UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------- EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2000
TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE
------- ACT OF 1934
For the transition period ___________ to __________
Commission file number 1-111898
JETFORM CORPORATION
-------------------
(exact name of registrant as specified in its charter)
Canada N/A
--------------------------- ------------
(state or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
560 Rochester Street
Ottawa, Ontario K1S 5K2, Canada
----------------------------------------
(Address of principal executive offices)
(613) 230-3676
----------------------
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 Exchange Act during the
preceding 12 months (or for such shorter period that the issuer was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of the issuer's Common Shares outstanding
on September 05, 2000: 19,631,751
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE NO.
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as at July 31, 2000, and 3
April 30, 2000
Consolidated Statements of Operations for the three month 4
periods ended July 31, 2000 and July 31, 1999
Consolidated Statements of Comprehensive Income for the 5
month periods ended July 31, 2000 and July 31, 1999
Consolidated Statements of Cash Flows for the three month 6
periods ended July 31, 2000 and July 31, 1999
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 14
CONDITION AND RESULTS OF OPERATIONS
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURES 22
This Quarterly Report on Form 10-Q ("Report"), contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933. Discussions containing such forward-looking statements may be found
in Item 2 of Part I and Item 1 of Part II hereof, as well as within this Report
generally. In addition, when used in the Report, the words "believes",
"anticipates", "expects", and similar expressions are intended to identify
forward-looking statements. Such statements are subject to a number of risks and
uncertainties. Actual results in the future could differ materially from those
described in the forward-looking statements as a result of changes in
technology, changes in industry standards, new product introduction by
competitors, increased participation in the enterprise software market by major
corporations and other matters set forth in this Report. The Company does not
undertake any obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect any future events
or circumstances.
<PAGE>
JETFORM CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
2000 2000
-------------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................ $ 29,071 $ 42,092
Accounts receivable (Note 2)............................. 26,321 21,416
Term accounts receivable (Note 2)........................ 5,830 5,224
Unbilled receivables..................................... 4,343 4,492
Inventory................................................ 1,042 1,084
Prepaid expenses and deferred charges.................... 2,928 2,956
-------------- ------------
69,535 77,264
TERM ACCOUNTS RECEIVABLE (NOTE 2)........................ -- 242
DEFERRED INCOME TAX ASSET................................ 5,667 5,604
FIXED ASSETS (NOTE 3).................................... 17,136 16,556
OTHER ASSETS (NOTE 3).................................... 20,684 21,670
--------------- ------------
$ 113,022 $ 121,336
=============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable......................................... $ 4,185 $7,423
Accrued liabilities...................................... 9,793 10,685
Unearned revenue......................................... 15,137 15,588
Term loan (Note 4)....................................... 10,000 10,000
--------------- ------------
39,115 43,696
ACCRUED LIABILITIES...................................... 1,264 1,338
--------------- ------------
40,379 45,034
--------------- ------------
SHAREHOLDERS' EQUITY
Capital stock (Issued and outstanding -- 19,630,749
Common Shares and 450,448 Preference Shares at July 31,
2000; 19,592,314 Common Shares and 450,448 Preference
Shares at April 30, 2000) ............................... 248,493 248,210
Cumulative translation adjustment........................ (2,146) (2,670)
Deficit.................................................. (173,704) (169,238)
--------------- ------------
72,643 76,302
--------------- ------------
$ 113,022 $ 121,336
=============== ============
(the accompanying notes are an integral part of these consolidated financial statements)
</TABLE>
<PAGE>
JETFORM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
--------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
REVENUES
Product ...................................... $ 12,654 $ 11,938
Service ...................................... 9,401 11,110
------------ ------------
22,055 23,048
------------ ------------
COSTS AND EXPENSES
Cost of product .............................. 2,014 2,111
Cost of service .............................. 2,687 3,390
Sales and marketing .......................... 12,688 11,464
General and administrative ................... 2,474 2,570
Research and development ..................... 3,947 3,742
Depreciation and amortization ................ 2,587 2,535
Gain on sale of assets ....................... -- (1,813)
------------ ------------
26,397 23,999
------------ ------------
OPERATING LOSS ............................... (4,342) (951)
Net investment income (expense) .............. 34 497
------------ ------------
LOSS BEFORE TAXES ............................ (4,308) (454)
Provision for income taxes (Note 5) .......... (158) (176)
------------ ------------
NET LOSS ..................................... $ (4,466) $ (630)
============ ============
BASIC LOSS PER SHARE
Net loss per share ........................... $ (0.22) $ (0.03)
Weighted average number of shares ............ 20,063,789 19,878,424
FULLY DILUTED LOSS PER SHARE
Net loss per share ........................... $ (0.22) $ (0.03)
Weighted average number of shares ............ 20,063,789 19,878,424
(the accompanying notes are an integral part of these consolidated financial statements)
</TABLE>
<PAGE>
JETFORM CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
THREE MONTHS ENDED JULY 31,
---------------------------
2000 1999
----------- -------
Net loss ...................................... $(4,466) $ (630)
Other comprehensive income (loss):
Cumulative translation adjustment ........... 524 1,786
------- -------
Comprehensive income (loss) ................... $(3,942) $ 1,156
======= =======
(the accompanying notes are an integral part of these
consolidated financial statements)
<PAGE>
JETFORM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
THREE MONTHS ENDED JULY 31,
---------------------------
2000 1999
---- ----
CASH PROVIDED FROM (USED IN):
OPERATING ACTIVITIES
Net income (loss) ................................ $ (4,466) $ (630)
Items not involving cash:
Depreciation and amortization .................. 3,488 3,320
Deferred income taxes .......................... (58) --
Other non-cash items ........................... -- (839)
Net change in operating components
of working capital ............................. (9,518) 1,476
-------- --------
(10,554) 3,327
-------- --------
INVESTING ACTIVITIES
Purchase of fixed assets ......................... (2,254) (881)
Increase in other assets ......................... (549) (1,235)
-------- --------
(2,803) (2,116)
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of shares ................. 195 140
Repayment of Delrina obligation .................. -- (6,690)
-------- --------
195 (6,550)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .......... 141 1,527
-------- --------
DECREASE IN CASH AND CASH
EQUIVALENTS .................................... (13,021) (3,812)
Cash and cash equivalents, beginning
of period ...................................... 42,092 47,262
-------- --------
Cash and cash equivalents, end of
period ......................................... $ 29,071 $ 43,450
======== ========
(the accompanying notes are an integral part of
these consolidated financial statements)
<PAGE>
JETFORM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
These consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in the United States
("U.S. GAAP"), and include all assets, liabilities, revenues and expenses of
JetForm Corporation ("JetForm") and its wholly-owned subsidiaries: JetForm
Corporation (a Delaware corporation), JetForm Pacific Pty Limited ("JetForm
Pacific"), JetForm Scandinavia AB ("JetForm Nordic"), JetForm France SA
("JetForm France"), JetForm UK Limited ("JetForm UK"), JetForm Deutschland GmbH
("JetForm Germany"), JetForm Technologies Limited ("JetForm Ireland"), JetForm
Japan K.K. ("JetForm Japan") and JetForm PTE Ltd ("JetForm Singapore"). JetForm
and its wholly owned subsidiaries are collectively referred to herein as the
"Company". Investments in businesses that the Company does not control, but over
which it can exert significant influence, are accounted for using the equity
method. Such investments are periodically evaluated for impairment and
appropriate adjustments are recorded, if necessary.
2. ACCOUNTS RECEIVABLE
Accounts receivable and term accounts receivable are net of an allowance for
doubtful accounts of $2.7 million at July 31, 2000 and $2.4 million at April 30,
2000.
The Company records revenues from irrevocable commitments to purchase products
which do not conform to the Company's customary trade terms at the amount
receivable less deemed interest ("Term Accounts Receivable"). The Company uses a
discount rate equal to its current net cost of borrowing at the time the revenue
is recorded. For the three months ended July 31, 2000, the average discount rate
used was 6.5%. Under an irrevocable commitment to purchase product the customer
commits to pay a minimum amount over a specified period of time in return for
the right to use or resell up to a specific number of copies of a delivered
product.
The Company records Term Accounts Receivable as non-current to the extent that
management estimates payment will be received more than one year from the
balance sheet date. Payment of these Term Accounts Receivable is generally due
the earlier of: (i) delivery of the Company's products by the customer to its
customers or end users; and (ii) specific dates in the license agreement
("Minimum Payment Dates"). As at July 31, 2000 and April 30, 2000 total Term
Accounts Receivable with Minimum Payment Dates exceeding one year were $nil and
$242,000, respectively.
The Company's customer base consists of large numbers of geographically diverse
customers dispersed across many industries. As a result, concentration of credit
risk with respect to trade receivables is not significant.
3. FIXED ASSETS AND OTHER ASSETS
The Consolidated Balance Sheet includes the following amounts:
JULY 31, APRIL 30,
2000 2000
---- ----
(in thousands of
Canadian dollars)
Accumulated depreciation and
amortization included in fixed assets $23,987 $22,400
======= =======
Accumulated amortization
included in other assets $24,615 $22,826
======= =======
4. FINANCIAL INSTRUMENTS AND CREDIT FACILITIES
For certain of the Company's financial instruments, including accounts
receivable, unbilled receivables, accounts payable, and short term accrued
liabilities, the carrying amount approximates the fair value due to their short
maturities. The carrying amount of term accounts receivable, after applying an
appropriate discount rate, approximates their fair value. Cash and cash
equivalents, term loan and long term accrued liabilities are carried at cost,
which approximates their fair value.
The Company has entered into receivable purchase agreements with third party
purchasers. Under the agreements, the Company has the option to sell certain
accounts receivable on a recourse basis. The Purchasers have recourse in the
event of a trade dispute as defined in the receivables purchase agreements and
upon the occurrence of other specified events. As at July 31, 2000 and April 30,
2000, the outstanding balance of accounts receivable sold under these agreements
were approximately US$4.1 million and US$9.7 million, respectively. The Company
believes that none of the receivables sold are at risk of recourse. These sales
meet all of the requirements of SFAS 125 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," for off balance sheet
reporting.
The Company has a committed $20 million credit facility with the Royal Bank of
Canada. The credit facility is made up of (i) a $10 million term loan facility
which bears interest at a rate of 1.5% over the Bankers Acceptance rate of the
Bank from time to time and is payable on February 1, 2001; and (ii) a $10
million revolving line of credit which bears interest at the prime rate of the
Canadian Bank from time to time. As at July 31, 2000, the Company had drawn all
of the $10 million term loan facility and fixed the interest rate until October
17, 2000, at 7.38%. The effective rate of interest on this term loan facility
for the quarter ended July 31, 2000, was approximately 5.88%. The Company had no
borrowings against its revolving line of credit as at July 31, 2000. The Company
has granted as collateral for the $20 million credit facility a general security
agreement over JetForm's assets, including a pledge of the shares of certain
subsidiaries.
5. INCOME TAXES
As at July 31, 2000, the Company had net deferred tax assets of $58.9 million,
the principle components of which were temporary differences associated with the
acquisition of in process research and development and operating loss carry
forwards. The Company believes sufficient uncertainty exists regarding the
realizability of this net deferred tax asset such that a valuation allowance of
$53.2 million has been applied.
6. PROVISION FOR RESTRUCTURING COSTS
On March 17, 1999, the Corporation announced a restructuring plan directed at
reducing costs. The key restructuring actions included:
o Consolidation of management responsibilities and reduction in
headcount.
o Closure of redundant facilities.
o Reduction in the carrying value of certain capital assets primarily
related to past acquisitions.
o Cancellation of certain commitments and other costs.
The following table summarizes the activity in the provision for restructuring
costs during the three months ended July 31, 2000:
<TABLE>
<CAPTION>
EMPLOYEE TOTAL
TERMINATION FACILITIES OTHER PROVISION
----------- ---------- ----- ---------
<S> <C> <C> <C> <C>
Balance, April 30, 2000 $ 590 $1,246 $ 395 $2,231
Cash payments 249 74 -- 323
------ ------ ------ ------
Balance, July 31, 2000 $ 341 $1,172 $ 395 $1,908
====== ====== ====== ======
Long term balance $ -- $ 985 $ 279 $1,264
====== ====== ====== ======
</TABLE>
During the three months ended July 31, 2000 the Company made cash payments of
approximately $323,000 relating to the provision for restructuring costs
recorded in fiscal year 1999. This included $249,000 in salary continuance for
terminated employees and $74,000 in rent for the Company's vacant facility in
the UK.
7. SEGMENTED INFORMATION
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
Company's chief decision-maker in deciding how to allocate resources and
assessing performance. The Company's chief decision-maker is the Chief Executive
Officer.
The Company's Chief Executive Officer primarily evaluates the Company on a
geographic basis. The geographic evaluation is further segmented into Product,
Consulting and Customer Support components. The Product segment engages in
business activities from which it earns license revenues from the Company's
software products. The Consulting segment earns revenues from assisting
customers in configuring, implementing and integrating the Company's products
and, when required, customizing products and designing automated processes to
meet the customers specific business needs as well as providing all necessary
training. The Customer Support segment earns revenues through after sale support
for software products as well as providing software upgrades under the Company's
maintenance and support programs.
The accounting policies of the Company's operating segments are the same as
those described in Note 1. The Company evaluates performance based on the
contribution of each segment. The Product segment costs include all selling
costs associated product licenses, consulting services and customer support. The
costs of the Consulting segment, includes all costs associated with the delivery
of the service to the customer. The Customer Support segment includes all costs
associated with providing technical support to the customer. Inter-segment
revenues as well as charges such as cost of product, corporate marketing,
research and development, general and administration, depreciation and
amortization and interest expense are not included in the calculation of segment
profit. The Company does not use a measure of segment assets to assess
performance or allocate resources. As a result, segment asset information is not
presented.
The following table sets forth, on a comparative basis for the periods
indicated, the Company's segmented information:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31, 2000
--------------------------------------------------
PRODUCT CONSULTING CUSTOMER
SUPPORT TOTAL
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
North America
Revenue $6,208 $1,343 $4,662 $12,213
Costs 6,348 530 1,108 7,986
------------- ------------ ----------- -----------
Margin ($140) $813 $3,554 $4,227
------------- ------------ ----------- -----------
Europe
Revenue $4,808 $1,306 $1,757 $7,871
Costs 2,928 565 484 3,977
------------- ------------ ----------- -----------
Margin $1,880 $741 $1,273 $3,894
------------- ------------ ----------- -----------
Asia Pacific
Revenue $1,638 $196 $137 $1,971
Costs 1,047 - - 1,047
------------- ------------ ----------- -----------
Margin $591 $196 $137 $924
------------- ------------ ----------- -----------
Total
Revenue $12,654 $2,845 $6,556 $22,055
Costs 10,323 1,095 1,592 13,010
------------- ------------ ----------- -----------
Margin $2,331 $1,750 $4,964 $9,045
------------- ------------ ----------- -----------
Cost of product 2,014
Corporate marketing 2,365
Research and development 3,947
General and administration 2,474
Depreciation and amortization 2,587
Gain on sale of assets --
-----------
13,387
-----------
Operating loss (4,342)
Net investment income (expense) 34
-----------
Loss before taxes (4,308)
Provision for income taxes (158)
-----------
Net loss ($4,466)
===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31, 1999
--------------------------------------------------
PRODUCT CONSULTING CUSTOMER
SUPPORT TOTAL
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
North America
Revenue $6,159 $4,774 $3,612 $14,545
Costs 5,647 1,291 1,029 7,967
------------- ------------ ----------- -----------
Margin $512 $3,483 $2,583 $6,578
------------- ------------ ----------- -----------
Europe
Revenue $4,756 $995 $1,294 $7,045
Costs 2,754 388 506 3,648
------------- ------------ ----------- -----------
Margin $2,002 $607 $788 $3,397
------------- ------------ ----------- -----------
Asia Pacific
Revenue $1,023 $6 $429 $1,458
Costs 976 - 176 1,152
------------- ------------ ----------- -----------
Margin $47 $6 $253 $306
------------- ------------ ----------- -----------
Total
Revenue $11,938 $5,775 $5,335 $23,048
Costs 9,377 1,679 1,711 12,767
------------- ------------ ----------- -----------
Margin $2,561 $4,096 $3,624 $10,281
------------- ------------ ----------- -----------
Cost of product 2,111
Corporate marketing 2,087
Research and development 3,742
General and administration 2,570
Depreciation and amortization 2,535
Gain on sale of assets (1,813)
-----------
11,232
-----------
Operating loss (951)
Net investment income (expense) 497
-----------
Loss before taxes (454)
Provision for income taxes (176)
-----------
Net loss ($630)
===========
</TABLE>
<PAGE>
<TABLE>
THREE MONTHS ENDED JULY 31, 1998
--------------------------------------------------
PRODUCT CONSULTING CUSTOMER
SUPPORT TOTAL
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
North America
Revenue $15,558 $5,295 $3,332 $24,185
Costs 7,563 2,600 964 11,127
------------- ------------ ----------- -----------
Margin $7,995 $2,695 $2,368 $13,058
------------- ------------ ----------- -----------
Europe
Revenue $4,834 $534 $1,167 $6,535
Costs 1,943 206 426 2,575
------------- ------------ ----------- -----------
Margin $2,891 $328 $741 $3,960
------------- ------------ ----------- -----------
Asia Pacific
Revenue $1,477 $183 $262 $1,922
Costs 709 - - 709
------------- ------------ ----------- -----------
Margin $768 $183 $262 $1,213
------------- ------------ ----------- -----------
Total
Revenue $21,869 $6,012 $4,761 $32,642
Costs 10,215 2,806 1,390 14,411
------------- ------------ ----------- -----------
Margin $11,654 $3,206 $3,371 $18,231
------------- ------------ ----------- -----------
Cost of product 1,938
Corporate marketing 2,060
Research and development 3,356
General and administration 2,577
Depreciation and amortization 2,779
Gain on sale of assets --
-----------
12,710
-----------
Operating income 5,521
Net investment income (expense) 1,243
-----------
Income before taxes 6,764
Provision for income taxes (1,023)
-----------
Net income $5,741
===========
</TABLE>
8. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued the
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). This statement
establishes accounting and reporting standards for derivative instruments and
hedging activities and is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. In June, 1999, the FASB issued SFAS No.137 which
delays the effective date of SFAS 133 until fiscal years beginning after June
15, 2000. Currently, as the Company has no derivative instruments, the adoption
of SFAS No. 133 would have no impact on the Company's financial condition or
results of operations. To the extent the Company begins to enter into such
transactions in the future, the Company will adopt the Statement's disclosure
requirements in the quarterly and annual financial statements for the year
ending April 30, 2002.
On March 31, 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation - an interpretation of APB Opinion No. 25 (FIN 44), providing new
accounting rules for stock-based Compensation under APB Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25). FIN 44 does not change FASB
Statement No. 123, Accounting for Stock based compensation (FAS 123). The new
rules are significant and will result in compensation expense in several
situations in which no expense is typically recorded under current practice,
including option repricing, purchase business combinations and plans that permit
tax withholdings. FIN 44 is generally effective for transactions occurring after
July 1, 2000, but apply to repricings and some other transactions after December
15, 1998. The Company does not expect the adoption of this Interpretation to
have a material impact on its results of operations or financial position.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements,
which was amended in March 2000 by SAB 101A. The SAB summarizes certain of the
SEC staff views in applying generally accepted accounting principles to revenue
recognition in financial statements. On June 26, 2000, the SEC issued SAB 101B
to provide registrants with additional time to implement guidance contained in
SAB 101. SAB 101B delays the implementation date of SAB 101 until no later then
the fourth fiscal quarter of fiscal years beginning after December 15, 1999.
This SAB is effective beginning the Company's fourth quarter of fiscal 2001. The
Company does not expect the adoption of this SAB to have a material impact on
its results of operations or financial position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's results of operations and of its
liquidity and capital resources should be read in conjunction with the
information contained in the accompanying Unaudited Consolidated Financial
Statements and related Notes thereto, together with management's discussion and
analysis of financial condition and results of operations contained in the
Company's Report on Form 10-K for the fiscal year ended April 30, 2000. The
following discussion provides a comparative analysis of material changes for the
three months ended July 31, 2000 and 1999, in the financial condition and
results of operations of the parent company ("JetForm") and its wholly-owned
subsidiaries: JetForm Corporation (a Delaware corporation), JetForm Pacific Pty
Limited ("JetForm Pacific"), JetForm Scandinavia AB ("JetForm Nordic"), JetForm
France SA ("JetForm France"), JetForm UK Limited ("JetForm UK"), JetForm
Deutschland GmbH ("JetForm Germany"), JetForm Technologies Limited ("JetForm
Ireland"), JetForm Japan K.K. ("JetForm Japan") and JetForm PTE Ltd ("JetForm
Singapore"). JetForm and its wholly owned subsidiaries are collectively referred
to herein as the "Company".
RESULTS OF OPERATIONS
The Company's revenues and operating results have varied substantially from
period to period. With the exception of its consulting services operation, the
Company has historically operated with little backlog of orders because its
software products are generally shipped as orders are received. The Company
records product revenue from packaged software and irrevocable commitments to
purchase products when persuasive evidence of an arrangement exists, the
software product has been shipped, there are no significant uncertainties
surrounding product acceptance, the fees are fixed and determinable and
collection is considered probable. As a result, product revenue in any period is
substantially dependent on orders booked and shipped in that period and on the
receipt of irrevocable commitment license agreements. Product revenue is
difficult to forecast due to the fact that the Company's sales cycle, from
initial trial to multiple copy licenses, varies substantially from customer to
customer. As a result, variations in the timing of product sales can cause
significant variations in operating results from period to period. Product
revenue represented 57% of total revenue for the quarter ended July 31, 2000.
Service revenue primarily consists of consulting services, training and
technical support. Consulting services include assisting customers to configure,
implement and integrate the Company's products and, when required, customize
products and design automated processes to meet customers' specific business
needs. Service revenue represented 43% of total revenue for the quarter ended
July 31, 2000.
Costs and expenses are comprised of cost of product, cost of service, sales and
marketing, general and administrative, research and development, depreciation
and amortization and other expenses. Cost of product consists of third party
commissions, the cost of disks, manuals, packaging, freight, royalty payments to
vendors whose software is bundled with certain products, amortization of
deferred product development costs and provisions for bad debts. Cost of service
includes all costs of providing technical support, training, consulting, custom
forms development and application development services. Sales and marketing
expenses are principally related to salaries and commissions paid to sales and
marketing personnel and the cost of marketing programs. Research and development
expenses include personnel and occupancy costs as well as the costs of software
development, testing, product management, quality assurance and documentation.
Depreciation and amortization includes depreciation and amortization of fixed
assets and amortization of other assets, goodwill and distribution rights
relating to various acquisitions. The Company amortizes goodwill and
distribution rights over their expected useful lives. The Company periodically
reviews the carrying value of its capital assets. Any impairments in the
carrying value are recognized at that time.
<PAGE>
The following table sets forth, on a comparative basis for the periods
indicated, the components of the Company's product margin, service margin and,
product and service margin:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
--------------------------------------------------------
2000 1999
----------------------- -----------------------
(in thousands of Canadian dollars)
<S> <C> <C> <C> <C>
Product revenue ....... $12,654 100% $11,938 100%
Cost of product ....... 2,014 16% 2,111 18%
------- ------- ------- -------
Product margin ........ 10,640 84% $ 9,827 82%
======= ======= ======= =======
Service revenue ....... 9,401 100% $11,110 100%
Cost of service ....... 2,687 29% 3,390 31%
------- ------- ------- -------
Service margin ........ 6,714 71% $ 7,720 69%
======= ======= ======= =======
Total revenues ........ 22,055 100% $23,048 100%
Cost of product and
service ............... 4,701 21% 5,501 24%
------- ------- ------- -------
Product and service
margin ................ $17,354 79% $17,547 76%
======= ======= ======= =======
</TABLE>
<PAGE>
The following table presents, for the periods indicated, consolidated statement
of operations data expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
REVENUES
Product 57% 52%
Service 43% 48%
------------ ------------
100% 100%
------------ ------------
COSTS AND EXPENSES
Cost of product 9% 9%
Cost of service 12% 15%
Sales and marketing 58% 50%
General and administrative 11% 11%
Research and development 18% 16%
Depreciation and amortization 12% 11%
Gain on sale of assets -- (8%)
------------ ------------
120% 104%
------------ ------------
OPERATING INCOME (LOSS) (20%) (4%)
Interest and other income 0% 2%
------------ ------------
INCOME (LOSS) BEFORE TAXES (20%) (2%)
Provision for income taxes (1%) (1%)
------------ ------------
NET INCOME (LOSS) (20%) (3%)
============ ============
</TABLE>
<PAGE>
The following table provides details of product revenue by geographic segment
and within North America, by distribution channel:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
INCREASE
2000 1999 (DECREASE)
-------------- ------------- --------------
(in thousands of Canadian dollars)
<S> <C> <C> <C>
PRODUCT REVENUE BY REGION
North America $6,208 $ 6,159 1%
Europe 4,808 4,756 1%
Rest of World 1,638 1,023 60%
-------------- -------------
$12,654 $ 11,938 6%
============== =============
PRODUCT REVENUE BY CHANNEL
IN NORTH AMERICA
End Users $ 4,989 $ 2,606 91%
Reseller and OEM 1,219 3,553 (66%)
-------------- -------------
$ 6,208 $ 6,159 1%
============== =============
</TABLE>
THREE MONTHS ENDED JULY 31, 2000 COMPARED TO THREE MONTHS ENDED JULY 31, 1999
REVENUES
TOTAL REVENUES. Total revenues decreased 4% to $22.1 million for the three
months ended July 31, 2000 from $23.0 million for the three months ended July
31, 1999. Total revenues consisted of 57% product revenue and 43% service
revenue for the three months ended July 31, 2000.
PRODUCT REVENUE. Product revenue increased 6% to $12.7 million for the
three months ended July 31, 2000 from $11.9 million for the three months ended
July 31, 1999. Product revenue derived from North America, Europe and Rest of
World represented 49%, 38%, and 13%, respectively, of product revenue for the
three months ended July 31, 2000 as compared to 52%, 39% and 9%, respectively,
of product revenue for the three months ended July 31, 1999.
The Company attributes the increase in product revenue primarily to a 60%
increase in the Asia Pacific region and a 40% increase in sales to the North
American government market.
Product revenue derived from North America remained constant for the three
months ended July 31, 2000 and for the three months ended July 31, 1999 at $6.2
million. Reseller and OEM sales, which represented 20% of North American product
revenue, decreased 66% to $1.2 million for the three months ended July 31, 2000
from $3.6 million for the three months ended July 31, 1999. The Company
attributes this decrease to a shortage of sales personnel actively involved in
the Reseller and OEM channel. The Company has recently announced plans to expand
its sales force and to improve its channel sales activity. Product revenue from
end users, which represented 80% of North American product revenue, increased
91% to $5.0 million for the three months ended July 31, 2000 from $2.6 million
for the three months ended July 31, 1999. End User sales for the three months
ended July 31, 1999 were adversely affected by the Year 2000 Issue and a shift
towards Internet based solutions from traditional client/server solutions.
Product revenue derived from Europe increased 1% to $4.8 million for the
three months ended July 31, 2000 from $4.7 million for the three months ended
July 31, 1999.
Product revenue derived from Rest of World increased 60% to $1.6 million
for the three months ended July 31, 2000 from $1.0 million for the three months
ended July 31, 1999, primarily as a result of a 162% gain in product sales in
Japan.
SERVICE REVENUE. Service revenue decreased 15% to $9.4 million for the
three months ended July 31, 2000 from $11.1 million for the three months ended
July 31, 1999. For the three months ended July 31, 2000 maintenance and support
revenue increased 23% to $6.6 million from $5.3 million for the three months
ended July 31, 1999. The Company's consulting revenue decreased 51% to $2.8
million for the three months ended July 31, 2000 from $5.8 million for the three
months ended July 31, 1999, primarily as a result of consulting staff focusing
on presales activities. The Company plans to refocus these individuals back to
revenue generating activities.
COSTS AND EXPENSES
Costs and expenses are comprised of cost of product, cost of service, sales
and marketing, general and administrative, research and development,
depreciation and amortization and other expenses. Cost of product consists of
third party commissions, the cost of CD's, disks, manuals, packaging, freight,
royalty payments to vendors whose software is bundled with certain JetForm
products and amortization of deferred product development costs. Cost of service
includes all costs of providing technical support, training, consulting, custom
forms development and application development services. Sales and marketing
expenses are principally related to salaries and commissions paid to sales and
marketing personnel. Research and development expenses include personnel and
occupancy costs as well as the costs of software development, testing, product
management, quality assurance and documentation. Depreciation and amortization
includes depreciation of fixed assets and amortization of other assets, and
goodwill and distribution rights relating to various acquisitions.
TOTAL COSTS AND EXPENSES. Total costs and expenses were $26.4 million for
the three months ended July 31, 2000, an increase of 10% from $24.0 million for
the three months ended July 31, 1999.
COST OF PRODUCT. Cost of product decreased 5% to $2.0 million for the three
months ended July 31, 2000 from $2.1 million for the three months ended July 31,
1999, primarily as a result of decreased amortization of deferred development
costs. For the three months ended July 31, 2000 total amortization of deferred
development costs charged to cost of product was $904,000 compared to $1.0
million for the three months ended July 31, 1999. The product margin increased
to 84% for the three months ended July 31, 2000, from 82% for the three months
ended July 31, 1999.
COST OF SERVICE. Cost of service decreased 21% to $2.7 million for the
three months ended July 31, 2000 from $3.4 million for the three months ended
July 31, 1999. The service margin increased to 71% for the three months ended
July 31, 2000 from 69% for the three months ended July 31, 1999.
COSTS OF PRODUCT AND SERVICE. Costs of product and service decreased 15% to
$4.7 million for the three months ended July 31, 2000, from $5.5 million for the
three months ended July 31, 1999. Product and service margin increased to 79%
for the three months ended July 31, 2000 from 76% for the three months ended
July 31, 1999.
SALES AND MARKETING. Sales and marketing expenses increased 11% to $12.7
million for the three months ended July 31, 2000 from $11.5 million for the
three months ended July 31, 1999, primarily as a result of the Company's
initiative to grow its sales force.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
4% to $2.5 million for the three months ended July 31, 2000, from $2.6 million
for the three months ended July 31, 1999. As a percentage of total revenues,
general and administrative expenses remained constant at 11% for the three
months ended July 31, 2000 and 1999, respectively.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 5% to
$3.9 million for the three months ended July 31, 2000 from $3.7 million for the
three months ended July 31, 1999, primarily due to an increase in the number of
employees and related costs. During both the three months ended July 31, 2000
and 1999, the Company capitalized approximately $900,000 of software development
costs. Research and development expenses were 18% of revenue for the three
months ended July 31, 2000 and 16% for the three months ended July 31, 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 4% to $2.6 million for the three months ended July 31, 2000 from $2.5
million for the three months ended July 31, 1999.
OPERATING INCOME (LOSS). Operating loss was $4.3 million for the three
months ended July 31, 2000, compared to operating loss of $951,000 for the three
months ended July 31, 1999.
NET INVESTMENT INCOME (EXPENSE). Interest and other income decreased to
$34,000 for the three months ended July 31, 2000, from $497,000 for the three
months ended July 31, 1999 primarily due to decreased cash and cash equivalents
available for investing. During the 3 months ended July 31, 1999 the Company
recorded Interest income of approximately $200,000 resulting from imputed
interest on the refinancing of the Delrina obligation. The Delrina obligation
was fully satisfied in the quarter ended April 30, 2000.
PROVISION FOR INCOME TAXES. The Company recorded a provision for taxes of
$158,000 for the three months ended July 31, 2000, compared to a provision for
income taxes of $176,000 for the three months ended July 31, 1999. As at July
31, 2000, the Company had a net deferred tax asset of approximately $58.9
million, the principle components of which were temporary differences associated
with the acquisition of in process research and development and operating loss
carry forwards. The Company believes sufficient uncertainty exists regarding the
realizability of this net deferred tax asset such that a valuation allowance of
$53.2 million has been provided.
LIQUIDITY AND CAPITAL RESOURCES
As at July 31, 2000, and April 30, 2000, the Company had $29.1 million and
$42.1 million of cash and cash equivalents respectively. During the three months
ended July 31, 2000, the Company's cash and cash equivalents decreased by $13.0
million, primarily as a result of cash used in operations, the acquisition of
fixed assets, an increase in accounts receivables and payments of accounts
payable and accrued liabilities. During the Quarter ended April 30, 2000 the
Company sold approximately $6.8 million of accounts receivables. The Company did
not sell any accounts receivables during the three months ended July 31, 2000.
OPERATIONS
The Company increased its investment in the non-cash operating components
of working capital during the three months ended July 31, 2000, by approximately
$9.5 million, primarily due to decreases in accounts payable and accrued
liabilities and an increase in accounts receivable.
The Company purchased approximately $2.3 million of fixed assets in the
three months ended July 31, 2000. The purchases of fixed assets included
leasehold improvements, furniture and office equipment, computer hardware and
software. During the three months ended July 31, 2000, the Company increased its
investment in other assets by $549,000 primarily related to capitalized
development costs.
During the three months ended July 31, 2000, the Company generated cash of
approximately $195,000 relating to participation in the Company's stock purchase
plan.
ACCOUNTS RECEIVABLE AND TERM ACCOUNTS RECEIVABLE
Total accounts receivable increased to $32.2 million at July 31, 2000, from
$26.9 million at April 30, 2000. Term accounts receivable, which are accounts
receivable with payment dates exceeding the Company's customary trade terms,
increased to $5.8 million, for the three months ended July 31, 2000 from $5.5
million on April 30, 2000. Term accounts receivable primarily arise from the
recording of revenue from irrevocable commitments to purchase licenses
("Irrevocable Commitment Licenses"). As of July 31, 2000 all term accounts
receivable are less than one year in length. The Company did not sell any
receivables during the period ending July 31, 2000.
Under an Irrevocable Commitment License, a customer commits to pay a
minimum amount over a specified period of time in return for the right to use or
resell up to a specific number of copies of a delivered product. The amount of
revenue recorded is the amount of the minimum commitment over the term of the
license, less deemed interest for that part of the license term that is beyond
the Company's customary trade terms.
Payments under Irrevocable Commitment Licenses are generally received from
the customer on the earlier of (i) installation of the Company's products by the
customer or delivery to its customers or end users and (ii) specified minimum
payment dates in the license agreement. Amounts by which revenues recorded
exceed payments received are recorded as accounts receivable. Payments that are
expected beyond the Company's customary trade terms are recorded as term
accounts receivable. Payments that are expected to be received more than one
year from the balance sheet date, are recorded as non-current term accounts
receivable. Total license fees over the term of the Irrevocable Commitment
License may be greater than the minimum commitment initially recorded as
revenue. Revenues from installations or sales of the Company's products in
excess of the minimum commitment are recorded by the Company as and when they
are reported by the customer. FINANCIAL INSTRUMENTS AND CREDIT FACILITY
The Company has entered into receivable purchase agreements with certain
third party purchasers. Under the agreements, the Company has the option to sell
certain accounts receivable on a recourse basis. The Purchasers have recourse in
the event of a trade dispute as defined in the receivables purchase agreements
and upon the occurrence of other specified events. As at July 31, 2000 and April
30, 2000, the outstanding balance of accounts receivable sold under these
agreements were approximately US$4.1 million and US$9.7 million, respectively.
The Company believes that none of the receivables sold are at risk of recourse.
These sales meet all of the requirements of SFAS 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," for off
balance sheet reporting. The Company did not sell any receivables during the
period ended July 31, 2000.
The Company has a committed $20 million credit facility with the Royal Bank
of Canada. The credit facility is made up of (i) a $10 million term loan
facility which bears interest at a rate of 1.5% over the Bankers Acceptance rate
of the Bank from time to time and is payable on February 1, 2001; and (ii) a $10
million revolving line of credit which bears interest at the prime rate of the
Canadian Bank from time to time. As at July 31, 2000, the Company had drawn all
of the $10 million term loan facility and fixed the interest rate until October
17, 2000, at 7.38%. The effective rate of interest on this term loan facility
for the quarter ended July 31, 2000, was 5.88%. The Company had no borrowings
against its revolving line of credit as at July 31, 2000. The Company has
granted as collateral for the $20 million credit facility a general security
agreement over JetForm's assets, including a pledge of the shares of certain
subsidiaries.
The Company believes that its existing cash and cash equivalents will
provide sufficient liquidity to meet the Company's business requirements in the
foreseeable future. However, should the Company continue to incur operating
losses, its ability to meet its liquidity requirements and to raise additional
capital through debt or equity financing may be compromised.
PROVISION FOR RESTRUCTURING COSTS
On March 17, 1999, the Corporation announced a restructuring plan directed
at reducing costs. The key restructuring actions included:
o Consolidation of management responsibilities and reduction in
headcount.
o Closure of redundant facilities.
o Reduction in the carrying value of certain capital assets primarily
related to past acquisitions.
o Cancellation of certain commitments and other costs.
The following table summarizes the activity in the provision for
restructuring costs during the three months ended July 31, 2000:
EMPLOYEE
TERMINATION FACILITIES OTHER TOTAL COSTS
------------- ---------- --------- ------------
Balance, April 30, 2000 $590 $ 1,246 $ 395 $ 2,231
Cash payments 249 74 -- 323
------------- ---------- --------- ------------
Balance, July 31, 2000 $341 $ 1,172 $ 395 $ 1,908
============= ========== ========= ============
Long term balance $ -- $ 985 $ 279 $ 1,264
============= ========== ========= ============
During the three months ended July 31, 2000 the Company made cash payments
of approximately $323,000 relating to the provision for restructuring costs
recorded in fiscal year 1999. This included $249,000 in salary continuance for
terminated employees and $74,000 in rent for the Company's vacant facility in
the UK.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
During the three months ended July 31, 2000, the Company did not file any
reports on Form 8-K.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
JETFORM CORPORATION
<TABLE>
<S> <C>
September 5, 2000 By: /s/ A. Kevin Francis
------------------------------------------- -------------------------------------------------
Date A. Kevin Francis
President and Chief Executive Officer and
Director
September 7, 2000 By: /s/ Jeffrey McMullen
------------------------------------------- -------------------------------------------------
Date Jeffrey McMullen
Vice President, Finance and
Chief Financial Officer
</TABLE>
