<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTER ENDED JUNE 30, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 0-26948
------------------------------
SCOPUS TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3134998
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1900 POWELL ST., 7TH FLOOR
EMERYVILLE, CA 94608
(Address of principal executive offices & zip code)
REGISTRANT'S TELEPHONE NUMBER: (510)-597-5800
----------------------------------------------
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
---
There were 11,876,147 shares of the registrant's $.001 par value Common
Stock outstanding as of June 30, 1996.
Page 1 of 17
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SCOPUS TECHNOLOGY, INC.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. List of Exhibits and Reports on Form 8-K 13
SIGNATURES 14
INDEX TO EXHIBITS 15
Page 2
<PAGE>
SCOPUS TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
ASSETS 1996 1996
------ --------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $21,792 $23,733
Short term investments 7,462 5,303
Accounts receivable, net 7,530 8,957
Prepaid expenses and other 648 696
Deferred income taxes 574 834
------- -------
Total current assets 38,006 39,523
Property and equipment, net 2,734 3,648
Other assets 841 1,147
------- -------
Total assets $41,581 $44,318
======= =======
LIABILITIES AND SHAREHOLDERS EQUITY
-----------------------------------
Current liabilities:
Accounts payable $ 1,561 $ 2,497
Accrued liabilities 2,544 2,525
Income taxes payable 740 61
Deferred revenue 3,270 3,660
------- -------
Total current liabilities 8,115 8,743
Deferred income taxes 11 8
------- -------
Total liabilities 8,126 8,751
------- -------
Shareholders' equity:
Capital stock 29,685 30,949
Retained earnings 3,770 4,618
------- -------
Total shareholders equity 33,455 35,567
------- -------
Total liabilities and shareholders equity $41,581 $44,318
======= =======
</TABLE>
See accompanying notes
Page 3
<PAGE>
SCOPUS TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------
1995 1996
------ ------
<S> <C> <C>
Revenues:
Licenses $ 3,667 $ 7,381
Services and maintenance 2,445 2,922
------- -------
Total revenues 6,112 10,303
------- -------
Cost of revenues:
Licenses 122 595
Services and maintenance 2,516 1,961
------- -------
Total cost of revenues 2,638 2,556
------- -------
Gross margin 3,474 7,747
------- -------
Operating expenses:
Sales and marketing 1,995 4,061
Research and development 1,024 1,780
General and administrative 363 850
------- -------
Total operating expenses 3,382 6,691
------- -------
Income from operations 92 1,056
Other income, net 37 311
------- -------
Income before provision for income taxes 129 1,367
Provision for income taxes 48 519
------- -------
Net income $ 81 $ 848
======= =======
Net income per share $ 0.01 0.07
======= =======
Shares used in per share computation 10,577 12,740
======= =======
</TABLE>
See accompanying notes
Page 4
<PAGE>
SCOPUS TECHNOLOGY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 81 $ 848
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 188 377
Non-cash charges (credits), net (170) 462
Changes in assets and liabilities:
(Increase) in accounts receivable (1,132) (1,427)
(Increase) in prepaid expenses and taxes (143) (354)
Decrease (Increase) in deferred income taxes 50 (263)
Increase in accounts payable 656 936
(Decrease) Increase in accrued liabilities 279 (19)
(Decrease) in income taxes payable (273) (679)
Increase in deferred revenue 218 390
------- -------
Net cash provided by (used in) operating activities (246) 271
------- -------
Cash flows used in investing
activities:
Purchase of investments - (43)
Proceeds from investments - 2,200
Purchases of property and equipment (350) (1,080)
Proceeds from disposal of fixed assets - 5
------- -------
Net cash provided by (used in) investing activities (350) 1,082
------- -------
Cash flows from financing activities:
Proceeds from exercise of common stock options 5 159
Proceeds from stock purchased under employee plan - 429
------- -------
Net cash provided by financing activities 5 588
------- -------
Net increase (decrease) in cash and cash equivalents (591) 1,941
Cash and cash equivalents at beginning of year 3,001 21,792
------- -------
Cash and cash equivalents at end of period $ 2,410 $23,733
======= =======
</TABLE>
See accompanying notes
Page 5
<PAGE>
SCOPUS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared on the same basis as the audited annual consolidated financial
statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position, results of operations and cash flows.
The results of operations for the three months ended June 30, 1996, are not
necessarily indicative of the results to be expected for the full year. Certain
information and footnote disclosures normally contained in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial statements should
be read in conjunction with the Notes to Consolidated Financial Statements
contained in the Company's Report on Form 10-K for the year ended March 31,
1996.
NOTE 2. INCOME TAXES
As a result of employee stock option exercises during the quarter ended June 30,
1996, the Company recognized approximately $604,000 in a tax benefit. This
benefit was credited directly to shareholder's equity and, was not reflected in
the tax provision shown on the Consolidated Statements of Operations in
accordance with generally accepted accounting principles.
Page 6
<PAGE>
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis below contains trend analyses and other forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below under
Overview and Other Factors that may Affect Future Performance and elsewhere in
this report.
OVERVIEW
The Company's quarterly operating results have varied substantially in the
past and are likely to vary substantially from quarter to quarter in the future
due to a variety of factors. In particular, the Company's period-to-period
operating results are significantly dependent upon the timing of the closing of
large license agreements. In this regard, the purchase of the Company's products
can require a significant capital investment from a potential customer which the
customer generally views as a discretionary cost that can be deferred or
canceled due to budgetary or other business reasons. Estimating future revenues
is also difficult because the Company ships its products soon after an order is
received and as such does not have a significant backlog. Thus, quarterly
license revenues are heavily dependent upon orders received and shipped within
the same quarter. Moreover, the Company has generally recorded 50% to 70% of its
total quarterly revenues in the third month of a quarter, with a concentration
of these revenues in the last half of that third month. This concentration of
revenues is influenced by customer tendencies to make significant capital
expenditures at the end of a fiscal quarter. The Company expects these revenue
patterns to continue for the foreseeable future. In addition, quarterly license
revenues are also dependent on the timing of revenue recognition, which can be
affected by many factors, including the timing of customer installations and the
fulfillment of acceptance criteria. In this regard the Company has from time to
time experienced delays in recognizing revenues with respect to certain orders.
Despite the uncertainties in its revenue patterns, the Company's operating
expenses are based upon anticipated revenue levels and such expenses are
incurred on an approximately ratable basis throughout the quarter. As a result,
if expected revenues are deferred or otherwise not realized in a quarter for any
reason, the Company's business, operating results and financial condition would
be materially adversely affected.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenues represented by, and the period to period changes in, the
Company's consolidated statements of operations:
Page 7
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<TABLE>
<CAPTION>
PERIOD TO PERIOD CHANGE
------------------------
THREE MONTHS ENDED THREE MONTHS
JUNE 30, 1996 COMPARED
1995 1996 TO 1995
------- ------- -----------------------
<S> <C> <C> <C>
Revenues:
Licenses 60.0% 71.6% 101.3%
Services and maintenance 40.0 28.4 19.5
------- ------- -------
Total revenues 100.0 100.0 68.6
------- ------- -------
Cost of revenues:
Licenses 2.0 5.8 387.7
Services and maintenance 41.2 19.0 (22.1)
------- ------- -------
Total cost of revenues 43.2 24.8 (3.1)
------- ------- -------
Gross margin 56.8 75.2 123.0
------- ------- -------
Operating expenses:
Sales and marketing 32.6 39.4 103.6
Research and development 16.8 17.3 73.8
General and administrative 5.9 8.3 134.2
------- ------- -------
Total operating expenses 55.3 65.0 97.8
------- ------- -------
Income from operations 1.5 10.2 1047.8
Other income, net 0.6 3.0 740.5
------- ------- -------
Income before provision for
income taxes 2.1 13.2 959.7
Provision for income taxes 0.8 5.0 981.3
------- ------- -------
Net income 1.3% 8.2% 946.9%
======= ======= =======
</TABLE>
REVENUES
The Company's revenues are derived from license revenues which are comprised
of one-time fees for the license of the Company's products, and services and
maintenance revenues which consist of fees for consulting, maintenance and
training services. The Company's revenue recognition policies are in accordance
with Statement of Position No. 91-1, issued by the American Institute of
Certified Public Accountants. Accordingly, license revenues are recognized upon
receipt of an executed license agreement or unconditional purchase order and
shipment of the product to the customer and if no significant vendor obligations
remain and collection of the resulting receivable is deemed probable. Reserves
for credit losses are estimated and provided for at the time of sale.
Maintenance revenues for ongoing customer support and product updates are
recognized ratably over the maintenance term, which is typically twelve months.
Consulting and training services revenues are recognized when the service is
performed.
Licenses. License revenues increased 101% to $7.4 million for the quarter
ended June 30, 1996, up from $3.7 million for the comparable period of 1995.
This increase was attributable to increased market demand for the Company's
products, continuing enhancement and increasing breadth of the Company's product
offerings and expansion of the Company's sales and marketing organizations, and
consisted of increased sales to both new and existing customers as well as
increases in sales to new industry segments.
Page 8
<PAGE>
Services and Maintenance. Services and maintenance revenues increased 20% to
$2.9 million in the period ended June 30, 1996, up from $2.4 million for the
comparable period of 1995. Typically, increases in license revenues provide the
Company with increases in revenues from maintenance, training and consulting
services in subsequent periods. In the period ended June 30, 1995, the Company's
service revenues included significant billing for consuting services provided by
third party consultants which, in several instances, the Company determined
could not be profitably performed. Therefore, in 1995 the Company established
relationships with certain third party providers to allow these providers to
directly service and bill the Company's customers. As a result, the growth of
overall services and maintenance revenues slowed in relation to license revenues
as the mix of services and maintenance revenues fell from 40% in the three
months ended June 1995 to 28% in the comparable period of 1996. See "Cost of
Revenues - Services and Maintenance."
COST OF REVENUES
Licenses. Cost of license revenues consists primarily of royalty and other
payments to third party vendors and costs of product media, duplication and
packaging. Cost of licenses increased 388% to $595,000 in the three months ended
June 30, 1996, up from $122,000 for the comparable period in 1995. This was an
increase from 3% to 8% as a percentage of total license revenues. These
increases were primarily the result of an increase in royalties and other
payments to third party software vendors for products required by certain
customers in combination with licenses of the Company's products. Although the
Company does not expect revenues and costs from the distribution of third party
software products to be significant in future periods, period to period
fluctuations may occur and the Company's gross margins and net operating margins
could be materially adversely affected.
Services and Maintenance. Cost of services and maintenance fell 22% for the
quarter ended June 30, 1996, to $2.0 million, down from $2.6 million for the
same period in 1995. The gross margin provided by services and maintenance
revenues improved from a loss of 3% in 1995 to a contribution of 33% in 1996.
This improvement is the result of several management initiatives undertaken by
the Company with respect to its consulting services. The Company added new
management, established relationships with third party consulting firms that
allow those firms to work directly with the Company's customers, established new
procedures for estimating the scope of consulting projects and shifted the
pricing responsibility for that work to its consulting services organization.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased 104% to $4.1
million in the three months ended June 30, 1996, up from $2.0 million in the
three months ended June 30, 1995, increasing to 39% from 33% of total revenues,
respectively. The increase in dollar amount and in the percentage of revenue of
such spending in the 1996
Page 9
<PAGE>
period is attributable to the Company's continued expansion of its direct sales
force in the U.S. and Europe and increased marketing activities to support the
Company's expanded product line. The Company is in the process of significantly
increasing direct sales and marketing expenditures to address certain
international and vertical markets. As a result, such expenses may increase as a
percentage of total revenues in future periods.
Research and Development. Research and development expenses increased 74% to
$1.8 million in the quarter ended June 30, 1996, up from $1.0 million in the
quarter ended June 30, 1995, which represented 17% of total revenues in both
periods. The increase in research and development spending in fiscal 1996 was
primarily the result of increased staffing of software engineers in connection
with expansion and enhancement of the Company's product line and its quality
assurance and testing organization.
Based on the Company's research and development process, costs incurred
between the establishment of technological feasibility and general release have
not been material and therefore have not been capitalized in accordance with
Statement of Financial Accounting Standards No. 86. All research and development
costs are expensed as incurred.
General and Administrative. General and administrative expenses increased 134%
to $850,000 in the three months ended June 30, 1996, up from $363,000 in the
three months ended June 30, 1995, increasing to 8% from 6% of total revenues in
the respective periods. These increases were primarily due to increased staffing
and related expenditures required to support the Company's growth.
Other Income, Net. Other income, net, increased to $311,000 in the three
months ended June 30, 1996, up from $37,000 in the three months ended June 30,
1995. The increase was primarily due to investment income earned on the proceeds
from the Company's initial public offering in November 1995.
Provision for Income Taxes. The effective tax rate was 37.2% and 38% for the
three month periods ended June 30, 1995 and 1996, respectively. Income taxes are
accounted for in accordance with Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes. The effective income tax rate differs from the
statutory income tax rate primarily due to the utilization of research and
development credits in the 1995 period and tax exempt investment income in the
1996 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $271,000 of cash from operations for the three months
ended June 30, 1996. The primary contributors to positive cash flow were net
income, depreciation and amortization, non-cash charges and increases in the
balances of accounts payable and deferred revenue. Increases in accounts
receivable and other prepaid expenses and a decrease in income taxes payable
partially offset those positive contributions. For the three month period ended
June 30, 1996, the Company's investing activities provided $1.1 million,
primarily from $2.2 million provided from proceeds from investments which was
partially offset by a use of $1.1 million for purchases of computer hardware and
software and leasehold improvements.
Page 10
<PAGE>
From March 31, 1996, to June 30, 1996, accounts receivable increased from $7.5
million to $9.0 million and deferred revenues increased from $3.3 million to
$3.7 million. The levels of accounts receivables at each quarter end will be
affected by the concentration of revenues in the final weeks of each quarter and
may be negatively affected by expanded international revenues in relation to
total revenues as licenses to international customers often have longer payment
terms. In addition, the company from time to time enters into license agreements
with customers with extended payment terms.
As of June 30, 1996, the Company had $29.0 million of cash, cash equivalents
and short term investments and $30.8 million of working capital. The Company
also has available a $4.0 million bank line of credit which is secured by the
assets of the Company and expires on August 31, 1996. As of June 30, 1996, there
were no amounts outstanding under this credit agreement.
The Company believes that existing cash balances, cash flows from operations,
and available borrowings under its credit facility will be sufficient to meet
its needs for at least the next twelve months. Although future operating
activities may provide working capital in certain periods, any future growth by
the Company may require the Company to obtain additional equity or debt
financing of which there can be no assurances that it will be available if and
when needed.
OTHER FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
Variability of Operating Results; Uncertainty of Future Operating Results. As
discussed earlier, the Company's revenues have in the past and may in the future
vary greatly from quarter to quarter. Further, while revenues may vary, expenses
are generally committed at the beginning of each quarter based on revenue
expectation. Therefore, a variety of internal and external factors can impact
the timing and recognition of revenues and could have a material adverse effect
on operating results. In addition, while efforts to improve the gross margin of
services and maintenance revenues have yielded positive results, there can be no
assurances that in the future the Company will not again experience reduced
margins in this area.
Competition. The customer information management software market is relatively
new, intensely competitive, highly fragmented, subject to rapid change and
highly sensitive to new product introductions and marketing efforts by industry
participants. The Company competes with a variety of other companies depending
on the target market for their products. There can be no assurance that the
Company can continue to compete
Page 11
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successfully against current or future competitors or that this competition will
not materially affect the Company's operating results.
Management of Growth. The Company's business has continued to expand rapidly.
The Company will continue to be dependent upon its ability to attract, hire and
retain skilled employees for whom there is considerable market competition.
Further, as these new employees are hired, additional strains will be placed on
the Company's management, reporting and control systems.
Emerging Markets. The Company's future financial performance will depend in
large part on the growth in demand for individual customer information
management applications as well as the number of organizations adopting
comprehensive customer information systems for their client/server computing
environments. The market for these products is relatively new and undeveloped.
If the market for these products fails to develop or develops more slowly than
expected, the Company's operating results could be materially adversely
affected.
Rapid Technological Change; Dependence on Product Development. The market for
the Company's products is characterized by rapid technological advances and
evolving industry standards. The Company is currently investing significant
resources in product development and expects to continue to do so in the future.
However, there can be no assurance that the Company will be successful in
continuing to develop and market, on a timely and cost-effective basis, fully
functional products or product enhancements that meet evolving market demands.
Expansion of International Operations; Foreign Currency Fluctuations. An
important element of the Company's strategy is to expand its international
operations. Currently, less than 10% of the Company's revenues are from
international operations. There is risk that the Company will be unsuccessful in
expanding its international business or its international business may expand
more slowly than expected. Further, international expansion will subject the
Company to the greater risks inherent in international operations, such as
fluctuations in foreign currency exchange rates, higher taxes and duties and the
challenge of managing more global operations. Any of these risks could
materially adversely impact operating results.
Page 12
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
List of Exhibits
----------------
11.1 Statement of Computation of Net Income per Share
27 Article 5 of Regulation S-X
Reports on Form 8-K: None
--------------------------
Page 13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SCOPUS TECHNOLOGY, INC.
-----------------------
(Registrant)
Dated: August 13, 1996
/s/ Ori Sasson
------------------------------------
Ori Sasson
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
/s/ Michele L. Axelson
-----------------------------------
Michele L. Axelson
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 14
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SCOPUS TECHNOLOGY, INC.
INDEX TO EXHIBITS
Exhibit Description Page
- ------- ----------- ----
11.1 Statement of Computation of Net Income per Share 16
27 Financial Data Schedule 17
Page 15
<PAGE>
SCOPUS TECHNOLOGY, INC.
STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
(Unaudited)
(Amounts in thousands, except per share data)
Exhibit 11.1
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1995 1996
-------- --------
<S> <C> <C>
Weighted average number of common
shares outstanding 9,171 11,780
Shares issuable pursuant to stock
option plans, less shares assumed
repurchase at average fair market
value during the period. 577 960
Shares issuable pursuant to stock
option plans during the 12 month
period prior to the filing of the
initial public offering price of
$12.00 per share 829 --
Number of shares used for computation
of earnings per share (Primary) 10,577 12,740
Net income $ 81 $ 848
Net income per share (1) $ 0.01 $ 0.07
</TABLE>
(1) There is no difference between primary and fully diluted net income per
share.
Page 16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 23,733
<SECURITIES> 5,303
<RECEIVABLES> 9,757
<ALLOWANCES> 800
<INVENTORY> 0
<CURRENT-ASSETS> 39,523
<PP&E> 5,584
<DEPRECIATION> 1,936
<TOTAL-ASSETS> 44,318
<CURRENT-LIABILITIES> 8,743
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 35,555
<TOTAL-LIABILITY-AND-EQUITY> 44,318
<SALES> 7,381
<TOTAL-REVENUES> 10,303
<CGS> 595
<TOTAL-COSTS> 9,247
<OTHER-EXPENSES> 16
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,367
<INCOME-TAX> 519
<INCOME-CONTINUING> 1,056
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 848
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07<F1>
<FN>
<F1>All data in thousands except per share data.
</FN>
</TABLE>
