Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended March 31, 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
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(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)
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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 March 31, 1999: 4,619,227
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
INPUT SOFTWARE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
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(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................... $12,630 $14,447
Accounts receivable........................... 4,767 4,490
Deferred income taxes and
other current assets....................... 5,584 5,613
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Total current assets........................ 22,981 24,550
Property and equipment, net..................... 1,289 1,208
Other assets.................................... 984 943
Net assets related to the
discontinued display division.............. (206) 176
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$25,048 $26,877
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $284 $652
Deferred revenue.............................. 1,777 1,694
Accrued liabilities........................... 2,667 3,174
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Total current liabilities................... 4,728 5,520
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Stockholders' equity:
Common stock.................................. 46 48
Paid in capital............................... 11,350 12,512
Retained earnings............................. 8,924 8,797
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Stockholders' equity........................ 20,320 21,357
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$25,048 $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
March 31,
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1999 1998
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<S> <C> <C>
Net revenues from continuing
operations...................... $5,260 $3,387
Cost of revenues.................. 714 425
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Gross profit 4,546 2,962
Sales and marketing............... 2,450 1,476
Research and development.......... 1,229 1,072
General and administrative........ 853 507
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Operating income (loss)......... 14 (93)
Interest and other income......... 175 143
--------- ---------
Income before provision
for income taxes............. 189 50
0
Provision for income taxes........ 62 15
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Net income from continuing
operations........ 127 35
Discontinued operations:
Net Income (loss) from operations
of Discontinued Display
Division........................ -- (361)
Estimated net loss on sale of
Display Division................ -- (2,284)
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Net income (loss) from
discontinued operations....... -- (2,645)
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Net income (loss)............... $127 ($2,610)
========= =========
Basic and diluted EPS:
Income (loss) from
continuing operations........ $0.03 $0.01
Income (loss) from
discontinued operations...... 0.00 (0.42)
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Net income (loss)............... $0.03 ($0.41)
========= =========
Shares used in EPS calculations:
Basic ......................... 4,710 6,375
Diluted........................ 4,723 6,394
========= =========
</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>
Three Months Ended
March 31,
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1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $127 ($2,610)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization........................ 118 230
Discontinued operations 382 4,749
(Increase) decrease in assets and liabilities:
Accounts receivable................................. (277) 178
Deferred income taxes and other assets.............. (12) 22
Accounts payable.................................... (368) (89)
Accrued liabilities and deferred revenue............ (424) (214)
--------- ---------
Net cash provided by (used in) operating activities.. (454) 2,266
--------- ---------
Cash flows from investing activities:
Property and equipment additions....................... (199) (74)
--------- ---------
Net cash used in investing activities............... (199) (74)
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Cash flows from financing activities:
Repurchase of common stock............................. (1,164) (2,338)
--------- ---------
Net cash used in financing activities............... (1,164) (2,338)
--------- ---------
Net decrease in cash and cash equivalents............... (1,817) (146)
Cash and cash equivalents at beginning of period........ 14,447 12,284
--------- ---------
Cash and cash equivalents at end of period.............. $12,630 $12,138
========= =========
</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 three month periods
ended March 31, 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 reflect the Company's
estimated 1998 annualized effective tax rate of 33%.
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 three months ended March 31, 1999 the
Company repurchased 189,000 shares for a total of $1.2 million. Since
inception of the program a total of 3.1 million shares have been
repurchased for a total of $20.2 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. The Company intends to use cash on hand to fund its
purchases.
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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 statement
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, markets, and services
information capture software. The Company's information capture software
helps automate and manage the input of external information into an
organization's internal computing systems. Customers use information
capture software in two ways--transaction applications where documents such
as order forms, claims forms, or loan applications are the basis of a
business transaction and content loading applications where external
documents are captured and uploaded to web sites, CDs, or application
servers for subsequent search and retrieval.
InputAccel, which began shipping in November 1995, is the Company's
flagship product line. With InputAccel, the Company has established
itself as an open systems information capture "platform" provider.
The Company's second product line is software tools, 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 55% in the first quarter of 1999 to
$5.3 million from $3.4 million in the first quarter of 1998. The increase in
revenue growth from 1999 compared to 1998 is due primarily to increased
customer base as well as add on revenues from our InputAccel product line
and stronger than expected royalties stream from our Tools product line.
Gross Profit
Gross profit increased 53% for the first quarter of 1999 to $4.5 million
from $3.0 million for the first quarter of 1998. The differences from 1999
compared to 1998 are due to revenue increases. Gross margin was 86% and 87%
respectively.
Sales and marketing
Sales and marketing expenses increased 66% to $2.5 million in the first
quarter of 1999 from $1.5 million in the first quarter of 1998. The Company
expects that sales and marketing expenses will increase in the future, in
absolute terms, as the Company continues to expand sales and marketing
programs.
Research and Development
Research and development expenses increased 15% to $1.2 million in the
first quarter of 1999 from $1.1 million in the first quarter 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. 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 first quarter of 1999
increased by 68% to $853,000 from $507,000 in the first quarter of 1998.
The recently sold display division has in the past absorbed certain general
and administrative expenses. Accordingly, the Company expects general and
administrative expenses to increase in succeeding future periods.
Divestiture
The sale of the display division resulted in a net loss of $1.4 million,
or 24 cents per share, in 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 $990,000, net of tax benefit, on the
sale of the net assets of the display division. 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 30% for the first quarter of 1999
and 1998, respectively.
Liquidity and Capital Resources
At March 31, 1999, the Company had cash and cash equivalents of $12.6
million, compared to $14.4 million at December 31, 1998.
Net cash used by operating activities was $454,000 in the first three
months of 1998 compared to net cash provided by operating activities of
$2.3 million in the first three months of 1998.
Net cash used in investing activities, exclusively additions to property
and equipment, was $199,000 for the first three months of 1999, compared to
$74,000 in the first three 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 and further
increased to $20 million on August 12, 1998 and further increased 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 three month period ended March 31, 1999, the Company
repurchased 189,000 shares at an average cost per share of $6.15.
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
March 31, 1999, the Company's software operations had cumulative pre-tax
operating losses of approximately $2.7 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. The Company believes that this pattern
will continue. 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.X) 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. At the current time, the Company has
identified an anomaly in third-party code which is incorporated in
InputAccel that may create ambiguities under certain circumstances in the
interpretation of two-digit years. The Company is taking immediate
remedial measures to eliminate the effect of this code and plans to replace
the third-party product before January 1, 2000. Revisions prior to 2.0 have
not been tested for Year 2000 compliance, and users of earlier versions of
InputAccel may encounter Year 2000 defects.
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. The
Company does not anticipate that any significant future expenditures will
be required to achieve compliance, and it believes that any such
expenditures 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 - Not Applicable
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: May 11,1998 /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
March 31,
-------------------
1999 1998
--------- ---------
<S> <C> <C>
Net income (loss)........... $127 ($2,610)
========= =========
Shares used in basic EPS
calculation................ 4,710 6,375
Dilutive effect of stock
options.................... 13 19
--------- ---------
Shares used in diluted EPS
calculation................ 4,723 6,394
========= =========
Basic EPS................... $0.03 ($0.41)
Diluted EPS................. $0.03 ($0.41)
========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEETS AT MARCH 31, 1998, THE
CONSOLIDATED STATEMENTS OF OPERATIONS, THE CONSOLIDATED
STATEMENTS OF CASH FLOW AND THE RELATED NOTES FOR THE THREE
MONTH PERIOD THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 12,630
<SECURITIES> 0
<RECEIVABLES> 5,261
<ALLOWANCES> 494
<INVENTORY> 0
<CURRENT-ASSETS> 22,981
<PP&E> 1,289
<DEPRECIATION> 1,374
<TOTAL-ASSETS> 25,048
<CURRENT-LIABILITIES> 4,728
<BONDS> 0
0
0
<COMMON> 46
<OTHER-SE> 20,274
<TOTAL-LIABILITY-AND-EQUITY> 25,048
<SALES> 5,260
<TOTAL-REVENUES> 5,260
<CGS> 714
<TOTAL-COSTS> 714
<OTHER-EXPENSES> 4,532
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 189
<INCOME-TAX> 62
<INCOME-CONTINUING> 127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127
<EPS-PRIMARY> $0.03
<EPS-DILUTED> $0.03
</TABLE>
