Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended September 30, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _______to_______
Commission File No. 0-22292
INPUT SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
A Delaware Corporation 77-0104275
---------------------- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1299 Parkmoor Ave., San Jose, California 95126
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 325-3800
(no change)
---------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
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 ninety days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of September 30, 1999: 4,089,786
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
INPUT SOFTWARE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................... $9,856 $14,447
Accounts receivable........................... 5,331 4,490
Deferred income taxes and
other current assets....................... 5,659 5,613
----------- -----------
Total current assets........................ 20,846 24,550
Property and equipment, net..................... 1,338 1,208
Other assets.................................... 984 943
Net assets related to the
discontinued display division.............. (335) 176
----------- -----------
$22,833 $26,877
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $391 $652
Deferred revenue.............................. 1,950 1,694
Accrued liabilities........................... 2,714 3,174
----------- -----------
Total current liabilities................... 5,055 5,520
----------- -----------
Stockholders' equity:
Common stock.................................. 40 48
Paid in capital............................... 8,587 12,512
Retained earnings............................. 9,151 8,797
----------- -----------
Stockholders' equity........................ 17,778 21,357
----------- -----------
$22,833 $26,877
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements
<PAGE>
INPUT SOFTWARE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues ..................... $5,461 $4,599 $16,577 $12,146
Cost of revenues.................. 769 401 2,333 1,217
--------- --------- --------- ---------
Gross profit 4,692 4,198 14,244 10,929
Sales and marketing............... 2,768 2,070 8,020 5,478
Research and development.......... 1,324 982 3,841 3,101
General and administrative........ 733 790 2,345 1,924
--------- --------- --------- ---------
Operating income ............... (133) 356 38 426
Interest and other income......... 196 166 495 459
--------- --------- --------- ---------
Income before provision
for income taxes............. 63 522 533 885
Provision for income taxes........ 21 168 179 277
--------- --------- --------- ---------
Net income from continuing
operations........ 42 354 354 608
Discontinued operations:
Net loss from operations
of Discontinued Display
Division........................ -- -- -- (361)
Estimated net loss on sale of
Display Division................ -- -- -- (2,284)
--------- --------- --------- ---------
Net income (loss) from
discontinued operations....... -- 0 -- (2,645)
--------- --------- --------- ---------
Net income (loss)............... $42 $354 $354 ($2,037)
========= ========= ========= =========
Basic and diluted EPS:
For continuing operations........ $0.01 $0.07 $0.08 $0.10
For discontinued operations...... 0.00 0.00 0.00 (0.45)
--------- --------- --------- ---------
Net income (loss)............... $0.01 $0.07 $0.08 ($0.35)
========= ========= ========= =========
Shares used in EPS calculations:
Basic ......................... 4,255 5,352 4,478 5,890
Diluted........................ 4,257 5,440 4,486 5,995
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements
<PAGE>
INPUT SOFTWARE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from continuing operations:
Net income (loss)...................................... $354 ($2,037)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization........................ 398 731
Discontinued operations 511 11,705
(Increase) decrease in assets and liabilities:
Accounts receivable................................. (841) (1,334)
Deferred income taxes and other assets.............. (87) 117
Accounts payable.................................... (261) (155)
Accrued liabilities and deferred revenue............ (204) 168
--------- ---------
Net cash provided by operating activities........... (130) 9,195
--------- ---------
Cash flows from investing activities:
Property and equipment additions....................... (528) (440)
--------- ---------
Net cash used in investing activities............... (528) (440)
--------- ---------
Cash flows from financing activities:
Repurchase of common stock............................. (4,210) (10,477)
Net proceeds from issuance of common stock............. 277 193
--------- ---------
Net cash used in financing activities............... (3,933) (10,284)
--------- ---------
Net decrease in cash and cash equivalents.... (4,591) (1,529)
Cash and cash equivalents at beginning of period........ 14,447 12,284
--------- ---------
Cash and cash equivalents at end of period.............. $9,856 $10,755
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements
<PAGE>
INPUT SOFTWARE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Unaudited Financial Information:
The accompanying interim unaudited consolidated condensed financial
statements have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. The December 31, 1998 balance
sheet data was derived from audited financial statements contained in
the Company's 1998 Annual Report on Form 10-K but does not include all
disclosures required by generally accepted accounting principles. On
September 8, 1998 the Company sold its display division. Accordingly,
the operating results of the display division for 1998 have been
segregated from continuing operations and reported separately on the
statements of income. The unaudited financial statements for the nine
month periods ended September 30, 1999 and 1998 include, in the opinion
of management, all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial information set
herein. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for an entire year
and should not be relied on as such.
Recent Pronouncements:
As of January 1, 1998 the Company has adopted the provisions of
Statement of Position 97-2, ("SOP 97-2"), "Software Revenue
Recognition." This statement establishes requirements for revenue
recognition for software companies. Under SOP 97-2, the Company
recognizes product revenues and license fees upon shipment if a signed
contract exists, the fee is fixed and determinable, collection of
resulting receivables is probable and product returns are reasonably
estimable. In addition, for contracts with multiple obligations (e.g.
deliverable and undeliverable products, service, and maintenance),
revenue must be allocated to each component of the contract based on
evidence of its fair value. Revenue allocated to undelivered products is
recognized when the criteria for product and license revenue set forth
above are met. Revenue allocated to maintenance fees for ongoing
customer support and updates is recognized ratably over the period of
the maintenance contract. Payments for maintenance fees are generally
made in advance and are non-refundable. Revenue related to other
services is recognized as the related services are performed. Royalty
revenues that are contingent upon sale to an end user by OEMs are
recognized upon receipt of a report of sale by the Company for the OEM.
In March 1998, The AICPA issued Statement of Position No. 98-4
("SOP 98-4"), "Deferral of the Effective Date of a Provision of SOP 97-
2, Software Revenue Recognition." SOP 98-4 defers, for one year, the
application of certain passages in SOP 97-2, which limit what is
considered vendor-specific objective evidence ("VSOE") necessary to
recognize revenue for software licenses in multiple-element arrangements
when undelivered elements exist. The adoption of SOP 97-2, as amended by
SOP 98-4, in the first quarter of 1998 did not have a material effect on
the Company's revenue recognition practices. The Company has evaluated
the amendments expected to be issued under SOP 98-4 and does not expect
their adoption will have a material effect on its revenue recognition
practices.
In December 1998, the AICPA issued Statement of Position No. 98-9
("SOP 98-9"), "Modification of SOP 97-2, Software Revenue Recognition,
With Respect to Certain Transactions," which clarifies guidance
regarding VSOE and multiple element arrangements. SOP 98-9 amends SOP
98-4 to extend the deferral of guidance in SOP 97-2 as it relates to
these matters through fiscal years beginning after March 15, 1999.
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position No. 98-1 ("SOP 98-1"),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This Statement of Position (SOP) provides guidance on
accounting for the costs of computer software developed or obtained for
internal use. The SOP applies to all nongovernmental entities and is
effective for financial statements for fiscal years beginning after
December 15, 1998. The Company has not yet determined the impact, if
any, of the adoption of this statement on the financial statements of
the Company.
In June of 1998, the Financial Accounting Standards Board issued
Statement of Financial Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. The Company has not yet evaluated the effects of this change on
its operations. The Company will adopt SFAS 133 as required for its
first quarterly filing of the fiscal year 2000.
2. DISCONTINUED OPERATIONS:
On September 8, 1998, the Company sold its display division to the
current management team. This business now operates as a private
company named Cornerstone Peripherals Technology, Inc. Under the terms
of the sale the Company sold certain assets and transferred certain
liabilities associated with the display division. The Company retained
certain assets, primarily accounts receivable and certain inventory,
which were substantially converted to cash by December 31, 1998. The
Company holds a minority equity interest in Cornerstone Peripherals
Technology, Inc.
3. INCOME TAXES:
The Company's provision for income taxes reflects the Company's
estimated 1999 annualized effective tax rate of 34%.
4. STOCK REPURCHASE:
Since February 1997 through February 1999, the Company's Board of
Directors has authorized the use of up to $25 million to repurchase the
Company's common stock. During the nine months ended September 30, 1999
the Company repurchased 755,100 shares for a total of $4.2 million.
Since inception of the program a total of 3.7 million shares have been
repurchased for a total of $23.3 million. The repurchased stock is
expected to be held by the Company as treasury stock to be used to meet
the Company's obligations under its stock plans and for other corporate
purposes. Purchases have been and will continue to be made from time-
to-time on the open market or in privately negotiated transactions. The
timing and volume of purchases will be dependent upon market conditions
and other factors.
- ------------------------------------------------------------------------
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This Quarterly Report on Form 10-Q may contain forward-looking
statements that involve risks and uncertainties. The Company's actual
results may differ materially from the results discussed in any such
forward-looking statements. Factors that might cause such a difference
include, but are not limited to those discussed below and in the section
captioned RISK FACTORS in the Company's most recent Annual Report on
Form 10-K.
RESULTS OF OPERATIONS:
Input Software, Inc. (the "Company") develops and markets software
products that intelligently capture customer, supplier, and business
partner information - provided as Web input, data, paper, and faxes -
into formats compatible with enterprise computing systems and the
Internet. Its flagship product, InputAccelT, is an open integration
platform that has become the de facto standard for information capture
software. The Company's newest product, DynamicInputT, is an XML-based
software product scheduled to ship to Beta customers in the first
quarter of 2000 that will allow organizations to personalize real time,
two-way communications with their customers over the Web.
The Company also markets software tools under its Pixel Translations
brand which allow hardware and software developers to save both time and
money by offering stable, supported libraries of software code to drive
certain computer peripherals rather than having to develop such software
themselves. Most of these tools are based on the Company's Image &
Scanner Interface Specification ("ISISr"), an industry standard
interface for scanners. ISIS also provides a key component for
InputAccel.
Net Revenues
The Company's revenues increased 19% in the third quarter of 1999 to
$5.5 million from $4.6 million in the third quarter of 1998. For the
nine months ending September 30, 1999, revenues increased 36% to 16.6
million from revenues of $12.1 million in the first nine months of 1998.
The increase in revenue growth from 1999 compared to 1998 is due
primarily to an increased customer base as well as add-on revenues from
our InputAccel product line.
Gross Profit
Gross profit increased 12% in the third quarter of 1999 to $4.7
million from $4.2 million in the third quarter of 1998. For the nine
months ending September 30, 1999, gross profit increased 30% to $14.2
million from gross profit of $10.9 million in the first nine months of
1998.
The gross margin was 86% and 91% for the third quarters of 1999 and
1998, respectively and was 86% and 90% for the nine months ended
September 30, 1999 and 1998, respectively. The decrease in gross margin
percent for both periods is largely due to the increased percentage of
revenues derived from software maintenance and professional services,
which have lower margins than revenues from product licensing. The
Company expects revenues from maintenance and services to continue to
increase as a percentage of overall revenues.
Sales and Marketing
Sales and marketing expenses increased 34% to $2.8 million in the
third quarter of 1999 from $2.1 million in the third quarter of 1998,
and for the nine-month period ended September 30, 1999, increased 46% to
$8.0 million from $5.5 million for the first nine months of 1998. Sales
and marketing expenses as a percentage of revenue were 51% and 45% for
the third quarter of 1999 and 1998, respectively and was 48% and 45% for
the nine months ended September 30,1999 and 1998, respectively.
The Company expects that sales and marketing expenses will increase in
the future as the Company continues to expand sales and marketing
programs, and specifically anticipates incremental expenses associated
with launching the DynamicInput product line.
Research and Development
Research and development expenses increased 35% to $1.3 million in
the third quarter of 1999 from $1.0 million in the third quarter of 1998
and for the nine month period ended September 30, 1999, increased 24% to
$3.8 million from $3.1 million for the first nine months of 1998.
Current staffing levels exceed those of prior periods. The Company
believes that continued investment in research and development is
critical to its future growth and will continue to commit substantial
resources to this area, particularly for development efforts of the
recently announced DynamicInput product. As a result, quarterly
research and development expenses are likely to increase during the
remainder of 1999 and beyond.
General and administrative
General and administrative expenses in the third quarter of 1999
decreased by 7% to $733,000 from $790,000 in the third quarter of 1998,
and for the nine month period ended September 30, 1999, increased by 22%
to $2.3 million from $1.9 million for the first nine months of 1998.
The increase in the nine month period is primarily due to increased
staffing, various internal technology enhancements, and related costs
incurred to support the Company's revenue growth. As a percentage of
revenue, general and administrative expenses decreased to 13% for the
third quarter of 1999, from 17% for the third quarter of 1998 and to 14%
from 16% for the nine months ended September 30, 1999 and 1998
respectively.
Divestiture
As a result of the sale of the display products division, the
Company recorded a loss of approximately $2.6 million for the period
ended September 30, 1998. This charge includes a loss from display
division operations in the first quarter of 1998, net of tax benefit, of
$361,000 and an estimated loss of $2.3 million, net of tax benefit, on
the sale of the net assets of the display division. All financial
statements have been restated to account for the display division as a
discontinued operation. As a result of the sale, the Company owns a
minority interest in Cornerstone Peripherals Technology, Inc., which is
reflected as an 'other asset' on the December 31, 1998 balance sheet.
Provision for Income Taxes
The provision for federal and state income taxes as a percentage of
pretax income from operations was 33% and 32% for the third quarter of
1999 and 1998 respectively and was 34% and 31% for nine months ended
September 30, 1999 and 1998, respectively.
Liquidity and Capital Resources
At September 30, 1999, the Company had cash and cash equivalents of
$9.9 million, compared to $14.4 million at December 31, 1998.
Net cash used in operating activities was $130,000 in the first
nine months of 1999 compared to net cash provided by operating
activities of $9.2 million in the first nine months of 1998. The net
cash provided by operations for the first nine months of 1998 was due
primarily to conversion to cash of various assets from the discontinued
display operation.
Net cash used in investing activities, exclusively additions to
property and equipment, was $528,000 for the first nine months of 1999,
compared to $440,000 in the first nine months of 1998.
On February 14, 1997, the Company's Board of Directors authorized
the use of up to $5.0 million to repurchase the Company's common stock.
This amount was increased to $15.0 million on Sept 17, 1997, further
increased to $20 million on August 12, 1998, and to $25 million on
February 11, 1999. The repurchased stock is expected to be held by the
Company and may be used to meet the Company's obligations under its
stock plans and for other corporate purposes. Purchases will be made
from time-to-time on the open market or in privately negotiated
transactions. The timing and volume of purchases will be dependent upon
market conditions and other factors. The Company intends to use cash on
hand to fund its purchases. During the nine months ended September 30,
1999 the Company used $4.2 million to repurchase stock.
The Company believes that its cash and cash equivalents, together
with cash flows from operations will be sufficient to meet the Company's
liquidity and capital requirements for the next 12 months. The Company
may, however, seek additional equity or debt financing to fund further
expansion. The timing and amount of such capital requirements cannot be
precisely determined at this time and will depend on a number of
factors, including demand for the Company's products, product mix and
competitive factors. Accordingly, the Company may require additional
funds to support its working capital requirements or for other purposes
and may seek to raise such additional funds through public or private
equity or other sources. There can be no assurance that additional
financing will be available at all or that it, if available, will be
obtainable on terms favorable to the Company and would not be dilutive.
RISK FACTORS
In addition to the other information in this Report, the following
risk factors should be considered carefully in evaluating the Company
and its business.
Limited Software Operating History; History of Losses; Future Operating
Results Uncertain
The Company has operated its Software Division since June 1994.
Accordingly, the Company's prospects must be considered in light of the
risks and difficulties frequently encountered by companies in the early
stage of development, particularly companies in new and rapidly evolving
markets. To address these risks, the Company must, among other things,
respond to competitive developments, continue to attract, retain and
motivate qualified personnel and continue to improve its products. For
the past several years, the Company has been investing in its software
business and as a result, on a stand-alone basis, the Software Division
has not achieved operating profitability and has incurred operating
losses in each quarter from inception through the quarter ending June
30, 1997. As of September 30, 1999, the Company's software operations
had cumulative pre-tax operating losses of approximately $2.5 million.
The Company's operating losses have been due in part to the commitment
of significant resources to the Company's research and development and
sales and marketing departments. The Company expects to continue to
devote substantial resources to these areas and as a result will need to
achieve significant quarterly revenues to achieve profitability. In
particular, the Company intends to continue to hire additional sales and
research and development personnel in 1999 and beyond, which the Company
believes is required if the Company is to achieve significant revenue
growth in the future. Although the Company's software related revenues
generally have increased in recent periods, there can be no assurance
that the Company's revenues will grow in future periods, that they will
grow at past rates or that the Company will remain profitable on a
quarterly or annual basis in the future.
Operating Results Subject to Significant Fluctuations; Seasonality
The Company's quarterly revenues, expenses and operating results
have varied significantly in the past and are likely to vary
significantly in the future due to a variety of factors, such as demand
for the Company's products, the size and timing of significant orders,
the number, timing and significance of product enhancements and new
product announcements by the Company and its competitors, changes in
pricing policies by the Company or its competitors, customer order
deferrals in anticipation of enhancements or new products offered by the
Company or its competitors, the ability of the Company to develop,
introduce and market new and enhanced versions of its products on a
timely basis, changes in the Company's level of operating expenses,
budgeting cycles of its customers, product life cycles, software defects
and other product quality problems, the Company's ability to attract and
retain qualified personnel, changes in the Company's sales incentive
plans, changes in the mix of domestic and international revenues, the
level of international expansion, foreign currency exchange rate
fluctuations, performance of indirect channel partners, changes in the
mix of indirect channels through which the Company's products are
offered, the impact of acquisitions of competitors and indirect channel
partners, the Company's ability to control costs and general domestic
and international economic and political conditions. The Company
operates with virtually no order backlog because its software products
are shipped shortly after orders are received, which makes product
revenues in any quarter substantially dependent on orders booked and
shipped throughout that quarter. In addition, the Company achieves a
significant portion of revenues from indirect sales channels over which
the Company has little control. Moreover, the Company's expense levels
are based to a significant extent on the Company's expectations of
future revenues and therefore are relatively fixed in the short term.
If revenue levels are below expectations, operating results are likely
to be adversely and disproportionately affected because only a small
portion of the Company's expenses vary with its revenues.
The Company's business has experienced and is expected to continue
to experience seasonality, largely due to customer buying patterns. In
recent years, the Company has had relatively stronger demand for its
products during the quarter ending December 31 and demand has been
relatively weaker in the quarter ending March 31. While the Company
believes that this pattern will continue in future years, uncertainities
in buying patterns caused by concerns related to Y2K will likely have a
negative adverse impact on revenues for the fourth quarter of 1999.
Based upon all of the factors described above, the Company believes that
its quarterly revenues, expenses and operating results are likely to
vary significantly in the future, that period-to-period comparisons of
its operating results are not necessarily meaningful and that, in any
event, such comparisons should not be relied upon as indications of
future performance. The Company has limited ability to forecast future
revenues, and it is likely that in some future quarter the Company's
operating results will be below the expectations of public securities
analysts and investors. In the event that operating results are below
expectations, or in the event that adverse conditions prevail or are
perceived to prevail generally or with respect to the Company's
business, the price of the Company's Common Stock would likely be
materially adversely affected.
Significant Competition
The market for the Company's products is intensely competitive and
subject to rapid change. In addition, because there are relatively low
barriers to entry in the software market, the Company may encounter
additional competition from other established and emerging companies.
Many of the Company's competitors have longer operating histories,
significantly greater financial, technical, marketing and other
resources than the Company, significantly greater name recognition and a
large installed base of customers. As a result, the Company's
competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of competitive
products, than can the Company. There is also a substantial risk that
announcements of competing products by large competitors could result in
the cancellation of customer orders in anticipation of the introduction
of such new products. In addition, current and potential competitors
have established or may establish cooperative relationships among
themselves or with third-parties to increase the ability of their
products to address customer needs and which may limit the Company's
ability to sell its products through particular reseller partners.
Accordingly, new competitors or alliances among current and new
competitors may emerge and rapidly gain significant market share. The
Company also expects that competition will increase as a result of
software industry consolidation. Increased competition is likely to
result in price reductions, fewer customer orders, reduced margins and
loss of market share, any of which could materially adversely affect the
Company. There can be no assurance that the Company will be able to
compete successfully against current and future competitors or that the
competitive pressures faced by the Company will not materially adversely
affect its business, operating results and financial condition.
Product Concentration
The Company currently expects the sale and license of its
InputAccel products and software tools to account for substantially all
of the Company's revenues for the foreseeable future. The Company's
future operating results are, therefore, heavily dependent upon
continued market acceptance of its InputAccel products and enhancements
to these products. Consequently, a decline in the demand for, or market
acceptance of, the Company's InputAccel products as a result of
competition, technological change or other factors, would have a
material adverse effect on the Company's business, operating results and
financial condition.
Dependence on Continued Growth of the Market for Data Capture and
Document Management Applications
Although demand for document capture software for document
management applications has grown in recent years, this market is still
emerging and there can be no assurance that it will continue to grow or
that organizations will continue to adopt the Company's products. The
Company has spent, and intends to continue to spend, considerable
resources educating potential customers about the Company's software
products and the document processing market generally. However, there
can be no assurance that such expenditures will enable the Company's
products to achieve any additional degree of market acceptance. The
rate at which organizations have adopted the Company's products has
varied significantly and the Company expects to continue to experience
such variations in the future. There can be no assurance that the
markets for the Company's products will continue to develop or that the
Company's products will be accepted within such markets. If the markets
for the Company's products fail to develop, or develop more slowly than
the Company currently anticipates, the Company's business, operating
results and financial condition would be materially adversely affected.
Rapid Technological Change and New Products
The market for the Company's products is characterized by rapid
technological change, frequent new product introductions and
enhancements, uncertain product life cycles, changes in customer demands
and evolving industry standards. The introduction of products embodying
new technologies and the emergence of new industry standards can render
existing products obsolete and unmarketable. The Company's future
success will depend upon its ability to continue to enhance its current
products and to develop and introduce new products on a timely basis
that keep pace with technological developments and satisfy increasingly
sophisticated customer requirements. As a result of the complexities
inherent in document image processing software, new products and product
enhancements can require long development and testing periods. As a
result, significant delays in the general availability of such new
releases or significant problems in the installation or implementation
of such new releases could have a material adverse effect on the
Company's business, operating results and financial condition. The
Company has experienced delays in the past in the release of new
products and new product enhancements. There can be no assurance that
the Company will be successful in developing and marketing, on a timely
and cost effective basis, new products or new product enhancements that
respond to technological change, evolving industry standards or customer
requirements, that the Company will not experience difficulties that
could delay or prevent the successful development, introduction or
marketing of these products or that the Company's new products and
product enhancements will achieve market acceptance.
Risk of Software Defects
Software products as complex as those offered by the Company may
contain errors or defects, particularly when first introduced or when
new versions or enhancements are released. The Company has in the past
discovered software errors in certain of its new products after their
introduction. There can be no assurance that, despite testing by the
Company, defects and errors will not be found in current versions, new
versions or enhancements of its products after commencement of
commercial shipments, resulting in loss of revenues or delay in market
acceptance, which could have a material adverse effect on the Company's
business, operating results and financial condition.
Year 2000 Readiness Disclosure
The following information constitutes a "Year 2000 Readiness
Disclosure" for purposes of the Year 2000 Information and Readiness
Disclosure Act:
Many currently installed computer systems are not capable of
distinguishing 21st century dates from 20th century dates. As a result,
in less than one year, computer systems and/or software used by many
companies in a very wide variety of applications will experience
operating difficulties unless they are modified or upgraded to
adequately process information involving, related to or dependent upon
the century change. Significant uncertainty exists concerning the scope
and magnitude of problems associated with the century change.
The Company recognizes the need to ensure its operations will not
be adversely impacted by the Year 2000 problem. The Company's Year 2000
compliance effort has been led since mid-1998 by a committee headed by
its Vice Presidents of Operations and Product Strategy. The effort has
been focused on compliance of the Company's products and the Company's
critical business systems. Non-critical business systems will be
addressed if and when necessary, as the Company currently anticipates
minimal impact to operations and ready availability of replacement goods
or services in this category.
As more fully discussed below, the Company's products make only
limited use of date algorithms and generally are user configurable
and/or dependent on third-party products for date information. As a
result, it is impossible to make definitive statements concerning the
compliance of any particular system, but the Company believes that when
properly installed, its products can be configured in a compliant
manner.
As a software developer, the Company is dependent on relatively few
critical suppliers. These tend to be infrastructure vendors rather than
component vendors, most notably including building utilities,
telecommunications and internet service as well as third-party software
suppliers whose products are used for product development, internal
business processes and operating platforms for the Company's products.
Generally these suppliers are well established enterprises which have
provided assurances that they are or will be Year 2000 compliant
sufficiently before January 1 to avoid business disruptions, and the
Company anticipates no significant disruptions from these suppliers.
The Company's flagship product, InputAccel, is a modular,
configurable, enterprise software application that operates on a
Microsoft Windows platform and can export information to one or more
third-party software applications. The product's current revision (2.2)
has been subjected to code inspection testing for Year 2000 compliance
by the Company, and the Company offers no-charge test systems to
licensed end-users so that they may perform compliance testing in their
own environments. The Company warrants to new end-users that the
product is capable of compliant installation and that the Company will
take prompt action to address any Year 2000 defects that may be
encountered. However, due to the product's configurable nature and its
interdependence with third-party products, its warranty is of limited
scope in order to avoid liability for externally introduced Year 2000
problems. The Company is advising users of InputAccel revisions prior
to 2.2 to upgrade to the current revision to install a no charge
software patch that will eliminate potential Y2K issues in 2 specific
client modules.
Released versions of PixToolsr development toolkit products and the
PixViewTM image utility application do not represent, store or process
dates, and the Company believes that the Year 2000 compliance issue is
inapplicable to these products alone. It should be noted however, that
the toolkit algorithms are intended to be combined with other program
elements in the course of development, and toolkit users must exercise
care not to introduce Year 2000 problems with those program elements.
The Company's internal information technology systems are comprised
of certain hardware, including computers and telecommunications
equipment; software applications, including sales management,
accounting, electronic mail, word processing, spreadsheets and the
Windows operating system as well as software development platforms.
Nearly all of the above hardware and software applications are
commercially available products from major suppliers. Many of these
products have been subject to upgrade or replacement concurrent with the
Company's recent relocation or as a result of scheduled maintenance, for
which there have been no extraordinary costs.
Critical externally supplied products and services include
electricity, telecommunications, internet service, payroll and shipping.
Such products and services are generally supplied by major providers
which currently represent that they will have no significant Year 2000
problems. In the event any such third-parties cannot provide the
Company with products, services or systems that meet the Year 2000
requirements on a timely basis, or in the event Year 2000 issues prevent
such third-parties from timely delivery of products or services required
by the Company, the Company's results of operations could be materially
adversely affected.
The InputAccel customer base is comprised primarily of large public
and private enterprises which have devoted, or will devote in 1999,
significant efforts to Year 2000 compliance issues. While InputAccel
may enhance the overall efficiency of such a customer's operations, it
is nevertheless not likely to be a material factor in any customer's
Year 2000 compliance effort. To the extent that such customers' MIS
departments are occupied with Year 2000 issues, they may defer
enterprise software acquisitions that are not critical to the Year 2000
effort, such as InputAccel. Such acquisition deferrals could have a
material adverse effect on the Company's business, operating results,
and financial condition.
The Company is dependent on Microsoft products which serve as the
operating system for its products and as the development platform for
those same products. In addition, the Company uses Windows-based
computers and a number of Microsoft applications in the regular conduct
of its business. While the Company regards the possibility of a
significant Year 2000 problem in Microsoft's products to be remote, if
such a problem were to occur in any of the Microsoft products used by
the Company, it could impact the Company's operations or development
efforts negatively.
To date, the Company has made no extraordinary expenditures in its
effort to achieve Year 2000 compliance other than the labor costs
associated with compliance analysis. Replacement products have been
secured, where necessary, in conjunction with scheduled and budgeted
maintenance. Other costs for replacing software have been insignificant
as most are under maintenance contracts or under warranty. The Company
does not anticipate that any significant future expenditure will be
required to achieve compliance, and it believes that any such
expenditure will have no material bearing on the Company's financial
performance. Accordingly, the Company has not adopted any formal
contingency plan in the event its Year 2000 project is not completed in
a timely manner.
The Company believes that, as a comparatively small and centralized
business operation, its Year 2000 risks are identifiable, and it
believes that it is already substantially prepared for the Year 2000.
Nevertheless there can be no assurance that all risks have been
identified and will be cured or that no business disruptions will occur
due to Year 2000 problems within the Company or from outside the
Company. The above discussion of compliance efforts, risks and costs
contain forward-looking statements based on the Company's current best
estimates, which estimates are based on currently available information.
Such information may be subject to change, in which case compliance
efforts, risks and costs could vary materially from current estimates
which could have a material adverse affect on the Company's business,
operating results and financial condition.
Euro
On January 1, 1999, the "euro" was introduced. On that day, the
exchange ratios of the currencies of the eleven countries participating
in the first phase of the European Economic and Monetary Union were
fixed. The euro became a currency in its own right and the currencies of
the participating countries, while continuing to exist for a three-year
transition period, are now fixed denominations of the euro. The
conversion to the euro will have significant effects on the foreign
exchange markets and bond markets and is requiring significant changes
in the operations and systems within the European banking industry. Our
information system is designed to accommodate multi-currency
environments. As a result we have the flexibility to transact business
with vendors and customers in either euro or traditional national
currency units. For those countries where bank accounts were not
automatically translated into dual currency bank accounts, we maintain
separate euro accounts.
Risks Associated with International Sales and Operations
The Company anticipates that for the foreseeable future a
significant portion of its revenues will be derived from sources outside
North America and the Company intends to continue to expand its sales
and support operations internationally. In order to successfully expand
international sales, the Company must establish additional foreign
operations, expand its international sales channel management and
support organizations, hire additional personnel, customize its products
for local markets, recruit additional international resellers and
increase the productivity of existing international resellers. To the
extent that the Company is unable to do so in a timely and cost-
effective manner, the Company's sales growth internationally, if any,
will be limited, and the Company's business, operating results and
financial condition could be materially adversely affected. Even if the
Company is able to successfully expand its international operations
there can be no assurance that the Company will be able to maintain or
increase international market demand for its products.
The Company's international operations are generally subject to a
number of risks, including costs of customizing products for foreign
countries, protectionist laws and business practices favoring local
competition, dependence on local vendors, compliance with multiple,
conflicting and changing government laws and regulations, longer sales
cycles, greater difficulty or delay in accounts receivable collection,
import and export restrictions and tariffs, difficulties in staffing and
managing foreign operations, foreign currency exchange rate
fluctuations, multiple and conflicting tax laws and regulations and
political and economic instability. To date, a majority of the
Company's revenues and costs have been denominated in U.S. dollars.
However, the Company believes that in the future, an increasing portion
of the Company's revenues and costs will be denominated in foreign
currencies. Although the Company may from time to time undertake
foreign exchange hedging transactions to reduce its foreign currency
transaction exposure, the Company does not currently attempt to
eliminate all foreign currency transaction exposure.
Dependence on Key Personnel
The Company's success depends to a significant extent upon the
efforts of its key management, sales and marketing, technical support
and research and development personnel, none of whom are bound by an
employment contract. The loss of key management or technical personnel
could adversely affect the Company. The Company believes that its
future success will depend in large part upon its continuing ability to
attract and retain highly skilled managerial, sales and marketing,
technical support and research and development personnel. Like other
software companies, the Company faces intense competition for such
personnel, and the Company has at times experienced and continues to
experience difficulty in recruiting qualified personnel. There can be
no assurance that the Company will be successful in attracting,
assimilating and retaining additional qualified personnel in the future.
The loss of the services of one or more of the Company's key
individuals, or the failure to attract and retain additional qualified
personnel, could have a material adverse effect on the Company's
business, operating results and financial condition.
Limited Protection of Proprietary Technology; Risks of Infringement; Use
of Licensed Technology
The Company relies primarily on a combination of copyright,
trademark and trade secret laws, confidentiality procedures and
contractual provisions to protect its proprietary rights. The Company
licenses its software products primarily under license agreements.
There can be no assurance that others will not develop technologies that
are similar or superior to the Company's technology or design around the
copyrights and trade secrets owned by the Company. Despite the
Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary.
Policing unauthorized use of the Company's products is difficult, and
although the Company is unable to determine the extent to which piracy
of its software products exists, software piracy can be expected to be a
persistent problem. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights as fully as do the laws of
the U.S.
The Company is not aware that it is infringing any proprietary
rights of third-parties. There can be no assurance, however, that
third-parties will not claim infringement by the Company of their
intellectual property rights. The Company expects that software product
developers increasingly will be subject to infringement claims as the
number of products and competitors in the Company's industry segment
grows and the functionality of products in different industry segments
overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's
attention and resources, cause product shipment delays or require the
Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms
acceptable to the Company, if at all. In the event of a successful
claim of product infringement against the Company and failure or
inability of the Company to either license the infringed or similar
technology or develop alternative technology on a timely basis, the
Company's business, operating results and financial condition could be
materially adversely affected.
The Company relies upon certain software that it licenses from
third-parties, including software that is integrated with the Company's
internally developed software and used in its products to perform key
functions. There can be no assurance that these third-party software
licenses will continue to be available to the Company on commercially
reasonable terms, if at all. The loss of or inability to maintain any
such software licenses could result in shipment delays or reductions
until equivalent software could be developed, identified, licensed and
integrated such delays would materially adversely affect the Company's
business, operating results and financial condition.
Product Liability
Although the Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims, it is possible that such limitation
of liability provisions may not be effective as a result of existing or
future laws or unfavorable judicial decisions. The Company has not
experienced any material product liability claims to date; however, the
sale and support of the Company's products may entail the risks of such
claims, which may be substantial in light of the use of the Company's
products in business-critical applications.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults Upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders -
Not Applicable
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement of Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K - Not Applicable
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.
\ INPUT SOFTWARE, INC.
------------------------------
Registrant
Date: November 15,1999 /s/ John Finegan
------------------------------
John Finegan
Chief Financial Officer
and Secretary
(Principal Financial and
Accounting Officer)
EXHIBIT INDEX
Exhibit Description
- --------- ------------------------------------------------------------
11.1 Statement of Computation of Earnings per Share
27 Financial Data Schedule
[ARTICLE] 5
[MULTIPLIER] 1,000
Part II. Other information, Item 6a.
Exhibit 11.1
INPUT SOFTWARE, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss)........... $42 $354 $354 ($2,037)
========= ========= ========= =========
Shares used in basic EPS
calculation................ 4,255 5,352 4,478 5,890
Dilutive effect of stock
options.................... 2 88 8 105
--------- --------- --------- ---------
Shares used in diluted EPS
calculation................ 4,257 5,440 4,486 5,995
========= ========= ========= =========
Basic EPS................... $0.01 $0.07 $0.08 ($0.35)
Diluted EPS................. $0.01 $0.07 $0.08 ($0.35)
========= ========= ========= =========
</TABLE>
Options outstanding at September 30, 1999 and September 30, 1998 of
2.4 million and 1.2 million respectively, were not included in the
computation of diluted EPS because exercise price was greater than
the average market price.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 1999, THE
CONSOLIDATED STATEMENTS OF OPERATIONS, THE CONSOLIDATED
STATEMENTS OF CASH FLOW AND THE RELATED NOTES FOR THE NINE
MONTH PERIOD THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 9,856
<SECURITIES> 0
<RECEIVABLES> 5,759
<ALLOWANCES> 428
<INVENTORY> 0
<CURRENT-ASSETS> 20,846
<PP&E> 1,338
<DEPRECIATION> 1,599
<TOTAL-ASSETS> 22,833
<CURRENT-LIABILITIES> 5,055
<BONDS> 0
0
0
<COMMON> 40
<OTHER-SE> 17,738
<TOTAL-LIABILITY-AND-EQUITY> 22,833
<SALES> 16,577
<TOTAL-REVENUES> 16,577
<CGS> 2,333
<TOTAL-COSTS> 2,333
<OTHER-EXPENSES> 14,206
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 533
<INCOME-TAX> 179
<INCOME-CONTINUING> 354
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 354
<EPS-BASIC> $0.08
<EPS-DILUTED> $0.08
</TABLE>
