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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
[ ] 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. 0-25297
--------------
SMITH-GARDNER & ASSOCIATES, INC.
FLORIDA 65-0090038
(State of Incorporation) (I.R.S. Employer Identification No.)
1615 SOUTH CONGRESS AVENUE, DELRAY BEACH, FL 33445-6368
TELEPHONE: (561) 265-2700
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 12,407,549 shares of the
Registrant's Common Stock, par value $0.01 per share, were outstanding as of May
1, 2000.
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SMITH-GARDNER & ASSOCIATES, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
a.) Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2000 and 1999......................... 3
b.) Condensed Consolidated Balance Sheets
as of March 31, 2000 and December 31, 1999................................. 4
c.) Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2000 and 1999......................... 5
d.) Notes to Condensed Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................ 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................................................. 12
Item 6. Exhibits and Reports on Form 8-K.................................................... 12
Signatures................................................................................... 13
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
2000 1999
---------------- --------------
<S> <C> <C>
Revenue:
License fees and software sales $ 6,284 $ 5,175
Computer hardware sales 3,373 1,316
Support 2,187 1,627
Services 1,100 933
-------- --------
Total revenue 12,944 9,051
Cost of revenue:
License fees and software sales 2,738 1,445
Computer hardware sales 2,696 829
Support 1,584 1,084
Services 830 711
-------- --------
Total cost of revenue 7,848 4,069
-------- --------
Gross margin 5,096 4,982
Operating expenses:
General and administrative 2,204 2,090
Sales and marketing 1,785 1,120
Research and development 1,097 654
-------- --------
Total operating expenses 5,086 3,864
-------- --------
Operating income 10 1,118
Other income 545 96
-------- --------
Income before income taxes 555 1,214
Income tax expense (235) (183)
Net income $ 320 $ 1,031
======== ========
Basic net income per share $ 0.03 $ 0.10
======== ========
Diluted net income per share $ 0.02 $ 0.09
======== ========
Weighted average shares used in historical basic per share computation 12,322 9,827
======== ========
Weighted average shares used in historical diluted per share computation 13,192 11,132
======== ========
Income before pro forma income tax benefit 555 1,214
Pro forma provision for income tax benefit (235) (513)
-------- --------
Pro forma net loss $ 320 $ 701
======== ========
Pro forma basic net loss per share $
$ 0.03 0.07
======== ========
Pro forma diluted net loss per share $ 0.02 $ 0.06
======== ========
Weighted average shares used in pro forma basic per share computation 12,322 9,827
======== ========
Weighted average shares used in pro forma diluted per share computation 13,192 11,132
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------------- ---------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $36,976 $39,246
Accounts receivable, net of allowance for doubtful accounts of
$676 at March 31, 2000 and $616 at December 31, 1999 12,873 8,425
Income tax receivable 1,093 383
Inventory 144 275
Deferred income taxes 554 554
Prepaid expenses and other current assets 629 597
-------------- ---------------
Total current assets 52,269 49,480
Property and equipment, net 2,707 1,879
Other assets 115 109
-------------- ---------------
Total assets $ 55,091 $51,468
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 6,804 $ 5,429
Deferred revenue 1,482 659
Current portion of capital lease obligation 57 57
-------------- ---------------
Total current liabilities 8,343 6,145
Long term portion of capital lease obligation 113 122
Deferred income taxes 38 38
-------------- ---------------
Total liabilities 8,494 6,305
Stockholders' equity:
Common stock, $.01 par value. Authorized 50,000,000
shares; issued and outstanding 12,407,549 shares
(unaudited) and 12,276,578 at March 31, 2000 and
December 31, 1999, respectively. 124 123
Additional paid in capital 56,021 54,871
Currency translation adjustment (36) --
Accumulated deficit (9,512) (9,832)
-------------- ----------------
Total stockholders' equity 46,597 45,163
-------------- ----------------
Total liabilities and stockholders' equity $55,091 $ 51,468
============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements
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SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Net income $ 320 $ 1,031
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 155 98
Non-cash compensation expense 7 11
Bad debt expense 71 --
Change in assets and liabilities:
Accounts receivable (4,561) 1,016
Inventory 131 13
Income tax receivable 20 --
Deferred income taxes -- (389)
Prepaid expenses and other current assets (32) (262)
Other assets (7) 33
Accounts payable and accrued expenses 1,397 (3,744)
Deferred revenue 819 540
-------- --------
Net cash used in operating activities (1,680) (1,653)
Cash flows used in investing activities:
Capital expenditures (992) (428)
-------- --------
Net cash used in investing activities (992) (428)
Cash flows provided by (used in ) financing activities:
Employee stock option exercises 414 200
Issuance of common stock -- 50,854
Deferred offering costs -- 552
Redemption of preferred stock -- (12,000)
Payment on capital lease (9) --
--------
Net cash provided by financing activities 405 39,606
-------- --------
Effect of exchange rates on cash and cash equivalents (3) --
-------- --------
Net (decrease) increase in cash and cash equivalents (2,270) 37,525
Cash and cash equivalents at beginning of period 39,246 1,577
-------- --------
Cash and cash equivalents at end of period $ 36,976 $ 39,102
======== ========
Supplemental cash flow information:
Cash paid for interest $ -- $ 4,665
======== ========
Cash paid for income taxes $ 976 $ --
======== ========
Supplemental non-cash information:
Tax benefit from stock option exercises $ 730 --
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
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SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
March 31, 2000
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the results
for the periods presented have been included. These condensed consolidated
financial statements should be read in connection with the Annual Report on Form
10-K of Smith-Gardner & Associates, Inc. ("Company") as of and for the year
ended December 31, 1999.
(2) PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company and
its two wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(3) EARNINGS PER SHARE
Historical basic net income per share is calculated by dividing net income by
the weighted average number of common shares outstanding during the period.
Historical diluted net income per share is computed on the basis of the weighted
average number of common shares outstanding plus the dilutive effect of common
share equivalents ("CSE's") outstanding and adjustments to net income using the
if converted and treasury stock methods.
Pro forma basic income per share is calculated by dividing pro forma net income
by the weighted average number of shares of common stock outstanding. Pro forma
diluted net income per share was computed on the basis of the weighted average
number of common shares outstanding plus the dilutive effect of CSE's
outstanding and adjustments to net income using the if converted and treasury
stock methods.
(4) REVENUE RECOGNITION
The Company follows SOP 97-2, SOFTWARE REVENUE RECOGNITION. SOP 97-2 generally
requires revenue earned on software arrangements involving multiple elements to
be allocated to each element based on vendor specific objective evidence (VSOE)
of the relative fair values of the elements. VSOE is determined by the price
charged when the element is sold separately. The revenue allocated to hardware
and software products generally is recognized when the hardware and software
have been delivered and installed, the fee is fixed and determinable and the
collectibility is probable. The revenue allocated to post contract customer
support is consistent with fees charged for renewals and is recognized ratably
over the term of the support. Revenue allocated to service elements is
recognized as the services are performed.
In March 1999, SOP 98-9 was issued which amends SOP 97-2 guidance on VSOE for
multiple element arrangements in which there is VSOE of fair value of all the
undelivered elements, and VSOE of fair value does not exist for one or more of
the delivered elements. This SOP does not currently apply to the Company since
VSOE of fair value exists for all elements in the Company's contracts.
(5) FOREIGN CURRENCY TRANSLATION
The functional currencies of the Company's foreign subsidiaries are their
respective local currencies. The translation of the applicable foreign
currencies into U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue and
expense accounts using average rates prevailing during the period. Adjustments
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resulting from the translation of foreign currency financial statements were
insignificant at December 31, 1999. As of March 31, 2000, foreign currency
translation adjustments ("CTA") were included in the shareholders' equity
section of the balance sheet.
(6) INCOME TAXES
On January 1, 1999, the Company terminated its S corporation status. In
connection with this termination, the Company now records income taxes in
accordance with Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. The pro forma provision for income tax expense presented on
the condensed consolidated statements of operations for the three months ended
March 31, 1999 excludes a one-time tax benefit of $330,000 resulting from the
Company's conversion to a C Corporation.
(7) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in thousands):
MARCH 31, DECEMBER 31,
2000 1999
----------------- ----------------
(unaudited)
Accounts payable $ 3,381 $ 2,436
Sales tax payable 798 803
Deferred rent 847 679
Accrued payroll 380 805
Accrued payroll deductions 672 113
Other 726 593
----------------- ----------------
$ 6,804 $ 5,429
================= ================
(8) COMPREHENSIVE INCOME
Effective July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No.
130 requires the reporting of comprehensive income in addition to net income
from operations. Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income. The
Company's total comprehensive income is as follows:
THREE MONTHS ENDED
-------------------------------------
MARCH 31, DECEMBER 31,
2000 1999
----------------- ----------------
(unaudited)
Net income $ 320 $ 1,031
Other comprehensive income:
Foreign currency translation --
adjustments (36)
----------------- ----------------
Total comprehensive income $ 284 $ 1,031
================= ================
(9) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. It requires an entity to recognize
all derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. SFAS No. 133 is expected to be
effective for the Company's year ending December 31, 2001. The Company does not
believe that the adoption of SFAS No. 133 will have a significant impact on
the Company's financial reporting.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company is a leading provider of mission-critical, enterprise-wide software
solutions, and related hardware and services, to the direct commerce industry.
The Company's clients in the direct commerce industry are traditional direct
marketing companies and Internet-only retailers, as well as wholesalers,
fulfillment houses and retailers with significant non-store sales channels. The
Company's MACS family of software products, renamed Ecometry in April 2000, are
designed to automate non-store commerce activities, including advertising
analysis, sales, telemarketing, ordering, merchandising, procurement, electronic
and Internet commerce, warehousing, shipping, accounting and systems operation.
The Ecometry products also provide managers and sales personnel with real-time
operations, inventory and customer data to improve both management decision
making and customer service.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
LICENSE FEES AND SOFTWARE SALES. License fees and software sales accounted for
approximately 48.6% of the Company's total revenue for the three months ended
March 31, 2000. License fees and software sales consist of license fees for the
installation of the Company's Ecometry software and related modules, license
fees for third-party software, and additional user license fees, and software
upgrades for its existing clients. License fees and software sales are based on
the number of users and type and number of CPUs. License fees and software sales
increased 21.4% to $6.3 million during the three months ended March 31, 2000
compared to $5.2 million for the three months ended March 31, 1999. This
increase resulted from an increase in computer software sales to both new and
existing clients. New client license fees and software sales increased from $2.2
million for the three months ended March 31, 1999 to $2.4 million in 2000, and
license fee and software upgrades increased from $3.0 to $3.9 million for the
same period. The increase in 2000 resulted from several large upgrades from the
Company's expanding client base.
COMPUTER HARDWARE SALES. Sales of computer hardware accounted for approximately
26.1% of the Company's total revenue for the three months ended March 31, 2000.
Sales of computer hardware consist of sales of computer hardware systems and
peripheral hardware components. Computer hardware revenue increased 156.3% to
$3.4 million for the three months ended March 31, 2000, compared to $1.3 million
for the three months ended March 31, 1999. Computer hardware revenue relating to
new client sales increased 94.7% to $1.1 million for the three months ended
March 31, 2000, compared to $550,000 for the same period in 1999. The increase
in computer hardware sales to new clients resulted from more installations
during the quarter ended March 31, 2000. In addition, computer hardware upgrades
increased by 200.3% to $2.3 million for the three months ended March 31, 2000,
compared to $767,000 for the same period in 1999. The increase in 2000 resulted
from several large upgrades from the Company's expanding client base.
SUPPORT. Support revenue accounted for approximately 16.9% of the Company's
total revenue during the three months ended March 31, 2000. Support revenue
consists of fees for technical support services and product enhancements for the
Ecometry software, optional modules, and integrated third-party software
utilities. Support revenue increased 34.5% to $2.2 million during the three
months ended March 31, 2000, compared to $1.6 million for the three months ended
March 31, 1999. The increase resulted from the addition of new clients during
1999 and 2000, as well as support fee increases related to software user license
upgrades.
SERVICES. Services revenue accounted for approximately 8.5% of the Company's
revenue for the three months ended March 31, 2000. Services revenue consists
principally of revenue derived from training, consulting, and custom
programming. Services revenue increased 17.8% to $1.1 million for the three
months ended March 31, 2000, compared to $934,000 for the three months ended
March 31, 1999. This increase was due primarily to an expanded client base and
increased demand for consulting and web design services.
TOTAL REVENUE. Total revenue increased 43.0% to $12.9 million for the three
months ended March 31, 2000, compared to $9.1 million in 1999. New client sales
increased 27.4% to $3.5 for the three months ended March 31, 2000 from $2.7
million for the three months ended March 31, 1999. This increase was due to a
higher number of installations for
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the three months ended March 31, 2000 compared to the three months ended March
31, 1999. Also contributing to the increase were sales of systems modules and
sales of the Ecometry Gateway. Revenue from client system and component upgrades
increased by 64.2% to $6.2 million for the three months ended March 31, 2000,
compared to $3.8 million for the three months ended March 31, 1999 due to an
expanding client base and increased sales efforts directed toward existing
clients.
COST OF LICENSE FEES AND SOFTWARE SALES. Cost of license fees and software
sales, which includes licenses fees for third-party software, installation and
training salaries directly related to new software sales, and subcontractor
fees, increased 89.5% to $2.7 million during the three months ended March 31,
2000, compared to $1.4 million for the three months ended March 31, 1999. The
increase is attributable to higher software license revenue, personnel costs for
training and installation, and a greater proportion of third party software
product sales, which carry lower margins. Cost of license fees and software
sales as a percentage of total revenue increased to 21.2% for the three months
ended March 31, 2000 from 16.0% for the three months ended March 31, 1999 due to
the increased personnel and third party software costs. Cost of computer
software as a percentage of software license fees increased to 43.6% for the
three months ended March 31, 2000 from 27.9% for the three months ended March
31, 1999. This is due to the greater proportion of third party software product
sales.
COST OF COMPUTER HARDWARE SALES. Cost of computer hardware sales, which consists
of purchases of computer systems and peripheral hardware components, increased
225.1% to $2.7 million for the three months ended March 31, 2000. This increase
was related to the 156.3% increase in computer hardware revenue combined with
higher costs during the three months ended March 31, 2000 compared to the three
months ended March 31, 1999. Costs of computer hardware as a percentage of total
revenue increased to 20.8% for the three months ended March 31, 2000 from 9.2%
for the three months ended March 31, 1999 due to the 256% increase in hardware
sales during the quarter ended March 31, 2000. Costs of computer hardware, as a
percentage of computer hardware revenue was 79.9% and 63.0% for the three months
ended March 31, 2000 and 1999, respectively. The increase resulted from a higher
proportion of sales to existing clients, which receive higher volume discounts,
and fewer leasing transactions whereby the Company has no cost associated with
the sale. In such situations, the Company records only a commission, which is
based on the difference between the Company's cost and selling price to the
client.
COST OF SUPPORT. Cost of support consists primarily of personnel costs
associated with the support of the Company's software products and third-party
computer software packages, and the cost of user documentation distributed to
clients. Cost of support increased 46.1% to $1.6 million for the three months
ended March 31, 2000 from $1.1 million for the three months ended March 31,
1999. The increase was due to a significant increase in support personnel costs
necessary to meet the needs of the Company's growing client base. Cost of
support as a percentage of total revenue increased to 12.2% for the three months
ended March 31, 2000 from 12.0% for the three months ended March 31, 1999. Cost
of support as a percentage of support revenue increased to 72.4% for the three
months ended March 31, 2000 from 66.6% for the three months ended March 31, 1999
as a result of the increased personnel costs.
COST OF SERVICES. Cost of services, which consists of salaries for professional
services employees, allocated salaries for training and programming personnel,
and payments to outside contractors, increased 16.8% to $830,000 during the
three months ended March 31, 2000, compared to $711,000 for the same period in
1999. The increase was due to the higher personnel costs for service related
employees to meet the growing client demand for consulting and programming
services. Cost of services as a percentage of total revenue decreased to 6.4%
for the three months ended March 31, 2000 from 7.9% for the three months ended
March 31, 1999. Cost of services as a percentage of services revenue decreased
marginally to 75.5% for the three months ended March 31, 2000 from 76.1% for the
three months ended March 31, 1999. The decrease was related to increased
utilization of available resources and higher pricing for services.
TOTAL COST OF REVENUE. Total cost of revenue increased by 92.9% to $7.8 million
for the three months ended March 31, 2000, compared to $4.1 million for the
three months ended March 31, 1999. The increase in total cost of sales and
services is attributable to higher costs for computer license fees and hardware
and increased compensation expense for personnel added to accommodate current
and anticipated client demand.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include the cost
of the Company's finance, human resources, information services, and
administrative functions. General and administrative expenses increased 5.4% to
$2.2 million for the three months ended March 31, 2000, compared to $2.1 million
for the three months ended March 31, 1999. This increase was due to increased
facility costs and additional salaries and benefits for administrative
personnel, offset by the reduction of a sales tax accrual. General and
administrative expenses as a percentage of total revenue decreased to 23.1% for
the three months ended March 31, 2000 from 25.4% for the three months ended
March 31, 1999.
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SALES AND MARKETING. Sales and marketing expenses include personnel costs, sales
commissions related to sales and marketing of the Company's products and
services, and the cost of advertising, public relations and participation in
industry conferences and trade shows. Sales and marketing expenses increased by
59.4% to $1.8 million for the three months ended March 31, 2000, compared to
$1.1 million for the three months ended March 31, 1999. This planned increase
resulted from expanded marketing and advertising programs, public relations and
product re-branding costs, increased trade show costs, and additional personnel.
Sales and marketing expenses as a percentage of total revenue increased to 13.8%
for the three months ended March 31, 2000 from 12.4% for the three months ended
March 31, 1999.
RESEARCH AND DEVELOPMENT. Research and development expenses include costs
associated with the development of new products. Such expenses consist primarily
of employee salaries and benefits, consulting expenses (including amounts paid
to subcontractors for development work), and the cost of development of software
and hardware. Research and development expenses increased 67.5% to $1.1 million
during the three months ended March 31, 2000, compared to $655,000 for the three
months ended March 31, 1999. This increase was primarily due to improvements to
existing products and ongoing development of new products such as various new
modules and Ecometry for UNIX.
OPERATING INCOME. As a result of the foregoing factors, the Company's operating
income decreased by $1.1 million to $10,000 for the three months ended March 31,
2000 compared to income of $1.1 million for the three months ended March 31,
1999.
OTHER INCOME. Net interest income increased 465.2% to $544,000 for the three
months ended March 31, 2000, compared to net interest income of $96,000 for the
same period in 1999. The increase was due to interest income earned on proceeds
received from the Company's initial public offering on January 29, 1999, and the
underwriter exercising the overallotment option to purchase additional shares
from the Company on February 26, 1999. During the quarter ended March 31, 1999,
net interest income included interest expense associated with the $12.0 million
aggregate principal amount of Convertible Debentures held by certain lenders
(the "Lenders"), and interest income on available cash. The Convertible
Debentures were converted on January 29, 1999, concurrent with the closing of
the Company's initial public offering.
INCOME TAX EXPENSE. The effective tax rate for the three months ended March 31,
2000 was 42.4% compared to 17.8% for the first quarter of 1999. The low tax rate
in the first quarter of 1999 was due to a one-time tax benefit of $330,000 that
resulted from the Company recording its beginning deferred tax assets in
connection with the Company becoming a C Corporation as of January 1, 1999. The
effective income tax rate differs from the federal statutory rates because of
the following: (i) the effect of state income taxes; (ii) the full valuation of
net losses of foreign subsidiaries and (iii) the set up of the beginning
deferred tax assets. Also, effective rates vary between periods because of the
differing effects the net losses of foreign subsidiaries have on income before
income taxes.
NET INCOME. As a result of the above factors, the Company's net income decreased
by $711,000 to $320,000 for the three months ended March 31, 2000 from 1.0
million for the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company's primary sources of liquidity consisted of cash
and cash equivalents totaling $37.0 million.
The Company's operating activities have used cash for the three months ended
March 31, 2000 and 1999, of $1.7 million and $1.1 million, respectively.
Cash used in investing activities was approximately $992,000 and $428,000 for
the three months ended March 31, 2000 and 1999, respectively. This cash was used
for capital expenditures, which relate primarily to purchases of computers,
printers and software to support the Company's operations, as well as furniture,
fixtures and leasehold improvements. The Company expects its rate of purchases
of property and equipment to increase as its employee base grows.
For the three months ended March 31, 2000, cash provided by financing activities
totaled $405,000, which consisted primarily of proceeds from employee stock
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option exercises. Cash provided by financing activities totaled $39.0 million
for the three months ended March 31, 1999, which consisted of proceeds received
from the Company's initial public offering and the underwriters option to
purchase additional shares, offset by repayment in full of the Convertible
Debentures.
As of March 31, 2000, the Company had working capital of approximately $43.9
million as compared to working capital of approximately $43.3 million at March
31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Management believes the risk of loss arising from adverse changes in interest
rates, foreign currency exchange rates, commodity prices and other relevant
market rates and prices, such as equity prices, if any, is immaterial.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is involved in legal proceedings incidental to
the conduct of its business. The Company believes that this other litigation,
individually or in the aggregate, to which it is currently a party is not likely
to have a material adverse effect on the Company's business, financial condition
or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
FORWARD LOOKING STATEMENTS
Certain matters discussed in this Form 10-Q may be "forward-looking statements"
as defined in the Private Securities Litigation Reform Act of 1995, including
but not limited to statements related to plans for future business development
activities, anticipated costs of revenues, product mix and service revenues,
research and development and selling, general and administrative activities, and
liquidity and capital needs and resources. Such forward-looking statements are
subject to risks, uncertainties and other factors, which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. Investors are cautioned that any forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
contemplated by such forward-looking statements.
12
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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.
Date: May 10, 2000 SMITH-GARDNER & ASSOCIATES, INC.
By: /s/ MARTIN K. WEINBAUM
-----------------------------
Martin K. Weinbaum
Vice President Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
<PAGE> 14
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 36,976
<SECURITIES> 0
<RECEIVABLES> 13,549
<ALLOWANCES> 676
<INVENTORY> 144
<CURRENT-ASSETS> 52,269
<PP&E> 4,283
<DEPRECIATION> 1,576
<TOTAL-ASSETS> 55,091
<CURRENT-LIABILITIES> 8,343
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> 46,473
<TOTAL-LIABILITY-AND-EQUITY> 55,091
<SALES> 12,944
<TOTAL-REVENUES> 12,944
<CGS> 7,848
<TOTAL-COSTS> 5,096
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 555
<INCOME-TAX> 235
<INCOME-CONTINUING> 320
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 320
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.02
</TABLE>
