<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1999
COMMISSION FILE NUMBER 0-23373
LANDMARK SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1221302
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12700 SUNRISE VALLEY DRIVE, RESTON, VA 20191
(Address of principal executive offices) (Zip Code)
703-464-1300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
-------- --------
Number of shares outstanding of the issuer's classes of common stock as of July
31, 1999:
<TABLE>
<CAPTION>
Class Number of Shares Outstanding
- -------------------------------------- ----------------------------
<S> <C>
Common Stock, par value $.01 per share 12,602,397
</TABLE>
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LANDMARK SYSTEMS CORPORATION
QUARTER ENDED JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements........................................................................... 3
Condensed Consolidated Statements of Operations for the three and six
months ended June 30, 1999 (unaudited) and June 30, 1998 (unaudited)........................... 4
Condensed Consolidated Balance Sheets as of June 30, 1999 (unaudited)
and December 31, 1998.......................................................................... 5
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 (unaudited) and June 30, 1998 (unaudited).................................. 6
Notes to Condensed Consolidated Financial Statements (unaudited)............................... 7-10
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition............................................................................ 10-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................... 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................. 17
Item 2. Changes in Securities and Use of Proceeds...................................................... 17
Item 3. Defaults Upon Senior Securities................................................................ 17
Item 4. Submission of Matters to a Vote of Security Holders............................................ 17-18
Item 5. Other Information.............................................................................. 18
Item 6. Exhibits and Reports on Form 8-K............................................................... 18-19
SIGNATURES ............................................................................................... 20
</TABLE>
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<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed financial statements set forth below for the three and
six-month periods ended June 30, 1999 and 1998 are unaudited and have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations. Management believes that the disclosures made are adequate to
make the information presented not misleading. The results for the three and
six-month periods ended June 30, 1999 are not necessarily indicative of the
results for the fiscal year.
In the opinion of management, the accompanying condensed consolidated
financial statements reflect all necessary adjustments (consisting only of
normal recurring adjustments) that are necessary for a fair presentation of
results for the periods presented. It is suggested that these financial
statements be read in conjunction with the latest audited consolidated financial
statements and notes thereto (included in the Annual Report on Form 10-K for the
fiscal year ended December 31, 1998).
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LANDMARK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
License revenues $ 6,784,372 $ 5,849,463 $ 14,039,020 $ 9,414,750
Maintenance revenues 7,504,151 6,724,090 14,438,082 13,701,725
---------- ---------- ---------- ----------
Total revenues 14,288,523 12,573,553 28,477,102 23,116,475
---------- ---------- ---------- ----------
Cost of revenues
Cost of license revenues 404,906 444,774 681,115 781,299
Cost of maintenance revenues 1,114,545 903,842 2,224,464 1,820,368
Amortization of distribution rights 423,732 154,000 847,232 307,998
---------- ---------- ---------- ----------
Total cost of revenues 1,943,183 1,502,616 3,752,811 2,909,665
---------- ---------- ---------- ----------
Gross profit 12,345,340 11,070,937 24,724,291 20,206,810
---------- ---------- ---------- ----------
Operating expenses
Sales and marketing 4,955,620 4,195,701 9,567,586 7,669,308
Product research and development 4,171,043 3,946,198 8,333,674 7,545,717
General and administrative 1,453,397 1,397,436 2,895,265 2,537,076
---------- ---------- ---------- ----------
Total operating expenses 10,580,060 9,539,335 20,796,525 17,752,101
---------- ---------- ---------- ----------
Operating income 1,765,280 1,531,602 3,927,766 2,454,709
Interest and other income, net 529,008 443,457 1,108,119 883,287
---------- ---------- ---------- ----------
Income before taxes 2,294,288 1,975,059 5,035,885 3,337,996
Provision for income taxes 877,562 755,460 1,926,226 1,276,783
---------- ---------- ---------- ----------
Net income $ 1,416,726 $ 1,219,599 $ 3,109,659 $ 2,061,213
=========== =========== =========== ===========
Earnings per share
Basic $0.11 $0.11 $0.26 $0.18
Diluted $0.11 $0.10 $0.24 $0.17
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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LANDMARK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $27,145,131 $28,322,234
Accounts receivable, net of allowance for doubtful
accounts of $1,113,000 and $1,323,000 12,625,205 10,902,168
Unbilled accounts receivable 6,916,292 5,728,250
Other current assets 2,628,214 2,498,564
----------- -----------
Total current assets 49,314,842 47,451,216
Unbilled accounts receivable - noncurrent 6,536,849 5,486,240
Fixed assets, net 4,996,116 4,121,290
Capitalized software costs, net 171,815 257,722
Intangible assets, net 5,171,937 616,000
Other assets 1,409,718 1,374,427
----------- -----------
Total assets $67,601,277 $59,306,895
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,093,765 $ 6,217,441
Deferred revenue 19,743,309 17,088,814
----------- -----------
Total current liabilities 22,837,074 23,306,255
Deferred revenue - noncurrent 9,540,502 7,710,350
Other liabilities 345,067 323,212
----------- -----------
Total liabilities 32,722,643 31,339,817
----------- -----------
Stockholders' equity:
Common stock, $0.01 par value, 30,000,000
Shares authorized, 12,373,309 and
11,782,585 issued and outstanding 123,733 117,826
Additional paid-in capital 30,863,867 26,692,818
Retained earnings 4,129,150 1,019,503
Accumulated other comprehensive income (loss) (238,116) 136,931
----------- -----------
Total stockholders' equity 34,878,634 27,967,078
----------- -----------
Total liabilities and stockholders' equity $67,601,277 $59,306,895
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
LANDMARK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 3,109,659 $ 2,061,213
Adjustments to reconcile net income to net
cash flows from operations
Depreciation and amortization 1,722,979 1,386,496
Provision for deferred income taxes - (407,936)
Tax benefit for exercise of stock options 925,787 368,051
Sale of unbilled accounts receivable 5,567,551 -
Changes in working capital (8,463,439) (2,285,923)
----------- ------------
Net cash provided by operating activities 2,862,537 1,121,901
----------- ------------
Cash flows from investing activities
Acquisition of distribution rights (4,000,000) -
Capital expenditures (1,664,667) (1,083,980)
----------- ------------
Net cash used in investing activities (5,664,667) (1,083,980)
----------- ------------
Cash flows from financing activities
Principle payments on loans - (264,450)
Proceeds from sale of common stock 1,861,169 852,560
----------- ------------
Net cash provided by financing activities 1,861,169 588,110
----------- ------------
Effect of exchange rate changes on cash (236,142) (2,720)
----------- ------------
Net (decrease) increase in cash and
cash equivalents (1,177,103) 623,311
Cash and cash equivalents, beginning of period 28,322,234 17,242,681
----------- ------------
Cash and cash equivalents, end of period $27,145,131 $17,865,992
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 7
LANDMARK SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements of Landmark Systems Corporation and its subsidiaries (collectively,
the "Company") reflect all adjustments which, in the opinion of management, are
necessary for a fair presentation of the results of the interim periods
presented in conformity with generally accepted accounting principles for
interim financial information. Such adjustments are of a normal recurring
nature. Intercompany balances and transactions have been eliminated in
consolidation. Certain prior year amounts have been reclassified to conform with
current year presentation.
The results of the interim periods presented are not necessarily
indicative of the results for the year. The Company's interim financial
statements should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto for the year ended December 31, 1998, as
filed with the Securities and Exchange Commission on Form 10-K.
NOTE 2 - SOFTWARE REVENUE RECOGNITION
Effective January 1, 1998, the Company adopted the provisions of Statement
of Position ("SOP") 97-2, "Software Revenue Recognition," which provides
guidance on applying generally accepted accounting principles in recognizing
revenue on software transactions. In December 1998, the American Institute of
Certified Public Accountants issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions." SOP 98-9
modifies SOP 97-2 by requiring revenue to be recognized using the "residual
method" if certain conditions exist. SOP 98-9 will be effective for the
Company's 2000 financial statements. The adoption of SOP 97-2 did not have a
material impact on the Company's consolidated financial statements. Management
is evaluating various pricing alternatives and strategies to determine their
possible impact on revenue recognition upon the adoption of SOP 98-9.
NOTE 3 - EARNINGS PER SHARE
The following reconciliation of the numerators and denominators is
provided for basic and diluted earnings per share for the three and six months
ended June 30, 1999 and 1998. Basic earnings per share is computed by dividing
the net income available to common stockholders by the weighted-average number
of common shares outstanding. Diluted earnings per share is computed by
additionally reflecting the potential dilution that could occur, using the
treasury stock method, if warrants and options to acquire common stock were
exercised and resulted in the issuance of common stock.
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
For the three months ended June 30, 1999
Basic earnings per share $1,416,726 12,322,047 $0.11
=======
Effect of dilutive securities
Stock options and warrants - 851,699
---------- ----------
Diluted earnings per share $1,416,726 13,173,746 $0.11
========== ========== =======
For the three months ended June 30, 1998
Basic earnings per share $1,219,599 11,405,458 $0.11
=======
Effect of dilutive securities
Stock options and warrants - 789,457
---------- ----------
Diluted earnings per share $1,219,599 12,194,915 $0.10
========== ========== =======
</TABLE>
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<PAGE> 8
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
--------- ----------- ----------
<S> <C> <C> <C>
For the six months ended June 30, 1999
Basic earnings per share $3,109,659 12,119,670 $0.26
Effect of dilutive securities
Stock options and warrants - 938,033
---------- ----------
Diluted earnings per share $3,109,659 13,057,703 $0.24
========== ========== =======
For the six months ended June 30, 1998
Basic earnings per share $2,061,213 11,337,360 $0.18
=======
Effect of dilutive securities
Stock options and warrants - 891,955
---------- ----------
Diluted earnings per share $2,061,213 12,229,315 $0.17
========== ========== =======
</TABLE>
NOTE 4 - COMPREHENSIVE INCOME
The Company's total comprehensive income is comprised of net income and other
comprehensive income, which consists of foreign currency translation
adjustments. Total comprehensive income for the three months ended June 30, 1999
and 1998 was $1,397,125 and $1,217,083, respectively. Total comprehensive income
for the six months ended June 30, 1999 and 1998 was $2,873,517 and $2,058,489,
respectively.
NOTE 5 - SEGMENT REPORTING
The Company classifies its operations into one industry segment, software
development and related services. The Company categorizes its products and
services into two groups: mainframe and client/server. The Company's revenues by
product group consist of the following:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------ ----------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Mainframe $11,932,690 $10,893,936 $ 23,122,714 $ 20,046,746
Client/server 2,355,833 1,679,617 5,354,388 3,069,729
----------- ----------- ------------ ------------
Total revenues $14,288,523 $12,573,553 $ 28,477,102 $ 23,116,475
=========== =========== ============ ============
</TABLE>
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<PAGE> 9
The Company sells its products outside the United States through its
subsidiaries and international distributors. Revenues from international
distributors are presented net of royalties retained by the distributors. The
Company's revenues by country or geographic region are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------------- -----------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
United States $10,102,836 $8,320,478 $ 19,964,668 $ 15,389,763
Germany 895,873 1,462,910 1,897,321 2,187,984
United Kingdom 242,301 644,430 1,210,426 1,208,253
The Netherlands 514,631 587,536 1,186,595 973,069
Other European countries 520,228 300,619 888,033 697,335
Japan 663,157 305,004 1,012,307 765,021
Australia 422,183 462,740 792,593 740,867
Rest of world 927,314 489,836 1,525,159 1,154,183
----------- ----------- ----------- ----------
Total revenues $14,288,523 $12,573,553 $ 28,477,102 $23,116,475
=========== =========== ============ ===========
</TABLE>
The Company's long-lived assets, which consist of fixed assets, capitalized
software and intangible assets, by country or geographic region are as follows:
June 30,
<TABLE>
<CAPTION> June 30,
-----------------------------------------
1999 1998
---- ----
<S> <C> <C>
United States $10,078,592 $4,345,862
Europe 196,480 174,000
Australia and Southeast Asia 64,796 58,869
----------- ----------
Total long-lived assets $10,339,868 $4,578,731
=========== ==========
</TABLE>
NOTE 6 - ACQUISITION OF DISTRIBUTION RIGHTS AND ESTABLISHMENT OF SUBSIDIARIES
In January 1999, the Company signed an agreement to acquire certain rights
and related assets from Software Products Ltd. ("Software Products"), a former
international distributor of the Company's products. Under terms of the
agreement governing the distribution relationship, Software Products held
exclusive rights to market certain of the Company's products in the United
Kingdom. As a result of the 1999 agreement, the Company gained direct access to
its mainframe customers in the United Kingdom. As consideration for the
acquisition of these rights, the Company paid Software Products $4,000,000 in
cash. As further consideration, the Company issued to Software Products 91,586
shares of Company common stock, with a fair value of $850,000 and subject to
certain resale restrictions and registration rights. Additionally, the Company
granted Software Products a warrant to purchase 150,000 shares of the Company's
common stock at the then fair market value of $10 per share, which vested upon
issuance and expires in January 2009. The fair value of the warrant was
$540,000. The Company recorded the acquisition of the customer base as an
intangible asset representing the cash payment and the fair value of the stock
and warrant issued and will amortize the intangible asset over a five-year
period.
In April 1999, the Company established a subsidiary, Landmark Systems
Singapore Pte Ltd. to act as a distributor of the Company's products in
Singapore. In May 1999, the Company established a subsidiary, Landmark Systems
France, SARL, to act as a distributor of the Company's client/server products in
France. In June 1999, the Company acquired the distribution rights from its
international distributor in the Scandinavian countries and established a
subsidiary, Landmark Systems Nordic, AB, to act as a distributor of the
Company's products in the Scandinavian countries. Under terms of the agreement
to acquire the distribution rights, the Company will pay the former distributor
a royalty through June 2003 ranging from 65% to 75% of revenue
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<PAGE> 10
received from the licensing of certain products to, and the receipt of
maintenance revenue attributed to those products from, the former distributor's
customers.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
The following table sets forth the Company's Condensed Consolidated
Statements of Operations expressed as percentages of total revenues for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
License revenues 47.5% 46.5% 49.3% 40.7%
Maintenance revenues 52.5 53.5 50.7 59.3
------ ------ ------ ------
Total revenues 100.0 100.0 100.0 100.0
------ ------ ------ ------
Cost of revenues
Cost of license revenues 2.8 3.6 2.4 3.4
Cost of maintenance revenues 7.8 7.2 7.8 7.9
Amortization of distribution rights 3.0 1.2 3.0 1.3
------ ------ ------ ------
Total cost of revenues 13.6 12.0 13.2 12.6
------ ------ ------ ------
Gross profit 86.4 88.0 86.8 87.4
------ ------ ------ ------
Operating expenses
Sales and marketing 34.7 33.4 33.5 33.2
Product research and development 29.2 31.4 29.3 32.6
General and administrative 10.1 11.1 10.2 11.0
------ ------ ------ ------
Total operating expenses 74.0 75.9 73.0 76.8
Operating income 12.4 12.1 13.8 10.6
Net interest and other income 3.7 3.6 3.9 3.8
------ ------ ------ ------
Income before income taxes 16.1 15.7 17.7 14.4
Provision for income taxes (6.2) (6.0) (6.8) (5.5)
------ ------ ------ ------
Net income 9.9% 9.7% 10.9% 8.9%
====== ====== ====== ======
</TABLE>
TOTAL REVENUES. Total revenues increased 13.5% from $12.6 million for the
three months ended June 30, 1998, to $14.3 million for the three months ended
June 30, 1999, and increased 23.4% from $23.1 million to $28.5 million for the
six months ended June 30, 1998 and 1999, respectively. Revenues for the
three-month period ended June 30, 1999 from mainframe products and services were
$11.9 million, an increase of 9.5% from the same period in the prior year;
revenues for the three-month period ended June 30, 1999 from client/server
products and services were $2.4 million, an increase of 40.3% from the same
period in the prior year. Revenues for the first six months of 1999 from
mainframe products and services were $23.1 million, an increase of 15.3% from
the same period in the prior year; revenues for the first six months of 1999
from client/server products and services were $5.4 million, an increase of 74.4%
from the same period in the prior year. The increase in revenues from mainframe
products and services was primarily due to new orders and to the increasing
number of conversions of existing North American customers to new or modified
license agreements, typically containing extended maintenance terms. The
increase in client/server revenues was primarily due to increased product
acceptance of the client/server products in North America.
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<PAGE> 11
International revenues for the three and six months ended June 30, 1999
were $4.2 million and $8.5 million, respectively, compared to international
revenues for the three and six months ended June 30, 1998 of $4.3 million and
$7.7 million. The decreases in international revenues during the three and six
months ended June 30, 1999 were primarily due to the lengthening of the sales
cycle as compared with the three and six-month periods ended June 30, 1998
(this lengthening of the sales cycle may be attributable to certain Year 2000
issues, as described below), the structuring of several large international
transactions as rental agreements, in which the revenue will be amortized over
the rental period, and, to a lesser extent, the decline in value of the Euro
against the US dollar.
LICENSE REVENUES. License revenues increased 16.0% from $5.8 million for
the three months ended June 30, 1998, to $6.8 million for the three months ended
June 30, 1999, and increased 49.1% from $ 9.4 million to $ 14.0 million for the
six months ended June 30, 1998 and 1999, respectively. The increases in license
revenue are due to an increase in sales to new customers and conversions of
existing North American customers to new or modified license agreements,
partially offset by a decreases in international license revenue during the
three months ended June 30, 1999 compared to the prior year period.
MAINTENANCE REVENUES. Maintenance revenues increased 11.6% from $6.7
million for the three months ended June 30, 1998 to $7.5 million for the three
months ended June 30, 1999, and increased 5.4% from $13.7 million to $14.4
million for the six months ended June 30, 1998 and 1999, respectively.
Maintenance revenues were favorably impacted by the volume of prior year's
license sales and the effects of increases in the Company's maintenance prices,
partially offset by an increase in conversions of license agreements, which
often include a higher discount on maintenance fees, and by a decrease in
international maintenance revenues due to the strengthening of the US dollar
against foreign currencies.
TOTAL COST OF REVENUES. Total cost of revenues during the three months
ended June 30, 1998 and 1999 were $1.5 million and $1.9 million, respectively,
representing 12.0% and 13.6% of total revenues. Total cost of revenues during
the six months ended June 30, 1998 and 1999 were $2.9 million and $3.8 million,
respectively, representing 12.6% and 13.2% of total revenues. Based upon current
customer service activities and the expected amounts of amortization of
capitalized software costs and distribution rights, management believes the
total cost of revenues will continue to be approximately 12% to 14% of total
revenues throughout 1999, excluding the impact that acquisitions, if any, may
have on cost of revenues.
COST OF LICENSE REVENUES. Cost of license revenues includes amortization
of capitalized software costs, product royalties, materials and packaging
expenses. Costs of license revenues were $0.4 million for the three months ended
June 30, 1998 and 1999, representing 7.6% and 6.0% of license revenues in such
periods. Costs of license revenues were $0.8 and $0.7 million for the six months
ended June 30, 1998 and 1999, respectively, representing 8.3% and 4.9% of
license revenues in such periods.
COST OF MAINTENANCE REVENUES. Cost of maintenance revenues consists of
personnel and related costs for customer support and training. Costs of
maintenance revenues were $0.9 million and $1.1 million for the three months
ended June 30, 1998 and 1999, respectively, representing 13.4% and 14.9% of
service revenues in such periods. Costs of maintenance revenues were $1.8
million and $2.2 million for the six months ended June 30, 1998 and 1999,
respectively, representing 13.3% and 15.4% of service revenues in such periods.
The increase in costs from 1998 to 1999 is primarily a result of increased
personnel in professional services for client/server products and additional
support personnel in the United Kingdom subsidiary.
AMORTIZATION OF DISTRIBUTION RIGHTS. Amortization of distribution rights is
the straight-line amortization of international distribution rights that have
been reacquired from third party resellers. Amortization of distribution rights
were $0.2 million and $0.4 million for the three months ended June 30, 1998 and
1999, respectively. Amortization of distribution rights were $0.3 million and
$0.8 million for the six months ended June 30, 1998 and 1999, respectively. The
increase in amortization of distribution rights from 1998 to 1999 is primarily
due to the amortization of intangible assets acquired in January 1999 from the
Company's former distributor in the United Kingdom.
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<PAGE> 12
SALES AND MARKETING. Sales and marketing includes personnel and related
costs for the Company's direct sales organization, marketing staff, consulting
services, and promotional expenses. Sales and marketing expenses were $4.2
million and $5.0 million for the three months ended June 30, 1998 and 1999,
respectively, representing 33.4% and 34.7% of total revenues in such periods.
Sales and marketing expenses were $7.7 million and $9.6 million for the six
months ended June 30, 1998 and 1999, respectively, representing 33.2% and 33.5%
of total revenues in such periods. The increase in sales and marketing expenses
is primarily due to an increase in personnel in the international direct sales
organization and an increase in commission expenses to the Company's direct
sales forces as a result of increased sales.
PRODUCT RESEARCH AND DEVELOPMENT. Product research and development
includes personnel and related costs for the Company's development staff.
Product research and development expenses were $3.9 million and $4.2 million for
the three months ended June 30, 1998 and 1999, respectively, representing 31.4%
and 29.2% of total revenues in such periods. Product research and development
expenses were $7.5 million and $8.3 million for the six months ended June 30,
1998 and 1999, respectively, representing 32.6% and 29.3% of total revenues in
such periods. The increase in product research and development expenses from
1998 to 1999 reflects increased investments in both mainframe and client/server
products.
GENERAL AND ADMINISTRATIVE. General and administrative includes salaries
and related costs of administration, finance and management personnel, as well
as legal and accounting fees. General and administrative expenses were $1.4
million and $1.5 million for the three months ended June 30, 1998 and 1999,
respectively, representing 11.1% and 10.1% of total revenues in such periods.
General and administrative expenses were $2.5 million and $2.9 million for the
six months ended June 30, 1998 and 1999, respectively, representing 11.0% and
10.2% of total revenues in such periods. The increase in general and
administrative expenses from 1998 to 1999 is due to an increase in personnel in
the Company's information systems department and costs associated with the
relocation of the Company's headquarters which occurred in June 1999.
NET INTEREST AND OTHER INCOME. Net interest and other income includes
interest recorded on installment receivables, interest income earned by the
Company on its excess cash balances, interest expense incurred on term and
revolving credit facilities, and exchange gains (losses) incurred by the Company
on foreign exchange transactions. Net interest and other income totaled $0.4
million and $0.5 million for the three months ended June 30, 1998 and 1999,
respectively. Net interest and other income totaled $0.9 million and $1.1
million for the three months ended June 30, 1998 and 1999, respectively. The
increase from 1998 to 1999 reflects higher levels of interest income earned by
the Company on its cash balances and lower levels of interest expense following
repayment of the outstanding balance on the Company's debt obligations during
1998.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had cash and cash equivalents of $27.1
million and working capital of $26.5 million. During the six months ended June
30, 1999, net cash provided by operating and financing activities was $2.9
million and $1.9 million, respectively, while net cash used in investing
activities was $5.7 million. The Company invests its cash in a money market
fund. The Company had no debt as of June 30, 1999, other than normal trade
payables and accrued liabilities. Stockholders' equity at June 30, 1999 was
$34.9 million.
In March 1999, the Company obtained a revolving line of credit in the
amount of $10.0 million. The line of credit, which was granted on an unsecured
basis, has a floating interest rate of LIBOR plus 1.35% and expires June 30,
2000. No advances have been made on the line of credit.
The Company continues to finance its growth through funds generated from
operations. For the six months ended June 30, 1999, cash flow from operations
was $2.9 million. Beginning in December 1998 and continuing in 1999, the Company
has sold unbilled accounts receivable, on a non-recourse basis, to augment its
operating cash flows. In June 1999, the Company sold $2.6 million of unbilled
accounts receivable; in March 1999, the Company sold $3.0 million of unbilled
accounts receivable. These sales of the unbilled receivables resulted in an
immaterial gain for the Company. In the future, the Company may sell additional
unbilled accounts receivable from time to time
-12-
<PAGE> 13
depending on the Company's cash flow requirements and whether the terms are
financially acceptable for the Company.
The Company's investing activities primarily include expenditures for
fixed assets in support of the Company's product development activities and
infrastructure, and for capitalized software development costs. During the six
months ended June 30, 1999, the Company invested $1.7 million in fixed assets,
consisting primarily of computer equipment to expand and upgrade the Company's
development activities and furniture and fixtures for the Company's new
headquarters facility.
In January 1999, the Company signed an agreement to acquire certain rights
and related assets from Software Products Ltd. ("Software Products"), a former
international distributor of the Company's products. As a result of the
agreement, the Company regained direct access to its mainframe customers in the
United Kingdom. As consideration for the acquisition of these rights, the
Company paid Software Products $4.0 million in cash. As further consideration,
the Company issued to Software Products 91,586 shares of Company common stock,
with a fair value of $850,000 and subject to certain resale restrictions and
registration rights. Additionally, the Company granted Software Products a
warrant to purchase 150,000 shares of the Company's common stock at the then
fair market value of $10 per share, which vested upon issuance and expires in
January 2009. The Company recorded the acquisition of the customer base as an
intangible asset representing the cash payment and the fair value of the stock
and warrant issued. The Company will amortize the intangible asset into cost of
license revenues over five years. Management believes the transaction will be
accretive in 1999.
The Company believes that cash and cash equivalents at June 30, 1999, cash
flow generated from operations and the line of credit will provide sufficient
liquidity to meet its needs for at least the next twelve months. To the extent
the Company makes acquisitions of other companies, products or technologies, the
Company may use working capital, sell or issue additional equity or debt
securities or use credit facilities.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1998, the American Institute of Certified Public Accountants
(the "AICPA") issued Statement of Position (SOP) 98-9, "Modification of SOP
97-2, Software Revenue Recognition, With Respect to Certain Transactions." SOP
98-9 modifies SOP 97-2 by requiring revenue to be recognized using the "residual
method" if certain conditions exist. SOP 98-9 will be effective for the
Company's 2000 financial statements. Management is evaluating various pricing
alternatives and strategies to determine their possible impact on revenue
recognition upon adoption of SOP 98-9.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 became
effective January 1, 1999. The adoption of SOP 98-1 did not have a material
impact on the Company's results of operations or financial condition.
YEAR 2000 COMPLIANCE
The Company has conducted periodic evaluations of its computer systems and
products in an effort to determine the actions, if any, necessary to make them
Year 2000 compliant. The term "Year 2000 compliant" (or similar terms) generally
means that information technology hardware and software are able to correctly
interpret and manipulate dates up to and through the year 2000, without
interruption as the result of the change to this date.
These evaluations have involved both testing the Company's computer
systems and requesting certifications from its vendors. The Company has received
vendor certification that all of its business critical information technology
systems, including internal communication systems, accounting and finance
systems, customer service systems and sales and marketing tracking systems, are
Year 2000 compliant. Based upon its evaluation, the Company has determined that
approximately eighty-five percent of its information technology systems are
Year 2000 compliant, but has also found that certain non-business critical
software applications may not be compliant. The
-13-
<PAGE> 14
Company is engaged in upgrading, replacing and testing these applications, and
this process is expected to be completed during the third quarter of 1999.
The Company also recognizes that there are risks with respect to embedded
systems that are not necessarily a part of the Company's information technology
systems but contain microprocessor chips, which may not function properly with
the change of date to the year 2000. The majority of the embedded systems on
which the Company relies in its day-to-day operations are owned and managed by
the lessors of the buildings in which the Company's offices are located, or by
agents of such lessors. During the second quarter of 1999, the Company moved its
headquarters to a new facility, containing new mechanical systems, in Reston,
Virginia. The Company believes that the new mechanical systems will be Year 2000
compliant, based on its building construction manager's experience with other
such systems, and certain representations made by the manufacturers of such
systems. The Company intends to seek certificates from these manufacturers that
their systems are Year 2000 compliant. Additionally, the Company is installing a
new telephone switch in the new facility, and a Year 2000 compliancy certificate
has been received from the switch's manufacturer.
Because the Company believes that its information technology and embedded
systems will be substantially Year 2000 compliant in advance of the year 2000
date change, the Company currently has no contingency plan to address
non-compliance. The Company expects that, as it completes testing of information
technology and embedded systems, it will develop contingency plans if it
determines that any business critical systems will not be Year 2000 compliant.
Disruptions with respect to the computer systems of vendors or customers,
which are outside the control of the Company, could impair the ability of the
Company to obtain services from or conduct business with its customers. The
Company believes that its primary exposure is with respect to public utilities
and telecommunications service providers. The Company is in the process of
sending letters to these providers requesting written certification of Year 2000
compliance. Disruptions of the Company's utilities or telecommunications systems
could have a material adverse effect upon the Company's financial condition and
results of operations. The Company believes that no other providers are material
to its business. Disruptions of customers' computer systems could interfere with
payments to the Company by such customers, and therefore with the Company's
ability to make timely payments on its accounts, and could otherwise cause
disruptions to the Company's operations. None of the Company's customers,
however, is individually material to the Company's business and the Company does
not presently intend to seek certifications from its customers that their
internal computer systems are Year 2000 compliant.
With respect to the products sold by the Company, the Company has
determined that, with certain exceptions described below, to the extent that
underlying hardware platforms, operating systems applications and databases will
accommodate the year 2000 date change, the Company's performance management
software products are Year 2000 compliant. The Company is specifically aware
that CICS Version 2, Release 1.2, an operating system developed and marketed by
the IBM Corporation is not presently Year 2000 compliant, according to IBM, and
that the Company's The Monitor for CICS/MVS Version 8.3 product, since it
operates with such non-compliant IBM product, is therefore also non-compliant.
The Company has been communicating this non-compliancy situation to its
customers by written, oral and electronic (e-mail and the Company's web site)
communications since 1997. The expected reduced sales of this product are not
expected to have a material adverse effect on the Company's results of
operations or financial condition.
The other exceptions to the Company's general condition of Year 2000
product compliance are: (1) some Company product customers may be operating
older, non-compliant versions of certain of the Company's products, and also may
not be active participants in product maintenance programs that periodically
provide in the normal course of business (at no additional charge beyond the
on-going costs of program participation) newer product versions or product
modifications that address Year 2000 non-compliancy issues and specifically make
such products Year 2000 compliant (the "Older Product Scenario"); (2) the
Company discovered last quarter that its NaviGraph product, version 1.3 requires
a product addition to make it Year 2000 compliant (the "NaviGraph Scenario");
and (3) the Company recently discovered that its SmartAgent for Oracle product
requires a product addition to make it Year 2000 compliant (the "SmartAgent for
Oracle Scenario").
-14-
<PAGE> 15
With respect to the Older Product Scenario, the majority (on an absolute
basis) of the Company's products were made Year 2000 compliant during 1997.
Certain other Company products, specifically The Monitor for DB Control, The
Monitor for MQ Series and NaviPlex products, were made Year 2000 compliant
during 1998. Additionally, those customers on active product maintenance
programs (and approximately 90% of the Company's customers participate in such
programs) receive regular product upgrades or modifications that include
software that addresses Year 2000 compliancy issues. The Company encourages all
its customers to participate in active maintenance programs. The Company has
been communicating this Older Product Scenario issue to customers through
written, oral and electronic (e-mail and the Company's web site) communications
and will continue to do so past the Year 2000 date change.
With respect to the NaviGraph Scenario, the product addition required to
make this product Year 2000 compliant was made generally available to all
NaviGraph customers participating in active maintenance programs during late
April 1999. The Company had previously communicated to its customers and to
third parties, beginning in 1997, that NaviGraph 1.3 was Year 2000 compliant. Of
the approximately 46 domestic NaviGraph 1.3 customers, 41 of such customers
participate in the maintenance program for the product, and 4 of the remaining 5
customers no longer use the product. Of the approximately 142 international
NaviGraph customers (version 1.3 and prior versions, which prior versions have
consistently been described by the Company as not Year 2000 compliant) 113 of
such customers participate in the maintenance program for the products. The
Company does not know how many of those international NaviGraph product
customers not participating in an active maintenance program are no longer using
the product. Accordingly, the large majority of domestic NaviGraph 1.3 and
international NaviGraph 1.3 (and previous version) customers who have elected to
participate in active maintenance programs are, or will be made, Year 2000
compliant with respect to such products in the normal course of business,
assuming they accept and implement such normal product maintenance.
Additionally, NaviGraph 2.0, which is Year 2000 compliant, is targeted to be
released in August 1999, and will be made available to NaviGraph 1.3 customers
that are on, or wish to join, active maintenance programs. The Company intends
to contact all NaviGraph 1.3 product customers to alert them that Year 2000
compliancy issues may be present and to inform them of their options.
With respect to the SmartAgent for Oracle Scenario, the product addition
required to make this product Year 2000 compliant was made generally available
to all SmartAgent for Oracle customers participating in active maintenance
programs during early August 1999. The Company had previously communicated to
its customers and to third parties, beginning in 1997, that SmartAgent for
Oracle was Year 2000 compliant. Of the approximately 22 domestic SmartAgent for
Oracle customers, 11 of such customers participate in the maintenance program
for the product. The Company does not know how many of those domestic SmartAgent
for Oracle customers not participating in an active maintenance program are no
longer using the product. Of the approximately 65 international SmartAgent for
Oracle customers, approximately 60 of such customers participate in the
maintenance program for the products. The Company does not know how many of
those international SmartAgent for Oracle customers not participating in an
active maintenance program are no longer using the product. Accordingly,
approximately one half of domestic SmartAgent for Oracle and a large majority of
international SmartAgent for Oracle customers who have elected to participate in
active maintenance programs are, or will be made, Year 2000 compliant with
respect to such products in the normal course of business, assuming they accept
and implement such normal product maintenance. Year 2000 product additions have
been made available for all versions (1.x, 2.x, and 3.0) of SmartAgent for
Oracle. SmartAgent for Oracle 3.0 becomes Year 2000 compliant when used in
conjunction with Service Pack 2, which was made available in early August 1999.
Year 2000 product additions (replacement binaries) for all previous versions
(1.x, 2.x) have been made available to SmartAgent for Oracle customers that are
on, or wish to join, active maintenance programs. The Company intends to contact
all SmartAgent for Oracle product customers to alert them that Year 2000
compliancy issues may be present and to inform them of their options.
Notwithstanding its efforts to attempt to ensure that its products are
Year 2000 compliant, the Company may experience future uncertainties and
problems relating to the year 2000 date change issue, including but not limited
to possible technical problems and/or customer claims. The Company intends to
conduct additional tests for
-15-
<PAGE> 16
its mainframe and client/server products, and is also aware that certain of its
customers have been and will be conducting additional Year 2000 Company product
compliancy tests, and it is possible that additional Company product Year 2000
compliancy issues could be discovered in the future, including during the
course of such tests.
The Company anticipates that virtually all of its customers and potential
customers will be required to evaluate their information technology systems with
respect to the year 2000 date change and that some of its customers and
potential customers may incur material costs in connection with this evaluation
and any necessary repairs and replacements. Customers and potential customers
may be required to devote material portions of their information technology
budgets to such evaluations, repairs and replacements, which could materially
reduce their other information technology purchases in 1999, including their
purchases of the Company's products, particularly as the year 2000 date change
draws closer. The Company has very limited information as to the degree to which
its customers or potential customers have completed Year 2000 remediation
efforts or whether or not its customers or potential customers are Year 2000
compliant. However, during the second quarter the Company has experienced a
lengthening of the sales cycle due to, among other things, possible Year 2000
issues.
The Company has incurred approximately $0.1 million, $0.1 million and $0.2
million in the three months ended June 30, 1999 and the years ended December 31,
1998 and 1997, respectively, for Year 2000 remediation activities. The Company
currently expects to incur less than $0.1 million during the remainder of 1999
for Year 2000 remediation activities. There can be no assurance that the actions
taken by the Company with respect to its internal information technology
systems, embedded systems or its products will eliminate the numerous and varied
risks associated with the year 2000 date change. Further, there can be no
assurance that the Company will not be adversely affected by any year 2000
related difficulties encountered by vendors or customers or by any downturn in
information technology purchases or in the economy in general as the year 2000
date change draws nearer, or after such date change. Additionally, the effects
of any actual Year 2000 non-compliance problem directly or indirectly
experienced by the Company could be exacerbated by the fact that the Company
normally experiences its largest quarterly sales for a given calendar year in
the fourth quarter of each year, and invoices and receives payment for such
sales in the first quarter of the following calendar year. Accordingly, should a
Year 2000 non-compliance problem or problems affect the Company's customers, the
potential impact on the Company's operations could be greater than if the
Company received these payments at the time of sale or some time other than the
calendar quarter immediately after the date switch from 1999 to 2000. Any of
these risks could have a material adverse effect on the Company's financial
condition and results of operations.
CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE LITIGATION REFORM ACT OF 1995
Some of the statements in this Form 10-Q are "forward-looking" within the
meaning of the Private Securities Litigation Reform Act of 1995 and are related
to anticipated future operating results. Specifically, the following may be
impeded by events that have not been presently anticipated: the sale of unbilled
accounts receivable, the Company's ability to make its acquisitions accretive,
the Company's ability to sell or issue equity or debt securities or to enter
into credit facilities on acceptable terms and the Company's ability to increase
license revenues, maintain the level of maintenance renewal rates and limit
total cost of sales. Forward-looking statements are based on management's
current expectations and assumptions, which may be affected by a number of
factors, including, without limitation, a lengthening of the sales cycle
possibly attributable to Year 2000 issues and/or other timing issues,
competitive product introductions, price competition, the Company's ability to
consummate license transactions as anticipated, any failure or delay in the
Company's ability to develop and introduce new products, seasonal factors
affecting the Company's sales, the Company's ability to attract and retain
qualified technical, sales, managerial and other key personnel, the Company's
ability to manage expenses effectively, the recent introduction and subsequent
fluctuations in value of the Euro currency, the "Year 2000" software and
systems issue, and other factors detailed herein and in the Company's other
filings with the Securities and Exchange Commission, including the Company's
Annual Report on Form 10-K for the year ended December 31, 1998. Therefore,
there can be no assurance that actual future results will not differ materially
from anticipated results.
-16-
<PAGE> 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has subsidiaries in the United Kingdom, Germany, France, The
Netherlands, Sweden, Spain, Australia, Hong Kong and Singapore that act as
distributors of its products. Additionally, the Company uses third party
distributors to market and distribute its products in other international
regions. Transactions conducted by the subsidiaries are typically denominated in
the local country currency, while royalty payments from the distributors are
typically denominated in U.S. dollars. As a result, the Company is primarily
exposed to foreign exchange rate fluctuations as the financial results of its
subsidiaries are translated into U.S. dollars in consolidation. As exchange
rates vary, these results, when translated, may vary from expectations and
impact overall expected profitability. Through and as of June 30, 1999, the
Company's exposure was not material to the overall financial statements taken as
a whole. The Company has not entered into any foreign currency hedging
transactions with respect to its foreign currency market risk.
The Company's exposure to market risk for changes in interest rates
relates primarily to unbilled accounts receivable. At June 30, 1999, the
Company has $13.5 million of unbilled accounts receivable; the estimated fair
market value of these receivables is $13.0 million. If market interest rates
increase 10% from the levels at June 30, 1999, the fair market value of the
unbilled accounts receivable would decline by an immaterial amount.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) The net proceeds to the Company from the initial public offering
(SEC File No. 333-35629 effective November 18, 1997) were
approximately $12 million and have been deposited by the Company
in a money market fund.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Stockholders was held on May 11, 1999 at the
Company's then headquarters, 8000 Towers Crescent Drive, Vienna, Virginia.
<TABLE>
<CAPTION>
1. PROPOSAL ONE - Election of directors
Nominees: For Withheld
---------- --------
<S> <C> <C>
Patrick H. McGettigan 10,740,318 8,500
Katherine K. Clark 10,740,318 8,500
Ralph E. Alexander 10,740,318 8,500
Jeffrey H. Bergman 10,740,318 8,500
T. Eugene Blanchard 10,740,318 8,500
Patrick W. Gross 10,740,318 8,500
Sudhakar V. Shenoy 10,740,318 8,500
</TABLE>
-17-
<PAGE> 18
2. PROPOSAL TWO - Approval of an amendment to the 1994 Stock
Incentive Plan to increase by 1,500,000 the number of shares
authorized for issuance thereunder
<TABLE>
<S> <C>
For 8,519,564
Against 969,754
Abstain 14,058
</TABLE>
3. PROPOSAL THREE - Ratification of selection of
PricewaterhouseCoopers LLP as independent accountants
<TABLE>
<S> <C>
For 10,745,474
Against 2,255
Abstain 1,088
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation (incorporated by reference to
Exhibit 3.1 forming a part of the Company's registration
statement on Form S-1 (File No. 333-35629) filed with the
Securities and Exchange Commission under the Securities Act
of 1933, as amended.)
3.2 Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 forming a part of the Company's registration
statement on Form S-1 (File No. 333-35629) filed with the
Securities and Exchange Commission under the Securities Act
of 1933, as amended.)
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Specimen certificate of Common Stock (incorporated by
reference to Exhibit 4.2 forming a part of the Company's
registration statement on Form S-1 (File No. 333-35629)
filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended.)
10.1 Employment agreement between the Company and Ralph E.
Alexander dated April 9, 1997 (incorporated by reference to
Exhibit 10.1 forming a part of the Company's registration
statement on Form S-1 (File No. 333-35629) filed with the
Securities and Exchange Commission under the Securities Act
of 1933, as amended.)
10.2 1989 Stock Incentive Plan (incorporated by reference to
Exhibit 10.2 forming a part of the Company's registration
statement on Form S-1 (File No. 333-35629) filed with the
Securities and Exchange Commission under the Securities Act
of 1933, as amended.)
10.3 1991 Employee Stock Purchase Plan (incorporated by reference
to Exhibit 10.3 forming a part of the Company's registration
statement on Form S-1 (File No. 333-35629) filed with the
Securities and Exchange Commission under the Securities Act
of 1933, as amended.)
10.4 1992 Executive Stock Incentive Plan (incorporated by
reference to Exhibit 10.4 forming a part of the Company's
registration statement on Form S-1 (File No. 333-35629)
filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended.)
10.5 1994 Stock Incentive Plan, as amended (incorporated by
reference to Exhibit 10.5 forming a part of the Company's
Quarterly Report on Form 10-Q for the period ended March 31,
-18-
<PAGE> 19
1999 (File No. 0-23373) filed with the Securities and
Exchange Commission under the Securities Act of 1934, as
amended.)
10.6 1996 Advisory Board and directors Stock Incentive Plan
(incorporated by reference to Exhibit 10.6 forming a part of
the Company's registration statement on Form S-1 (File No.
333-35629) filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended.)
10.7 1998 Employee Stock Purchase Plan, as amended (incorporated
by reference to Exhibit 10.7 forming a part of the Company's
Quarterly Report on Form 10-Q for the period ended March 31,
1999 (File No. 0-23373) filed with the Securities and
Exchange Commission under the Securities Act of 1934, as
amended.)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the second
quarter of 1999.
-19-
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LANDMARK SYSTEMS CORPORATION
Date: August 16, 1999 By: /s/ Ralph E. Alexander
----------------------
Ralph E. Alexander
President and Chief Operating Officer
(Duly Authorized Officer)
Date: August 16, 1999 By: /s/ Frederick S. Rolandi, III
-----------------------------
Frederick S. Rolandi, III
Vice President and Chief Financial Officer
(Chief Accounting Officer)
-20-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 27,145,131
<SECURITIES> 0
<RECEIVABLES> 13,737,957
<ALLOWANCES> 1,112,752
<INVENTORY> 0
<CURRENT-ASSETS> 49,314,842
<PP&E> 17,616,983
<DEPRECIATION> 12,620,867
<TOTAL-ASSETS> 67,601,277
<CURRENT-LIABILITIES> 22,837,074
<BONDS> 0
0
0
<COMMON> 123,733
<OTHER-SE> 34,754,901
<TOTAL-LIABILITY-AND-EQUITY> 67,601,277
<SALES> 14,039,020
<TOTAL-REVENUES> 28,477,102
<CGS> 681,115
<TOTAL-COSTS> 3,752,811
<OTHER-EXPENSES> 20,796,525
<LOSS-PROVISION> (127,456)
<INTEREST-EXPENSE> 8,313
<INCOME-PRETAX> 5,035,885
<INCOME-TAX> 1,926,226
<INCOME-CONTINUING> 3,109,659
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,109,659
<EPS-BASIC> 0.26<F1>
<EPS-DILUTED> 0.24
<FN>
<F1>This amount is reported as EPS BASIC.
</FN>
</TABLE>
