SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
COMMISSION FILE NUMBER 0-25472
VIASOFT, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2892506
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3033 NORTH 44TH STREET, PHOENIX, ARIZONA 85018
(Address of principal executive offices) (Zip Code)
(602) 952-0050
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the 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 [ ]
As of October 31, 1998, there were outstanding 18,518,526 shares of Common
Stock, par value $.001 per share, of Viasoft, Inc.
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VIASOFT, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998
and June 30, 1998 3
Consolidated Statements of Operations for the
three months ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the three
months ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
2
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VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, June 30,
1998 1998
----------- ---------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 36,073 $ 37,809
Investments, at amortized cost 51,937 63,294
Accounts receivable (less allowance for doubtful
accounts of $789 and $815, respectively) 23,655 33,227
Prepaid expenses and other 5,171 7,774
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Total current assets 116,836 142,104
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Furniture and equipment, net 7,768 7,609
Other assets:
Investments, at amortized cost 507 2,502
Intangible assets, net 8,111 6,751
Other 5,696 3,411
--------- ---------
Total other assets 14,314 12,664
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Total assets $ 138,918 $ 162,377
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,309 $ 1,733
Accrued compensation 2,855 4,390
Accrued income taxes payable 440 5,113
Other accrued expenses 16,356 13,768
Deferred revenue 15,885 20,843
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Total current liabilities 37,845 45,847
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Deferred revenue, recognized after one year 493 542
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Other long term liabilities 127 130
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Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 2,000,000 shares
authorized, no shares issued or outstanding -- --
Common stock, $.001 par value, 24,000,000 shares
authorized, 19,456,133 shares issued at both
September 30, and June 30, 1998, respectively 19 19
Capital in excess of par value 124,821 125,626
Common stock subscriptions receivable (31) (31)
Accumulated deficit (14,062) (6,995)
Cumulative translation adjustment (279) (580)
Treasury stock, at cost, 993,212 shares (10,015) (2,181)
--------- ---------
Total stockholders' equity 100,453 115,858
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Total liabilities and stockholders' equity $ 138,918 $ 162,377
========= =========
The accompanying notes are an integral part of these consolidated statements.
3
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VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
September 30,
------------------------
1998 1997
---- ----
Revenue:
Software license fees $ 9,735 $ 13,518
Maintenance fees 8,293 6,884
Professional services fees 7,288 5,619
Other 7 41
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Total revenues 25,323 26,062
-------- --------
Operating expenses:
Cost of software license and
maintenance fees 3,749 1,777
Cost of professional services fees 5,992 4,765
Sales and marketing 11,105 9,321
Write-off of purchased in-process
research and development 5,013 --
Research and development 4,454 2,818
General and administrative 2,662 2,038
Restructuring charge 4,790 --
-------- --------
Total operating expenses 37,765 20,719
-------- --------
Income (loss) from operations (12,442) 5,343
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Other income (expense):
Interest income 1,369 521
Other income (expense), net 207 (122)
-------- --------
Total other income (expense) 1,576 399
-------- --------
Income (loss) before income taxes (10,866) 5,742
Income tax (benefit)/provision (3,799) 1,977
-------- --------
Net income (loss) $ (7,067) $ 3,765
======== ========
Basic earnings (loss) per common share $ (0.37) $ 0.21
======== ========
Weighted average number of common shares
outstanding 18,955 17,925
======== ========
Diluted earnings (loss) per common and
common share equivalent $ (0.37) $ 0.20
======== ========
Weighted average number of common and
common share equivalents outstanding 18,955 18,722
======== ========
The accompanying notes are an integral part of these consolidated statements.
4
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VIASOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
September 30,
----------------------
1998 1997
---- ----
Operating activities:
Net income (loss) $ (7,067) $ 3,765
-------- --------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities -
Write-off of purchased in-process research
and development 5,013 --
Restructuring charge 4,780 --
Depreciation and amortization 1,447 735
Changes in operating assets and liabilities net of
effect of business acquired:
(Increase) decrease in accounts receivable 9,572 (93)
(Increase) decrease in prepaid expenses and other 2,852 (432)
Increase in other assets (3,185) (223)
Increase (decrease) in accrued income taxes (4,673) 1,864
Increase (decrease) in accounts payable and other
accrued expenses (1,401) 1,528
Decrease in accrued compensation (1,535) (895)
Decrease in deferred revenue (5,007) (1,452)
-------- --------
Total adjustments 7,863 1,032
-------- --------
Net cash provided by operating activities 796 4,797
-------- --------
Investing activities:
Capital expenditures (1,297) (1,138)
Cash paid for business, net of cash acquired (6,000) (530)
Purchase of investments (7,598) (10,884)
Investment maturities 20,701 6,495
-------- --------
Net cash provided by (used in) investing
activities 5,806 (6,057)
-------- --------
Financing activities:
Purchase of treasury stock (8,880) --
Sale of treasury stock 241 --
Payments received on common stock subscriptions
receivable -- 24
Proceeds from issuance of common stock -- 76,843
Payments for offering costs -- (747)
-------- --------
Net cash (used in) provided by financing
activities (8,639) 76,120
-------- --------
Effect of exchange rate changes on cash 301 95
-------- --------
Net increase (decrease) in cash and cash equivalents (1,736) 74,955
Cash and cash equivalents, beginning period 37,809 8,501
-------- --------
Cash and cash equivalents, end of period $ 36,073 $ 83,456
======== ========
Supplemental cash flow information:
Income taxes paid $ 2,871 $ 210
The accompanying notes are an integral part of these consolidated statements.
5
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VIASOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Viasoft, Inc.
and its wholly-owned subsidiaries ("Viasoft" or the "Company") after elimination
of all significant intercompany balances and transactions. The accompanying
unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
("GAAP") for complete financial statements. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation of the results for the interim periods presented have been
made. The results for the three month period ended September 30, 1998 may not
necessarily be indicative of the results for the entire year. These financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-K for the year ended June 30, 1998.
EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENT
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which supersedes Accounting Principles Board Opinion
No. 15, the existing authoritative guidance. SFAS No. 128 is effective for
financial statements for periods ending after December 15, 1997 and requires
restatement of all prior-period earnings per share data presented. The new
statement modifies the calculations of primary and fully diluted earnings per
share and replaces them with basic and diluted earnings per share. The earnings
per share calculation for the three months ended September 30, 1997, assumes the
Company had adopted SFAS No. 128 on July 1, 1997. Shares issuable upon the
exercise of employee stock options that are considered anti-dilutive are not
included in the weighted average number of common and common share equivalents
outstanding.
2. ACQUISITIONS AND LICENSING AGREEMENTS
In September 1998, the Company entered into various license agreements with
several software companies for the rights to distribute additional desktop and
mainframe software tools. In accordance with these agreements, the Company
agreed to pay these companies for development of software tools. The Company
expensed these fees, approximately $460,000, as research and development during
the quarter ended September 30, 1998. In addition, the Company will pay certain
royalties based upon sales activity as set out in the agreements.
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In July 1998, the Company acquired exclusive worldwide marketing and
development rights to SHL TRANSFORM, a knowledge-driven process management and
productivity software toolset and its integrated process management
methodologies, from the Online Knowledge Group (OKG) of Canadian-based SHL
Systemhouse Co. ("Systemhouse"). As part of the agreement, the Company had the
option to hire certain employees of Systemhouse in October 1998, had the option
to purchase certain furniture and equipment used by the Systemhouse development
employees and has the exclusive right to remarket the licensed software to
Systemhouse's existing customers. As a result, the agreement was accounted for
as a purchase in accordance with Accounting Principles Board Opinion Nos. 16 and
17 and, accordingly, the purchased assets and assumed liabilities were recorded
at their estimated fair values at the acquisition date.
The Company received an appraisal of the intangible assets which indicated
that approximately $5.0 million of the acquired intangible assets was in-process
research and development that had not yet reached technological feasibility.
Because there can be no assurance that the Company will be able to successfully
complete the development and integration of the in-process research and
development into its suite of software products or that the acquired technology
has any alternative future use, the acquired in-process research and development
was charged to expense by the Company in its quarter ended September 30, 1998.
In addition, the Company paid $533,000 to Systemhouse for additional development
work requested by the Company. This development work was performed by
Systemhouse employees during the first quarter of fiscal 1999 and was treated as
research and development expense. The Company plans to integrate the technology
and methodology into its entire product and service lines. As a result, the
Company estimates that the cost of the remaining investment and development work
required to bring the in-process technology to commercial availability will be
an aggregate of approximately $3.1 million over the next year and a half. The
aggregate cost of the acquisition consisted of the following (in thousands):
Cash............................................... $6,000
Assumption of liabilities and acquisition costs.... 885
------
Total................................... $6,885
======
The Company allocated the estimated aggregate cost of the acquisition as
follows (in thousands):
In-process research and development............... $5,013
Purchased software................................ 1,173
Other intangible assets........................... 699
------
Total................................... $6,885
======
Other intangible assets consisted of assembled workforce and cost in excess
of net assets acquired. The purchased software, assembled workforce and cost in
excess of net assets acquired are being amortized on a straight-line basis over
five, six and five years, respectively.
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The transaction was structured as a worldwide perpetual source code license
and is exclusive, subject to Systemhouse's retained right to use the technology
for its own internal use and in its consulting business. Viasoft will also pay
certain royalties to Systemhouse based on sales of methodology and training
components.
3. RESTRUCTURING CHARGE
In the first quarter of fiscal 1999, the Company established and began
implementing a restructuring program designed to refocus the Company on its core
business and to reduce its operating expenses. The Company recorded a pre-tax
restructuring charge of $4.8 million in the first quarter of fiscal 1999 to
cover: a reduction in workforce, consisting primarily of severance for
approximately 10% of the Company's 550 employees worldwide; consolidation of
certain offices worldwide which were unrelated to the Company's core business;
and the writedown of assets which had become impaired as a result of current
business conditions. The Company expects the restructuring program to be
complete within 12 months.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
The Company derives its revenues primarily from software license fees,
software maintenance fees and professional services fees. The Company's software
is licensed primarily to Global 5000 companies and similarly-sized business and
governmental organizations worldwide. Professional services are provided in
conjunction with software products and are also provided separately to similar
large organizations. The Company's products and services are marketed through
its domestic and international direct sales organizations, through a number of
foreign independent distributors located in Europe, the Far East, South Africa
and Latin America, and through a new reseller channel established during the
third quarter of fiscal 1998 primarily to sell the OnMark 2000 product line.
Revenue is recognized in accordance with Statement of Position 97-2,
"Software Revenue Recognition." Accordingly, revenue from software licenses is
recognized when delivery of the software has occurred, a signed non-cancelable
license agreement has been received from the customer or a purchase order from a
reseller after receipt of an executed reseller agreement and any remaining
obligations under the license agreement are insignificant. Revenue from software
license fees related to the Company's obligation to provide certain
post-contract customer support without charge for the first year of the license
is unbundled from the license fee at its fair value and is deferred and
recognized straight-line over the contract support period. Revenue from annual
or other renewals of maintenance contracts (including long-term contracts) is
deferred and recognized straight-line over the term of the contracts. Revenues
from professional services fees are recognized generally as related services are
provided. Professional services do not involve significant customization,
modification or production of the licensed software.
8
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The discussion of results of operations below excludes the effect of certain
charges which the Company recorded in the first quarter of fiscal 1999. These
charges include a restructuring charge of approximately $4.8 million pre-tax
(See Note 3 of Notes to Consolidated Financial Statements) and a purchased
in-process research and development charge of approximately $5.0 million pre-tax
(See Note 2 of Notes to Consolidated Financial Statements). Excluding these
special charges, the loss for the first quarter of fiscal 1999 was $695,000, or
$.04 per share, compared to net income of $3,765,000, or $.20 per share diluted,
in the same quarter a year ago. Including these charges, the loss for the
quarter was $7,067,000, or $.37 per share.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
REVENUES
Total revenues were $25,323,000 for the first quarter of fiscal 1999, a
decrease of 3% from $26,062,000 for the first quarter of fiscal 1998. Software
license fees were $9,735,000 in the first quarter of fiscal 1999, a decrease of
28% from $13,518,000 in the first quarter of fiscal 1998. Software license fees
decreased both domestically and internationally primarily as a result of the
slow down in the demand for the Company's year 2000 software tools. Growth in
desktop license revenue from the OnMark 2000 product line slowed from the
previous quarter due primarily to increased competition in the desktop market.
However, desktop license revenues from OnMark 2000 continued to be a significant
portion of the Company's license revenue during the first quarter of fiscal
1999. There were no desktop license revenues in the first quarter of fiscal
1998, as OnMark 2000 was not released until the third quarter of fiscal 1998.
The Company anticipates that desktop license revenues will continue to be a
significant percentage of license revenues in the near term and, as a result,
mainframe license revenues may decrease year over year. The Company has
announced its intention to refocus its efforts on its core business, which is
assisting its customers with maintaining and modernizing their mission-critical
applications.
Maintenance fees were $8,293,000 in the first quarter of fiscal 1999, an
increase of 21% from $6,884,000 in the first quarter of fiscal 1998. The
increase was due to new software licenses, customer system upgrades and
increases in the fees charged for annual maintenance. With the Company's entry
into the desktop software market with the OnMark 2000 product line, it has
experienced that a large number of OnMark customers do not purchase maintenance
services. As a result, there could be some erosion in maintenance revenue growth
to the extent that license sales of OnMark 2000 continue to grow as a percentage
of revenues.
Professional services fees were $7,288,000 in the first quarter of fiscal
1999, an increase of 30% from $5,619,000 in the first quarter of fiscal 1998.
Historically, the Company's professional services group provided processes,
technology and expertise to address complex, large-scale maintenance and
redevelopment requirements of large organizations. Most of these projects have
been related to year 2000 conversion. During fiscal 1998, the Company focused
its efforts in the
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services business in two areas: completion of a single, large, fixed price
engagement for converting applications for year 2000 compliance, and performing
smaller enablement projects, designed to assist and train customers to perform
the projects in-house, with their own resources. Larger-scale professional
services projects were referred to services companies and integrators that have
strategic relationships with the Company.
In late fiscal 1998, the Company refocused its efforts on the services
business and began to offer a broad range of solutions. In addition to
continuing to provide its enablement services, the Company refocused the
services business to target large consulting projects and make its project
management expertise available to customers to manage large application
conversion or re-engineering projects Management believes it is beginning to
see the results of these efforts, with the increase in services revenue year
over year. However, the Company is still in the process of implementing its
refocused services strategy and there can be no assurance that these initial
trends in services revenue will continue. The Company will continue to closely
monitor its progress in this area from both a revenue generation and
profitability standpoint.
COST OF REVENUES
Cost of software license and maintenance fees, which includes royalties,
cost of customer support and packaging and product documentation, was $3,749,000
in the first quarter of fiscal 1999, an increase of 111% from $1,777,000 in the
first quarter of fiscal 1998. Gross margins on software license and maintenance
fees decreased to 79% in the first quarter of fiscal 1999 compared to 91% in the
first quarter of fiscal 1998. Management anticipates that the cost of license
and maintenance fees will continue to increase and the gross margin will
continue to decrease year over year due to increased sales of products requiring
royalties to third parties. Royalty expenses increased 183% in the first quarter
of fiscal 1999 compared to the same quarter in fiscal 1998. The increase in
royalty expense is primarily due to sales of the OnMark 2000 product line,
representing a significant portion of the first quarter of fiscal 1999 license
sales, which require payments of royalties to third parties. Other factors
contributing to the increase in cost of software license and maintenance fees
and decline in margins, included increases in the number of customer support
personnel and their related costs, increased salaries and outside consultant
costs, amortization of the purchased research and development from the January
1998 EraSoft Technologies, Inc. acquisition and the Systemhouse acquisition (See
Note 2 of Notes to Consolidated Financial Statements) and increased costs of
product documentation and packaging, primarily due to OnMark 2000.
Cost of professional services fees, which consists principally of personnel
costs, third party subcontracting costs, and other costs related to the
professional services business, was $5,992,000 in the first quarter of fiscal
1999, an increase of 26% from $4,765,000 in the first quarter of fiscal 1998.
The gross margin for professional services was 18% in the first quarter of
fiscal 1999 compared to 15% in the first quarter of fiscal 1998. The increase in
expenses was
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primarily a result of additional subcontractor costs to support the increase in
revenues, primarily from large consulting projects. These costs were offset in
part by lower salaries and related costs as internal services headcount declined
year over year. This decline is a direct result of the change to the enablement
services approach in fiscal 1998, which required less internal staff. Currently,
the Company continues to invest in its services organization and plans to add
internal headcount in fiscal 1999. In addition, management expects that the use
of subcontractors will continue. The Company believes that the increase in
margins is a result of the changes in the services business model which were
noted above.
SALES AND MARKETING
Sales and marketing expenses, which consist primarily of salaries,
commissions and related benefits and administrative costs allocated to the
Company's sales and marketing personnel, were $11,105,000 in the first quarter
of fiscal 1999, an increase of 19% from $9,321,000 in the first quarter of
fiscal 1998. This increase is attributable primarily to an increase in personnel
and the associated costs, higher salaries, increased travel, marketing and
promotion costs and a $1.0 million bad debt provision. These increases were
offset in part by decreases in commissions and bonuses due to the decrease in
license revenues. Sales and marketing expenses as a percentage of total revenues
was 44% in the first quarter of fiscal 1999 and 36% in the first quarter of
1998. This increase is due primarily to the decline in license revenues year
over year.
RESEARCH AND DEVELOPMENT
Research and development expenditures consist primarily of personnel costs
of the research and development staff and the facilities, computing, benefits
and other administrative costs allocated to such personnel and third-party
development costs. Research and development expenditures were $4,454,000 in the
first quarter of fiscal 1999, compared to $2,818,000 in the first quarter of
fiscal 1998. Research and development expenses increased 58% year over year.
Research and development expenses included approximately $994,000 in charges for
third-party development of certain technologies acquired during the first
quarter of fiscal 1999 (See Note 2 of Notes to Consolidated Financial
Statements). The increase in research and development expense is also a result
of additional personnel and their associated costs, general salary increases and
increased external consulting costs. As a percentage of total revenues, research
and development costs were 18% in the first quarter of fiscal 1999 compared to
11% for the same period in fiscal 1998. The increase in research and development
cost as a percentage of revenue is primarily due to the overall decrease in
revenues year over year and the third-party development costs.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include the costs of finance and
accounting, legal, human resources, corporate information systems and other
administrative functions of the Company. General and administrative expenses
were $2,662,000 in the first quarter of fiscal 1999, compared to $2,038,000 in
the first quarter of fiscal 1998. General and administrative expenses increased
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31% year over year. This increase is a result of additional administrative
personnel and their related costs, general salary increases and amortization of
intangibles related to the EraSoft and Systemhouse acquisitions, offset by lower
legal and consulting fees. As a percentage of total revenues, general and
administrative expenses were 11% in the first quarter of fiscal 1999 compared to
8% in the first quarter of fiscal 1998. This increase is primarily due to the
overall decrease in revenues year over year and the additional personnel costs.
INCOME TAX BENEFIT/PROVISION
The Company's effective tax rate was 35% in the first quarter of fiscal
1999, compared to 34%, for the same period in fiscal 1998. The Company booked a
benefit for the losses incurred during the first quarter of fiscal 1999 of
$3,799,000.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had cash and cash equivalents and current
and long-term investments of $88,517,000, representing a decrease of $15,088,000
from $103,605,000 at June 30, 1998. The decrease is primarily a result of the
cost of the Systemhouse acquisition (See Note 2 of Notes to Consolidated
Financial Statements) and the share purchases under the Company's stock
repurchase program.
The Company's net cash provided by operating activities was $796,000 and
$4,797,000 for the first quarters of fiscal 1999 and 1998, respectively. Net
cash provided from operations for the first quarter of fiscal 1999 was composed
primarily of the net loss offset by non-cash charges for the purchased
in-process research and development charge, the restructuring charge and
depreciation and amortization, offset by a net decrease in working capital. For
the first quarter of fiscal 1998, net cash provided from operations was
comprised primarily of net income and non-cash adjustments and a net increase in
working capital.
The Company's investing activities provided cash of $5,806,000 and used cash
of $6,057,000, in the first quarters of fiscal 1999 and 1998, respectively. In
fiscal 1999, cash was provided by investment maturities offset by the purchase
of investments, the Systemhouse acquisition and the purchase of furniture,
fixtures and equipment. In fiscal 1998, the primary use of cash was for
investment purchases.
The Company's financing activities used cash of $8,639,000 and provided cash
of $76,120,000 in the first quarters of fiscal 1999 and 1998, respectively. In
fiscal 1999, cash was used for the purchase of approximately 921,500 shares of
treasury stock through the Company's stock repurchase program. In fiscal 1998,
cash was primarily provided by the completion of the Company's public offering
of common stock net of payments for offering costs.
As of September 30, 1998, the Company did not have any material commitments
for capital expenditures. For the remainder of fiscal 1999, the Company
anticipates capital expenditures of
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approximately $8.4 million, of which $4.7 million is estimated to be spent for
completion of two internal software systems projects and the remainder is for
computer hardware and software to continue to update the Company's network
infrastructure. As of September 30, 1998, the Company had repurchased 1,056,500
shares of its common stock of the 1,500,000 shares authorized by the Board of
the Directors. The Company anticipates continuing its stock repurchase program,
subject to a continuing evaluation of market conditions.
The Company expects that its existing working capital, together with cash
from operations, will be sufficient for the foreseeable future to meet its
capital and liquidity needs for existing operations and general corporate
purposes, as well as the addition of direct sales and services personnel,
marketing initiatives, and potential acquisitions of businesses, products and
technologies.
EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATIONS
The results of operations of the Company for the periods discussed above
have not been significantly affected by inflation or foreign currency
fluctuations. Sales made through the Company's foreign distributors are
denominated in U.S. dollars except in Italy and Spain, where they are
denominated in lira and pesetas, respectively. Sales by the Company's foreign
subsidiaries are principally denominated in the currencies of the countries
where sales are made. The Company experienced gains of approximately $218,000
from foreign currency fluctuations in the three months ended September 30, 1998.
The Company has not to date sought to hedge the risks associated with
fluctuations in foreign exchange rates. The Company continues to evaluate the
relative costs and benefits of hedging and may seek to hedge these risks in the
future, if appropriate. Gains and losses relating to translation of the
financial statements of the Company's foreign subsidiaries are included as a
separate component of stockholders' equity in the Company's Consolidated
Financial Statements.
YEAR 2000 CONSIDERATIONS
The Company is aware of the problems associated with the year 2000 date
change and has established and continues to evaluate and update its program to
address any potential year 2000 compliance issues relating to its (i) internal
operating systems, (ii) vendors, facilities and other third parties, and (iii)
software products that it licenses to customers.
INTERNAL OPERATING SYSTEMS
The Company has completed its assessment of all of its major internal
operating systems (including non-IT assets) and is continuing to monitor any new
additions to its internal operating systems for year 2000 compliance. As a
result of such assessment and because of changing business requirements as well,
the Company is currently installing new enterprise-wide systems relating to the
Company's accounting and customer relationship management needs, each of
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which has been warranted by the vendor to be year 2000 compliant. To date, the
Company has incurred approximately $2.3 million in costs of the $7.0 million
budgeted by the Company for these two projects. The customer support and sales
automation system is currently up and operational and the Company is in the
process of rolling it out to the Company's international subsidiaries, which is
currently scheduled to be completed by March 31, 1999. The Company expects the
installation of the new accounting system to be completed by June 30, 1999. The
Company is reviewing its desktop year 2000 issues which include software
packages and PC hardware. The Company is using its own product suite, OnMark
2000, to assess its desktop concerns. The Company expects this assessment to be
complete by March 31, 1999, and anticipates the testing of its internal
operating systems for year 2000 compliance to be completed by October 31, 1999.
If the Company's major internal operating systems are not year 2000 compliant in
a timely manner, the Company's business operations would be materially and
adversely affected and the Company may be required to incur unanticipated
expenses to remedy any problems not addressed by these compliance efforts.
VENDORS, FACILITIES AND OTHER THIRD PARTIES
The Company is currently evaluating the year 2000 readiness of its material
vendors, facilities and distributors and resellers with respect to IT, as well
as non-IT, assets. The Company has forwarded questionnaires to many of its
material vendors, distributors and resellers and will evaluate responses on a
case-by-case basis. The Company will place the emphasis of its vendor review on
its primary vendors, such as payroll services, computer services and phone
systems. The Company is also in the process of beginning its assessment of the
year 2000 readiness of each of its facilities. As part of this assessment, the
Company will contact each of the landlords of its primary office locations to
determine (i) the status of year 2000 compliance at each property, (ii)
contingency plans at each property in the event that the year 2000 compliance
issues are not resolved on a timely basis and (iii) associated costs of year
2000 compliance that may affect the Company. In the event that the Company's
distributors and resellers are not year 2000 compliant in a timely manner, the
Company could experience material adverse consequences with respect to the
marketing and sale of its products and, as a result, the Company's business,
results of operations and financial condition would be materially and adversely
affected. If the Company's major vendors or facilities are not year 2000
compliant in a timely manner, the Company's business operations would be
materially and adversely affected and the Company may be required to incur
unanticipated expenses to remedy any problems.
PRODUCTS
The Company's development of products and technology is accomplished through
(i) in-house development, and (ii) acquisition or license from third parties.
The Company has completed and continues to evaluate and update its assessment of
all of its internally developed and third-party developed products for year 2000
readiness, and believes that all of such products have been designed to satisfy
the Company's year 2000 specifications. The Company will continue to monitor
newly developed or acquired products for year 2000 compliance. In the event that
any of
14
<PAGE>
the Company's developed or acquired products are not year 2000 compliant in a
timely manner, the Company's sales may decline materially, customers and those
with whom they do business may assert product liability and other claims, and
the Company's business, results of operations and financial condition would be
materially and adversely affected.
To date, the Company has not completed its contingency plans in the event
that its internal operating systems, vendors, facilities, distributors,
resellers or products, or any other components of its business operations, fail
to operate in compliance with the year 2000 century date change. The Company
expects to develop its contingency plans by June 30, 1999.
The estimated costs of the Company's year 2000 compliance program have not
had and are not expected to have a material effect on the Company's financial
position, results of operations or liquidity. However, there can be no assurance
that the Company will not experience material adverse consequences in the event
that the Company's year 2000 compliance program is not successful or its
vendors, facilities, distributors or resellers are unable to resolve their year
2000 compliance issues in a timely manner.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THIS FORM 10-Q CONTAINS
EXPRESS OR IMPLIED FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND THE COMPANY INTENDS THAT SUCH
FORWARD-LOOKING STATEMENTS BE SUBJECT TO THE SAFE HARBORS CREATED THEREBY.
INCLUDED IN SUCH FORWARD-LOOKING STATEMENTS ARE THOSE STATEMENTS IN "YEAR 2000
CONSIDERATIONS" REGARDING THE COMPANY'S PLANS AND EXPECTATIONS RELATING TO THE
COMPANY'S YEAR 2000 COMPLIANCE. ADDITIONAL WRITTEN OR ORAL FORWARD-LOOKING
STATEMENTS MAY BE MADE BY THE COMPANY FROM TIME TO TIME IN FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION, IN ITS PRESS RELEASES, QUARTERLY CONFERENCE
CALLS OR OTHERWISE. THE WORDS "BELIEVES", "EXPECTS", "ANTICIPATES", "INTENDS",
"FORECASTS", "PROJECTS", "PLANS", "ESTIMATES" AND SIMILAR EXPRESSIONS IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE COMPANY'S CURRENT VIEWS
WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE OR OPERATIONS AND SPEAK
ONLY AS OF THE DATE THE STATEMENTS ARE MADE. SUCH FORWARD-LOOKING STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES AND READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM SUCH STATEMENTS. FACTORS THAT CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE COMPANY'S DEPENDENCE ON THE
YEAR 2000 CENTURY DATE CONVERSION MARKET, BOTH MAINFRAME AND DESKTOP, AND
DEPENDENCE ON ITS ESW PRIMARY PRODUCT LINE, THE VOLATILITY OF THE COMPANY'S
COMMON STOCK PRICE, FLUCTUATIONS IN REVENUES AND OPERATING RESULTS, FLUCTUATIONS
IN MARKET DEMAND AND PRODUCT MIX, THE COMPANY'S ABILITY TO MANAGE CHANGES IN ITS
PROFESSIONAL SERVICES BUSINESS AND RISKS ASSOCIATED WITH A PROFESSIONAL SERVICES
BUSINESS, INCLUDING VOLATILITY OF WORKLOAD, ABILITY TO SUCCESSFULLY MANAGE
CONSULTING PROJECTS, PROPER ALLOCATION OF RESOURCES AND HIRING, TRAINING AND
RETAINING QUALIFIED PERSONNEL, RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
INCLUDING LONGER PAYMENT CYCLES AND
15
<PAGE>
EXCHANGE RATE FLUCTUATIONS, THE COMPANY'S ABILITY TO MANAGE RAPID CHANGE IN ITS
BUSINESS AND INDUSTRY, THE COMPANY'S ABILITY TO ENHANCE EXISTING PRODUCTS AND
DEVELOP OR ACQUIRE NEW PRODUCTS AND TECHNOLOGY TO KEEP PACE WITH TECHNOLOGICAL
DEVELOPMENTS AND EVOLVING INDUSTRY STANDARDS AND TO RESPOND TO CHANGES IN
CUSTOMER NEEDS, THE COMPANY'S ABILITY TO IDENTIFY, COMPLETE, MANAGE AND
INTEGRATE ACQUISITIONS OF BUSINESSES, PRODUCTS AND TECHNOLOGIES, CHARGES, COSTS
AND UNCERTAINTIES RELATED TO ACQUISITIONS, INTENSE COMPETITION IN THE COMPANY'S
MARKETS, THE PERFORMANCE OF THE COMPANY'S DISTRIBUTORS, RESELLERS AND SOLUTION
PROVIDERS, THE COMPANY'S DEPENDENCE ON KEY MANAGEMENT AND TECHNICAL PERSONNEL
AND INCREASING COMPETITION TO ATTRACT SKILLED PERSONNEL, THE ADEQUACY OF THE
COMPANY'S PROGRAM TO ADDRESS YEAR 2000 COMPLIANCE ISSUES AND GENERAL ECONOMIC
AND BUSINESS CONDITIONS, AS WELL AS FACTORS DISCUSSED ELSEWHERE IN THIS FORM
10-Q, IN "FACTORS THAT MAY AFFECT FUTURE RESULTS" IN THE COMPANY'S FORM 10-K FOR
THE YEAR ENDED JUNE 30, 1998 AND OTHER RISKS DETAILED FROM TIME TO TIME IN THE
COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING ITS
FORWARD-LOOKING STATEMENTS ARE REASONABLE, ANY OF THE ASSUMPTIONS COULD PROVE
INACCURATE AND, THEREFORE, THERE CAN BE NO ASSURANCE THAT THE RESULTS
CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS WILL BE REALIZED. THE INCLUSION
OF SUCH FORWARD-LOOKING INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION
BY THE COMPANY OR ANY OTHER PERSON THAT THE FUTURE EVENTS, PLANS OR EXPECTATIONS
CONTEMPLATED BY THE COMPANY WILL BE ACHIEVED. THE COMPANY UNDERTAKES NO
OBLIGATION TO PUBLICLY UPDATE, REVIEW OR REVISE ANY FORWARD-LOOKING STATEMENTS
TO REFLECT ANY CHANGE IN THE COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY
CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENTS IS
BASED.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
NUMBER DESCRIPTION
------ -----------
11 Computation of Earnings Per Share for the
three month periods ended September 30, 1998
and 1997.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Viasoft, Inc.
Date: November 13, 1998 By /s/ Steven D. Whiteman
------------------------------------
Steven D. Whiteman
President
Date: November 13, 1998 By /s/ Mark R. Schonau
------------------------------------
Mark R. Schonau
Chief Financial Officer
17
VIASOFT, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS(LOSS) PER SHARE
EXHIBIT 11
(in thousands, except per share data)
Three Months Ended
September 30,
------------------
1998 1997
---- ----
BASIC EARNINGS (LOSS) PER SHARE
Common Shares Outstanding, beginning of period 19,321 17,723
Effect of Weighting of Shares:
Employee stock options exercised 26 59
Shares issued in secondary offering -- 143
Treasury shares (391) --
-------- --------
Weighted average number of common shares outstanding 18,955 17,925
======== ========
Net income (loss) $ (7,067) $ 3,765
======== ========
Earnings (loss) per common share $ (0.37) $ 0.21
======== ========
DILUTED EARNINGS (LOSS) PER SHARE
Common Shares Outstanding, beginning of period 19,321 17,723
Effect of Weighting of Shares:
Warrants and employee stock options outstanding -- 797
Employee stock options exercised 26 59
Shares issued in secondary offering -- 143
Treasury shares (391) --
-------- --------
Weighted average number of common and common 18,955 18,722
======== ========
share equivalents outstanding
Net income (loss) $ (7,067) $ 3,765
======== ========
Earnings (loss) per common and common share equivalent $ (0.37) $ 0.20
======== ========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF THE COMPANY AND ITS SUBSIDIARIES AS OF SEPTEMBER
30, 1998 AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 36,073
<SECURITIES> 51,937
<RECEIVABLES> 23,655
<ALLOWANCES> 789
<INVENTORY> 0
<CURRENT-ASSETS> 116,836
<PP&E> 14,637
<DEPRECIATION> 6,868
<TOTAL-ASSETS> 138,918
<CURRENT-LIABILITIES> 37,845
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 100,434
<TOTAL-LIABILITY-AND-EQUITY> 138,918
<SALES> 25,316
<TOTAL-REVENUES> 25,323
<CGS> 9,741
<TOTAL-COSTS> 37,765
<OTHER-EXPENSES> (207)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,369)
<INCOME-PRETAX> (10,866)
<INCOME-TAX> (3,799)
<INCOME-CONTINUING> (7,067)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,067)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>