99.1 Cautionary Statement (filed herewith).
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* Confidential information has been omitted from such Exhibit and filed
separately with the Commission pursuant to a confidential treatment request
under Rule 24b-2 of the Exchange Act.
