<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 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
November 1, 1999:
Class Number of Shares Outstanding
-------------------------------------- ----------------------------
Common Stock, par value $.01 per share 12,771,806
1
<PAGE> 2
LANDMARK SYSTEMS CORPORATION
QUARTER ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Statements of Operations for the three
and nine months ended September 30, 1999 (restated and unaudited) and
September 30, 1998 (restated and unaudited) 4
Condensed Consolidated Balance Sheets as of September 30, 1999 (restated and unaudited)
and December 31, 1998 5
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 (restated and unaudited) and September 30, 1998 (restated and unaudited) 6
Notes to Condensed Consolidated Financial Statements (restated and unaudited) 7-10
Item 2. Management's Discussion and Analysis of Results of Operations and Financial
Condition (restated) 10-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18-19
SIGNATURES 20
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements set forth below for the
three and nine-month periods ended September 30, 1999 and 1998 are restated and
unaudited, and have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (see Note 1). 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 these
financial statements present fairly the financial position, results of
operations and cash flows for the periods presented. The results for the three
and nine-month periods ended September 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/A for
the year ended December 31, 1998).
3
<PAGE> 4
LANDMARK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(RESTATED AND UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------- ----------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues
License revenues $ 5,606,778 $ 5,380,650 $ 18,843,477 $ 13,988,713
Maintenance revenues 7,394,495 6,988,378 22,280,969 20,824,552
--------------- --------------- --------------- ---------------
Total revenues 13,001,273 12,369,028 41,124,446 34,813,265
--------------- --------------- --------------- ---------------
Cost of revenues
Cost of license revenues 356,600 111,947 1,037,715 893,246
Cost of maintenance revenues 1,168,089 878,036 3,392,552 2,698,404
Amortization of distribution rights 424,197 153,999 1,271,429 461,997
--------------- --------------- --------------- ---------------
Total cost of revenues 1,948,886 1,143,982 5,701,696 4,053,647
--------------- --------------- --------------- ---------------
Gross profit 11,052,387 11,225,046 35,422,750 30,759,618
--------------- --------------- --------------- ---------------
Operating expenses
Sales and marketing 5,355,794 3,954,518 14,923,380 11,623,826
Product research and development 4,168,596 3,950,492 12,502,270 11,496,209
General and administrative 1,503,313 1,489,700 4,398,578 4,026,776
--------------- --------------- --------------- ---------------
Total operating expenses 11,027,703 9,394,710 31,824,228 27,146,811
--------------- --------------- --------------- ---------------
Operating income 24,684 1,830,336 3,598,522 3,612,807
Interest and other income, net 461,670 474,340 1,569,789 1,357,627
--------------- --------------- --------------- ---------------
Income before taxes 486,354 2,304,676 5,168,311 4,970,434
Provision for income taxes 186,027 881,538 1,976,875 1,901,190
--------------- --------------- --------------- ---------------
Net income $ 300,327 $ 1,423,138 $ 3,191,436 $ 3,069,244
=============== =============== =============== ===============
Earnings per share
Basic $ 0.02 $ 0.12 $ 0.26 $ 0.27
Diluted $ 0.02 $ 0.11 $ 0.24 $ 0.25
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
LANDMARK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------------ -----------------
(RESTATED AND UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 30,449,871 $ 28,322,234
Accounts receivable, net of allowance for doubtful
accounts of $1,011,000 and $1,323,000 10,395,528 10,902,168
Unbilled accounts receivable 6,133,399 5,728,250
Other current assets 3,706,667 2,498,564
--------------- ---------------
Total current assets 50,685,465 47,451,216
Unbilled accounts receivable - noncurrent 7,125,371 5,486,240
Fixed assets, net 5,194,347 4,121,290
Capitalized software costs, net 249,467 257,722
Intangible assets, net 4,747,731 616,000
Other assets 1,396,948 1,374,427
--------------- ---------------
Total assets $ 69,399,329 $ 59,306,895
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,576,119 $ 5,529,872
Deferred revenue 18,617,447 17,723,807
--------------- ---------------
Total current liabilities 21,193,566 23,253,679
Deferred revenue - noncurrent 11,888,972 8,900,963
Other liabilities 281,676 323,212
--------------- ---------------
Total liabilities 33,364,214 32,477,854
--------------- ---------------
Stockholders' equity:
Common stock, $0.01 par value, 30,000,000
Shares authorized, 12,759,995 and
11,782,585 issued and outstanding 127,600 117,826
Additional paid-in capital 32,923,902 26,692,818
Retained earnings (deficit) 3,072,890 (118,534)
Accumulated other comprehensive income (loss) (89,277) 136,931
--------------- ---------------
Total stockholders' equity 36,035,115 26,829,041
--------------- ---------------
Total liabilities and stockholders' equity $ 69,399,329 $ 59,306,895
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
LANDMARK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(RESTATED AND UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 3,191,436 $ 3,069,244
Adjustments to reconcile net income to net
cash flows from operations:
Depreciation and amortization 2,497,842 1,907,793
Provision for deferred income taxes - (538,411)
Tax benefit from the exercise of stock options 1,422,511 701,759
Sale of unbilled accounts receivable 7,063,764 -
Changes in working capital (8,552,319) (1,299,213)
--------------- ---------------
Net cash provided by operating activities 5,623,234 3,841,172
--------------- ---------------
Cash flows from investing activities
Acquisition of distribution rights (4,496,842) (395,385)
Capital expenditures (2,291,218) (1,535,389)
--------------- ---------------
Net cash used in investing activities (6,788,060) (1,930,774)
--------------- ---------------
Cash flows from financing activities
Principal payments on loans - (401,126)
Proceeds from sale of common stock 3,428,348 1,670,704
--------------- ---------------
Net cash provided by financing activities 3,428,348 1,269,578
Effect of exchange rate changes on cash (135,885) 38,979
--------------- ---------------
Net increase in cash and cash equivalents 2,127,637 3,218,955
Cash and cash equivalents, beginning of period 28,322,234 17,242,681
--------------- ---------------
Cash and cash equivalents, end of period $ 30,449,871 $ 20,461,636
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
LANDMARK SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(RESTATED AND UNAUDITED)
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/A.
In late 1999 and early 2000, the Division of Corporation Finance of the
Securities and Exchange Commission ("SEC") conducted a review of the Company's
accounting policies. Concurrent with the SEC review, the Company concluded it
should restate 1998 and 1999 interim results to reclassify a portion of
previously reported license revenue to deferred maintenance revenue that will be
recognized over the term of the related maintenance agreement. As a result, the
aggregate deferred revenue will more closely approximate the estimated fair
value of the Company's maintenance obligation to its customers. The Company
believes this restatement demonstrates that recorded license revenues reflect
"vendor specific objective evidence." The reclassification resulted in a net
deferral of approximately $1,826,000, $99,000 and $453,000 of revenues that had
been previously recognized in 1998, in the current period and in the year to
date periods of 1999, respectively. The financial statements contained herein
reflect these adjustments. A summary of the impact of the restatements follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
Previously As Previously As
Reported Restated Reported Restated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Results of Operations
- ---------------------
License revenues $ 5,961,339 $ 5,606,778 $ 5,912,209 $ 5,380,650
Maintenance revenues 7,139,165 7,394,495 6,899,785 6,988,378
Total revenues 13,100,504 13,001,273 12,811,994 12,369,028
Income before taxes 585,585 486,354 2,747,642 2,304,676
Provision for income taxes 223,983 186,027 1,050,972 881,538
Net income 361,602 300,327 1,696,670 1,423,138
Diluted earnings per share $ 0.03 $ 0.02 $ 0.14 $ 0.11
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C> <C> <C>
Financial Position
- ------------------
Total assets $69,399,329 $69,399,329 $59,306,895 $59,306,895
Accounts payable and accrued expenses 3,437,022 2,576,119 6,217,441 5,529,872
Deferred revenue 17,824,834 18,617,447 17,088,814 17,723,807
Total current liabilities 21,261,856 21,193,566 23,306,255 23,253,679
Deferred revenue - noncurrent 10,402,819 11,888,972 7,710,350 8,900,963
Stockholders' equity 37,452,978 36,035,115 27,967,078 26,829,041
</TABLE>
7
<PAGE> 8
NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS
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 for 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
plans to adopt SOP 98-9 on January 1, 2000 and believes the adoption will not
have a material effect on the Company's financial condition or results of
operations.
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.
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 nine months ended
September 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
(RESTATED) (RESTATED)
---------- ------------- ----------
<S> <C> <C> <C>
For the three months ended September 30, 1999
Basic earnings per share $ 300,327 12,601,102 $0.02
=====
Effect of dilutive securities
Stock options and warrants - 584,572
-------------- ------------
Diluted earnings per share $ 300,327 13,185,674 $0.02
============== ============ =====
For the three months ended September 30, 1998
Basic earnings per share $ 1,423,138 11,566,262 $0.12
=====
Effect of dilutive securities
Stock options and warrants - 859,198
-------------- ------------
Diluted earnings per share $ 1,423,138 12,425,460 $0.11
============== ============ =====
For the nine months ended September 30, 1999
Basic earnings per share $ 3,191,436 12,286,879 $0.26
=====
Effect of dilutive securities
Stock options and warrants - 820,212
-------------- ------------
Diluted earnings per share $ 3,191,436 13,107,091 $0.24
============== ============ =====
For the nine months ended September 30, 1998
Basic earnings per share $ 3,069,244 11,417,763 $0.27
=====
Effect of dilutive securities
Stock options and warrants - 881,037
-------------- ------------
Diluted earnings per share $ 3,069,244 12,298,800 $0.25
============== ============ =====
</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 September 30,
1999 and 1998 was $449,166 and $1,464,855, respectively. Total comprehensive
income for the nine months ended September 30, 1999 and 1998 was $2,965,227 and
$3,108,244, respectively.
8
<PAGE> 9
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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------- -------------------------------------------
1999 1998 1999 1998
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Mainframe $ 10,977,996 $ 10,606,880 $ 33,746,781 $ 29,981,388
Client/server 2,023,277 1,762,148 7,377,665 4,831,877
--------------- --------------- --------------- ---------------
Total revenues $ 13,001,273 $ 12,369,028 $ 41,124,446 $ 34,813,265
=============== =============== =============== ===============
</TABLE>
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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------- --------------------------------------------
1999 1998 1999 1998
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
United States $ 8,815,014 $ 8,234,223 $ 28,425,753 $ 22,956,397
Germany 835,790 847,953 2,733,111 3,035,935
United Kingdom 710,406 602,080 1,920,832 1,809,077
The Netherlands 294,821 473,088 1,481,416 1,446,157
Other European countries 472,954 556,046 1,360,987 1,252,544
Japan 511,857 545,972 1,524,164 1,309,775
Australia 626,911 385,048 1,419,504 1,125,915
Other 733,520 724,618 2,258,679 1,877,465
--------------- --------------- --------------- ---------------
Total revenues $ 13,001,273 $ 12,369,028 $ 41,124,446 $ 34,813,265
=============== =============== =============== ===============
</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:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------
1999 1998
---------------- --------------
<S> <C> <C>
United States $ 9,891,191 $ 4,761,699
Europe 244,199 179,449
Other 56,155 53,864
---------------- --------------
Total long-lived assets $ 10,191,545 $ 4,995,012
================ ==============
</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 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 Scandinavian distribution rights, the Company will pay the former
distributor a royalty through June 2003 ranging from 65% to 85% of revenue
received from the licensing of certain products to, and the receipt of
maintenance revenue attributed to those products from, the former distributor's
customers.
9
<PAGE> 10
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 October 1999, the Company acquired the distribution rights for its mainframe
products from its international distributor in France. Under terms of the
agreement to acquire the distribution rights, the Company paid the former
distributor $1.2 million. Additionally, the Company granted the former
distributor a warrant to purchase 100,000 shares of Company common stock at the
then fair market value of $7.50 per share, which vested upon issuance and
expires in October 2002. The Company will record the acquisition of the customer
base as an intangible asset representing the cash payment and the fair value of
the warrant issued, and will amortize the intangible asset over a five-year
period.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
In late 1999 and early 2000, the Division of Corporation Finance of the
Securities and Exchange Commission ("SEC") conducted a review of the Company's
accounting policies. Concurrent with the SEC review, the Company concluded it
should restate 1998 and 1999 interim results to reclassify a portion of
previously reported license revenue to deferred maintenance revenue that will be
recognized over the term of the related maintenance agreement. As a result, the
aggregate deferred revenue will more closely approximate the estimated fair
value of the Company's maintenance obligation to its customers. The Company
believes this restatement demonstrates that recorded license revenues reflect
"vendor specific objective evidence." The reclassification resulted in a net
deferral of approximately $1.8 million, $0.1 million and $0.5 million of
revenues that had been previously recognized in 1998, in the current period and
in the year to date periods of 1999, respectively. The financial statements
contained herein reflect these adjustments.
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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------- -------------------------------------
1999 1998 1999 1998
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
License revenues 43.1% 43.5% 45.8% 40.2%
Maintenance revenues 56.9 56.5 54.2 59.8
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of revenues
Cost of license revenues 2.7 0.9 2.5 2.6
Cost of maintenance revenues 9.0 7.1 8.3 7.7
Amortization of distribution rights 3.3 1.2 3.1 1.3
----- ----- ----- -----
Total cost of revenues 15.0 9.2 13.9 11.6
----- ----- ----- -----
Gross profit 85.0 90.8 86.1 88.4
----- ----- ----- -----
Operating expenses
Sales and marketing 41.1 32.0 36.3 33.4
Product research and development 32.1 31.9 30.4 33.0
General and administrative 11.6 12.1 10.7 11.6
----- ----- ----- -----
Total operating expenses 84.8 76.0 77.4 78.0
Operating income 0.2 14.8 8.7 10.4
Net interest and other income 3.5 3.8 3.9 3.9
----- ----- ----- -----
Income before income taxes 3.7 18.6 12.6 14.3
Provision for income taxes (1.4) (7.1) (4.8) (5.5)
----- ----- ----- -----
Net income 2.3% 11.5% 7.8% 8.8%
===== ===== ===== =====
</TABLE>
TOTAL REVENUES. Total revenues increased 5.1% from $12.4 million for the
three months ended September 30, 1998, to $13.0 million for the three months
ended September 30, 1999, and increased 18.1% from $34.8 million to $41.1
million for the nine months ended September 30, 1998 and 1999, respectively.
Revenues for the three-month period ended September 30, 1999 from mainframe
products and services were $11.0 million, an increase of 3.5% from the same
period in the prior year; revenues for the three-month period ended September
30, 1999 from client/server products and services were $2.0 million, an increase
of 14.8% from the same period in the prior year.
Revenues for the first nine months of 1999 from mainframe products and
services were $33.7 million, an increase of 12.6% from the same period in the
prior year; revenues for the first nine months of 1999 from client/server
products and services were $7.4 million, an increase of 52.7% from the same
period in the prior year. Revenues for the three-months ended September 30, 1999
from mainframe products and services remained relatively level from the prior
year period and decreased 8.3% from the three months ended June 30, 1999. During
the three months ended September 30, 1999, the Company experienced a slowdown in
sales due to the lengthening of the sales cycle (this lengthening of the sales
cycle may be attributable to certain Year 2000 issues, as described below, and
to the greater time required to consummate more complex and higher dollar
transactions). In an effort to shorten the sales cycle and improve its order
close rate, the Company introduced a more focused direct sales approach in
October 1999. The Company intends to monitor the results of this sales approach
to determine its impact on the sales cycle and order close rate; however, the
lengthening of the sales cycle due to Year 2000 issues may continue through at
least the first quarter of 2000.
11
<PAGE> 12
LICENSE REVENUES. License revenues increased 4.2% from $5.4 million for the
three months ended September 30, 1998, to $5.6 million for the three months
ended September 30, 1999, and increased 34.7% from $14.0 million to $18.8
million for the nine months ended September 30, 1998 and 1999, respectively. The
slight increase in license revenue for the three months ended September 30, 1999
is due to a 7.1% increase in license revenues in North America, offset by a 5.0%
decrease in international license revenues. The increases in license revenue for
the nine months ended September 30, 1999 are primarily due to an increase in
sales to new customers and conversions of existing North American customers to
new or modified license agreements.
MAINTENANCE REVENUES. Maintenance revenues increased 5.8% from $7.0 million
for the three months ended September 30, 1998 to $7.4 million for the three
months ended September 30, 1999, and increased 7.0% from $20.8 million to $22.3
million for the nine months ended September 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.
TOTAL COST OF REVENUES. Total cost of revenues during the three months
ended September 30, 1998 and 1999 were $1.1 million and $1.9 million,
respectively, representing 9.2% and 15.0% of total revenues. Total cost of
revenues during the nine months ended September 30, 1998 and 1999 were $4.1
million and $5.7 million, respectively, representing 11.6% and 13.9% of total
revenues. The increase in cost of revenues is primarily due to an increase in
amortization of software development costs during the third quarter.
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 $0.1 and $0.4 million for the three months ended
September 30, 1998 and 1999, respectively, representing 2.1% and 6.4% of license
revenues in such periods. Costs of license revenues were $0.9 million and $1.0
million for the nine months ended September 30, 1998 and 1999, respectively,
representing 6.4% and 5.5% 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 $1.2 million for the three months
ended September 30, 1998 and 1999, respectively, representing 12.6% and 15.8% of
service revenues in such periods. Costs of maintenance revenues were $2.7
million and $3.4 million for the nine months ended September 30, 1998 and 1999,
respectively, representing 13.0% and 15.2% of service revenues in such periods.
The increase in costs from 1998 to 1999 is primarily a result of increased
professional service personnel for client/server products and additional support
personnel in the Company's European subsidiaries.
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 September 30, 1998
and 1999, respectively. Amortization of distribution rights were $0.5 million
and $1.3 million for the nine months ended September 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.
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 $4.0
million and $5.4 million for the three months ended September 30, 1998 and 1999,
respectively, representing 32.0% and 41.1% of total revenues in such periods.
Sales and marketing expenses were $11.6 million and $14.9 million for the nine
months ended September 30, 1998 and 1999, respectively, representing 33.4% and
36.3% 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, the increase in marketing activities 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 $4.0 million and $4.2 million for the
three months ended September 30, 1998 and 1999, respectively, representing 31.9%
and 32.1% of total revenues in such periods. Product research and development
expenses were $11.5 million and $12.5 million for the nine months ended
September 30, 1998 and 1999, respectively, representing 33.0% and 30.4% 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
12
<PAGE> 13
and management personnel, as well as legal and accounting fees. General and
administrative expenses were $1.5 million for the three months ended September
30, 1998 and 1999, representing 12.1% and 11.6% of total revenues in such
periods. General and administrative expenses were $4.0 million and $4.4 million
for the nine months ended September 30, 1998 and 1999, respectively,
representing 11.6% and 10.7% 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 $0.5
million for the three months ended September 30, 1998 and 1999. Net interest and
other income totaled $1.4 million and $1.6 million for the nine months ended
September 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 September 30, 1999, the Company had cash and cash equivalents of $30.4
million and working capital of $29.5 million. During the nine months ended
September 30, 1999, net cash provided by operating and financing activities was
$5.6 million and $3.4 million, respectively, while net cash used in investing
activities was $6.8 million. The Company invests its cash in a money market
fund. The Company had no debt as of September 30, 1999, other than normal trade
payables and accrued liabilities. Stockholders' equity at September 30, 1999 was
$36.0 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 nine months ended September 30, 1999, cash flow from
operations was $5.6 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 September 1999, the Company sold $1.5
million of unbilled accounts receivable; in June and March 1999, the Company
sold $2.6 million and $3.0 million, respectively, 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 depending on the Company's cash flow
requirements and whether the terms are financially acceptable to 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 nine
months ended September 30, 1999, the Company invested $2.3 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.
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 October 1999, the Company acquired the distribution rights for its mainframe
products from its international distributor in France. Under terms of the
agreement to acquire the distribution rights, the Company paid the former
distributor $1.2 million. Additionally, the Company granted the former
distributor a warrant to purchase 100,000 shares of Company
13
<PAGE> 14
common stock at the then fair market value of $7.50 per share, which vested upon
issuance and expires in October 2002. The Company will record the acquisition of
the customer base as an intangible asset representing the cash payment and the
fair value of the warrant issued, and will amortize the intangible asset over a
five-year period.
The Company believes that cash and cash equivalents at September 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 plans to adopt SOP 98-9 on
January 1, 2000 and believes the adoption will not have a material effect on the
Company's financial condition or results of operations
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 either requesting certifications from its vendors or consulting vendor
websites. The Company has completed testing and received vendor certification of
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, and does not anticipate any Year 2000
compliance issues with these systems. At the present time, the Company has
determined that all critical information technology systems are Year 2000
compliant. The Company has upgraded, replaced and tested these applications, and
this process was substantially completed during the third quarter of 1999. The
two remaining non-critical projects, a database upgrade and an application
patch, will be completed by the end of November 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 is in the process of confirming, through the
representations in the equipment manufacturers' Operation and Maintenance (O &
M) manuals or written letters of certification, that these systems are Year 2000
compliant. Additionally, the Company has installed 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
14
<PAGE> 15
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 has substantially completed the process of either consulting vendor
websites or requesting certifications from these public utilities and
telecommunications service providers of their Year 2000 compliance. Although the
public utility companies and telecommunications service providers consulted have
determined to the best of their knowledge and belief that interruptions to
services will be unlikely, unforeseen 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.
IBM has decided not to make their product compliant. Accordingly, 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 in the first quarter of 1999 that its NaviGraph product,
version 1.3 required a product addition to make it Year 2000 compliant (the
"NaviGraph 1.3 Scenario"); (3) the Company discovered in the third quarter of
1999 that its SmartAgent for Oracle product required a product addition to make
it Year 2000 compliant (the "SmartAgent for Oracle Scenario"); and (4) the
Company recently discovered that two products, Navigraph version 2.0 (the
"Navigraph 2.0 Scenario") and the Monitor for VTAM version 2.1 (the "Monitor for
VTAM 2.1 Scenario") have Year 2000 data reporting and display defects which do
not effect the overall operation of the product.
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 1.3 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.
The Company is continuing its efforts 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. 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 has
15
<PAGE> 16
substantially completed its efforts 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.
With respect to the NaviGraph 2.0 Scenario, the product addition required
to correct the reporting and display function defect and make this product fully
Year 2000 compliant will be made generally available to all NaviGraph customers
participating in active maintenance programs through the November 1999
PerformanceWorks for MVS and OS/390 version 3 Cumulative Service tape in
November 1999. The Company had communicated to its customers and to third
parties through the second quarter of 1999 that NaviGraph 2.0 was Year 2000
compliant. All NaviGraph version 2.0 domestic customers participate in the
maintenance program for the product. Approximately three-quarters of
international NaviGraph customers (version 2.0 and previous versions)
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 majority of domestic and international NaviGraph 2.0 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 the November Cumulative Service
tape as such normal product maintenance. The Company intends to contact all
NaviGraph 2.0 product customers to alert them that Year 2000 compliancy issues
may be present and to inform them of their options.
With respect to the Monitor for VTAM 2.1 Scenario, the product addition
required to make this product Year 2000 compliant is currently being developed
by dedicated resources and the Company believes it will be made generally
available to all Monitor for VTAM customers participating in active maintenance
programs during November 1999. The Company had previously communicated to its
customers and to third parties that the Monitor for VTAM version 2.1 was Year
2000 compliant. Of the approximately 149 domestic Monitor for VTAM 2.1
customers, 117 of such customers participate in the maintenance program for the
product. The Company does not know how many of those domestic Monitor for VTAM
customers not participating in an active maintenance program are no longer using
the product. Of the approximately 102 international Monitor for VTAM (version
2.1 and previous versions) customers, approximately 74 of such customers
participate in the maintenance program for the products. The Company does not
know how many of those international Monitor for VTAM (version 2.1 and previous
versions) customers not participating in an active maintenance program are no
longer using the product. Accordingly, the majority of domestic and
international Monitor for VTAM (version 2.1) customers who have elected to
participate in active maintenance programs are, or will be made, Year 2000
compliant with respect to such products, assuming they accept and implement the
fix being developed. The Company intends to contact all Monitor for VTAM product
customers to alert them that Year 2000 compliancy issues may be present and to
inform them of their options.
Although the Company does not anticipate that customers will require
additional product support during the Year 2000 date change, Landmark will have
expanded support supplemented by additional on-site staffing to assist customers
on product maintenance with either Year 2000- or non-Year 2000 related problems
from Thursday, December 30, 1999 through Friday January 7, 2000.
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 will continue to
conduct additional tests for its mainframe and client/server products, and is
also aware that certain of its customers have been and will continue to conduct
additional Year 2000 Company product compliancy tests. It is possible that
additional Company product Year 2000 compliancy issues could be discovered in
the future 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 and third quarters of 1999 the Company has
experienced a lengthening of the sales cycle due to, among other things,
possible Year 2000 issues. The Company anticipates that Year 2000 related sales
cycle lengthening may continue at least through the first quarter of 2000.
The Company has incurred approximately $0.15 million, $0.1 million and $0.2
million in the nine months ended September 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 $0.05 million during the remainder
of 1999 for Year 2000 remediation activities. There can be no assurance
16
<PAGE> 17
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, the success of the Company's more
focused sales approach 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.
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 September 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 September 30, 1999, the Company
has $13.3 million of unbilled accounts receivable; the estimated fair market
value of these receivables is $13.5 million. If market interest rates increase
10% from the levels at September 30, 1999, the fair market value of the unbilled
accounts receivable would decline by an immaterial amount.
17
<PAGE> 18
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
None
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
18
<PAGE> 19
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, 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 third 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: March 30, 2000 By: /s/ Katherine K. Clark
----------------------
Katherine K. Clark
President, Chief Operating Officer
and Chief Executive Officer
(Duly Authorized Officer)
Date: March 30, 2000 By: /s/ Frederick S. Rolandi, III
-----------------------------
Frederick S. Rolandi, III
Vice President, Chief Financial
Officer and Treasurer
(Chief Accounting Officer)
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 30,449,871
<SECURITIES> 0
<RECEIVABLES> 11,406,553
<ALLOWANCES> 1,011,025
<INVENTORY> 0
<CURRENT-ASSETS> 50,685,465
<PP&E> 18,247,501
<DEPRECIATION> 13,053,154
<TOTAL-ASSETS> 69,399,329
<CURRENT-LIABILITIES> 21,193,566
<BONDS> 0
0
0
<COMMON> 127,600
<OTHER-SE> 35,907,515
<TOTAL-LIABILITY-AND-EQUITY> 69,399,329
<SALES> 18,843,477
<TOTAL-REVENUES> 41,124,446
<CGS> 1,037,715
<TOTAL-COSTS> 5,701,696
<OTHER-EXPENSES> 31,824,228
<LOSS-PROVISION> 137,679
<INTEREST-EXPENSE> 35,221
<INCOME-PRETAX> 5,168,311
<INCOME-TAX> 1,976,875
<INCOME-CONTINUING> 3,191,436
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,191,436
<EPS-BASIC> 0.26<F1>
<EPS-DILUTED> 0.24
<FN>
<F1>This amount is reported as EPS BASIC.
</FN>
</TABLE>
