Landmark Systems (LDMK) 10-Q 2001 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarter ended June 30, 2001
Commission File Number 0-23373

LANDMARK SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)

VIRGINIA (State or other jurisdiction of incorporation or organization)	54-1221302 (I.R.S. Employer Identification No.)
12700 Sunrise Valley Drive Reston, VA (Address of principal executive offices)	20191 (Zip Code)

703-464-1300
(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     

Number of shares outstanding of the issuer’s classes of common stock as of July 31, 2001:

Class
Common Stock, par value $.01 per share Number of Shares Outstanding
12,436,913

1

LANDMARK SYSTEMS CORPORATION

QUARTER ENDED JUNE 30, 2001

INDEX

		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2001 (unaudited) and June 30, 2000(unaudited)		4
	Condensed Consolidated Balance Sheets as of June 30, 2001 (unaudited) and December 31, 2000		5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2001 (unaudited) and June 30, 2000 (unaudited)		6
	Notes to Condensed Consolidated Financial Statements (unaudited)		7-9
Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition		10-13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		13
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		13
Item 2.	Changes in Securities and Use of Proceeds		13
Item 3.	Defaults Upon Senior Securities		13
Item 4.	Submission of Matters to a Vote of Security Holders		13
Item 5.	Other Information		14
Item 6.	Exhibits and Reports on Form 8-K		14-15
SIGNATURES			16

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

      The condensed consolidated financial statements set forth below for the three and six-month periods ended June 30, 2001 and 2000 are unaudited, and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (see Note 1). Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. Landmark Systems Corporation believes that the disclosures made are adequate to make the information presented not misleading. The results for the three and six-month periods ended June 30, 2001 are not necessarily indicative of the results for the fiscal year.

      In the opinion of management, the accompanying condensed consolidated financial statements reflect all necessary adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of results for the periods presented. It is recommended that these financial statements be read in conjunction with the latest audited consolidated financial statements and notes thereto (included in the Annual Report on Form 10-K for the year ended December 31, 2000).

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LANDMARK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

				Three Months Ended June 30,						Six Months Ended June 30,
				2001			2000			2001			2000
Revenues
	License revenues			$	6,730,808		$	5,477,381		$	13,076,783		$	9,917,284
	Maintenance revenues				7,948,082			7,710,653			15,729,699			15,735,394
			Total revenues		14,678,890			13,188,034			28,806,482			25,652,678
Cost of revenues
	Cost of license revenues				387,029			620,578			838,006			874,817
	Cost of maintenance   revenues				1,458,926			1,655,520			2,902,784			2,928,782
	Cost to acquire distribution   rights				588,072			561,496			1,168,749			1,113,387
			Total cost of revenues		2,434,027			2,837,594			4,909,539			4,916,986
	Gross profit				12,244,863			10,350,440			23,896,943			20,735,692
Operating expenses
	Sales and marketing				6,838,881			5,804,791			13,565,177			11,241,490
	Product research and   development				4,026,412			3,856,050			7,701,896			7,465,395
	General and administrative				2,192,192			1,715,653			3,830,834			3,246,159
			Total operating expenses		13,057,485			11,376,494			25,097,907			21,953,044
Operating (loss) income					(812,622	)		(1,026,054	)		(1,200,964	)		(1,217,352	)
License of source code of   discontinued products					1,618,756			–			1,618,756			–
Interest and other income,   net					464,217			551,612			1,033,766			1,100,436
Income (loss) before taxes					1,270,351			(474,442	)		1,451,558			(116,916	)
		Provision for (benefit   from) income taxes			539,899			(180,288	)		616,912			(44,428	)
Net income (loss)				$	730,452		$	(294,154	)	$	834,646		$	(72,488	)
Earnings per share
		Basic		$	0.06		$	(0.02	)	$	0.07		$	(0.01	)
		Diluted		$	0.06		$	(0.02	)	$	0.07		$	(0.01	)

See accompanying notes to condensed consolidated financial statements.

4

LANDMARK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

			June 30, 2001			December 31, 2000
			(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	26,724,266		$	28,078,594
	Accounts receivable, net of allowance for doubtful accounts of $621,000 and $491,000			11,464,575			15,399,070
	Unbilled accounts receivable			10,674,829			9,677,138
	Other current assets			3,458,537			3,186,357
		Total current assets		52,322,207			56,341,159
Unbilled accounts receivable – noncurrent				8,622,654			8,154,395
Fixed assets, net				4,891,779			5,315,662
Capitalized software costs, net				1,924,765			504,086
Intangible assets, net				3,805,486			4,513,521
Other assets				2,017,359			2,040,798
Total assets			$	73,584,250		$	76,869,621
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable, accrued expenses and other current liabilities		$	5,854,512		$	7,948,459
	Deferred revenue			21,699,001			23,552,449
		Total current liabilities		27,553,513			31,500,908
Deferred revenue – noncurrent				10,746,722			10,959,332
Other liabilities				115,697			160,518
Total liabilities				38,415,932			42,620,758
Stockholders’ equity:
	Common stock, $0.01 par value, 30,000,000
		Shares authorized, 13,218,913 and 13,147,411 outstanding		132,189			131,474
	Additional paid-in capital			35,666,795			35,499,092
	Retained earnings			2,242,392			1,407,746
	Accumulated other comprehensive loss			(429,304	)		(345,695	)
Treasury stock, at cost; 782,000 shares				(2,443,754	)		(2,443,754	)
Total stockholders’ equity				35,168,318			34,248,863
Total liabilities and stockholders’ equity			$	73,584,250		$	76,869,621

See accompanying notes to condensed consolidated financial statements.

5

LANDMARK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

			Six Months Ended June 30,
			2001			2000
Cash flows from operating activities
	Net income (loss)		$	834,646		$	(72,488	)
	Adjustments to reconcile net income (loss) to net cash flows from operations Depreciation and amortization			1,753,912			1,749,819
	Tax benefit for exercise of stock options			–			252,052
	Sale of unbilled accounts receivable			–			1,838,703
	Changes in working capital			(2,210,949	)		(3,594,997	)
		Net cash provided by operating activities		366,317			173,089
Cash flows from investing activities
	Acquisition of distribution rights			–			(64,990	)
	Capitalized software development costs			(1,614,284	)		(1,127,080	)
	Capital expenditures			(428,389	)		(894,820	)
		Net cash used in investing activities		(2,042,673	)		(2,086,890	)
Cash flows from financing activities
	Proceeds from sale of common stock			168,418			1,006,585
		Net cash provided by financing activities		168,418			1,006,585
Effect of exchange rate changes on cash				153,610			129,442
Net decrease in cash and cash equivalents				(1,354,328	)		(777,774	)
Cash and cash equivalents, beginning of period				28,078,594			32,135,952
Cash and cash equivalents, end of period			$	26,724,266		$	31,358,178

See accompanying notes to condensed consolidated financial statements.

6

LANDMARK SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1 – Basis of Presentation

      The accompanying unaudited interim condensed consolidated financial statements of Landmark Systems Corporation and its subsidiaries (collectively, the “Company”) reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods presented in conformity with generally accepted accounting principles for interim financial information. Such adjustments are of a normal recurring nature. Intercompany balances and transactions have been eliminated in consolidation.

      The results of the interim periods presented are not necessarily indicative of the results for the year. The Company’s interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2000, as filed with the Securities and Exchange Commission on Form 10-K.

Note 2 – New Accounting Pronouncements

      In September 2000, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 140, “Accounting for the Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 140 is effective for transfers occurring after March 31, 2001 and for disclosures relating to securitizations transactions and collateral for fiscal years ending after December 15, 2000. The Company is reviewing the provisions of SFAS 140, and does not believe the adoption will have a material effect on the Company’s financial condition or results of operation.

Note 3 – Earnings Per Share

      The following reconciliation of the numerators and denominators is provided for basic and diluted earnings per share for the three and six months ended June 30, 2001 and 2000. Basic earnings per share is computed by dividing the net income by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by additionally reflecting the potential dilution that could occur, using the treasury stock method, if warrants and options to acquire common stock were exercised and resulted in the issuance of common stock.

		Income		Shares		Per-Share
		(Numerator)		(Denominator)		Amount
For the three months ended June 30, 2001
	Basic earnings per share	$	730,452		12,414,514	$	0.06
	Effect of dilutive securities    Stock options and warrants		–		29,429
	Diluted earnings per share	$	730,452		12,443,943	$	0.06

7

			Income			Shares		Per-Share
			(Numerator)			(Denominator)		Amount
For the three months ended June 30, 2000
	Basic earnings per share		$	(294,154	)		13,006,545	$	(0.02	)
	Effect of dilutive securities
		Stock options and warrants		–			–
	Diluted earnings per share		$	(294,154	)		13,006,545	$	(0.02	)
For the six months ended June 30, 2001
	Basic earnings per share		$	834,646			12,393,470	$	0.07
	Effect of dilutive securities
		Stock options and warrants		–			23,104
	Diluted earnings per share		$	834,646			12,416,574	$	0.07
For the six months ended June 30, 2000
	Basic earnings per share		$	(72,488	)		12,953,823	$	(0.01	)
	Effect of dilutive securities
		Stock options and warrants		–			–
	Diluted earnings per share		$	(72,488	)		12,953,823	$	(0.01	)

Note 4 – Comprehensive Income

      The Company’s total comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss), which consists of foreign currency translation adjustments. Total comprehensive income (loss) for the three months ended June 30, 2001 and 2000 was $546,175 and $(393,128), respectively. Total comprehensive income (loss) for the six months ended June 30, 2001 and 2000 was $751,037 and $(86,174), respectively.

Note 5 – Segment Reporting

      The Company classifies its operations into one industry segment, software development and related services. The Company categorizes its products and services into two groups: OS/390 (formerly referred to as “mainframe”) and client/server. The Company’s revenues by product group consist of the following:

		Three Months Ended June 30,				Six Months Ended June 30,
		2001		2000		2001		2000
OS/390		$	12,518,741	$	12,161,758	$	26,012,890	$	24,158,678
Client/server			2,160,149		1,026,276		2,793,592		1,494,000
	Total revenues	$	14,678,890	$	13,188,034	$	28,806,482	$	25,652,678

      The Company sells its products outside the United States through its subsidiaries and international distributors. Revenues from international distributors are presented net of royalties retained by the distributors. The Company’s revenues by country or geographic region are as follows:

		Three Months Ended June 30,				Six Months Ended June 30,
		2001		2000		2001		2000
United States		$	9,690,269	$	8,211,324	$	18,902,223	$	16,599,741
Germany			772,388		757,239		1,719,504		1,740,078
United Kingdom			616,964		818,784		1,536,832		1,670,505
France			838,453		725,835		1,081,669		936,406
Nordic			391,282		295,043		713,499		584,261
Australia			383,118		444,133		696,476		692,835
Benelux			338,805		393,215		756,403		735,890
Other			1,647,611		1,542,461		3,399,876		2,692,962
	Total revenues	$	14,678,890	$	13,188,034	$	28,806,482	$	25,652,678

8

      The Company’s long-lived assets, which consist of fixed assets, capitalized software and intangible assets, by country or geographic region are as follows:

		Six Months Ended June 30,
		2001		2000
United States		$	10,374,959	$	12,131,105
Europe			222,032		255,073
Other			25,039		35,237
	Total long-lived assets	$	10,622,030	$	12,421,415

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Results of Operations

      The following table sets forth the Company’s Condensed Consolidated Statements of Operations expressed as percentages of total revenues for the periods indicated:

				Three Months Ended June 30,						Six Months Ended June 30,
				2001			2000			2001			2000
Revenues
	License revenues				45.9	%		41.5	%		45.4	%		38.7	%
	Maintenance revenues				54.1			58.5			54.6			61.3
			Total revenues		100.0			100.0			100.0			100.0
Cost of revenues
	Cost of license revenues				2.6			4.7			2.9			3.4
	Cost of maintenance    revenues				9.9			12.5			10.1			11.4
	Cost to acquire   distribution rights				4.1			4.3			4.0			4.4
			Total cost of revenues		16.6			21.5			17.0			19.2
Gross profit					83.4			78.5			83.0			80.8
Operating expenses
	Sales and marketing				46.6			44.0			47.1			43.8
	Product research and    development				27.4			29.3			26.8			29.1
	General and    administrative				15.0			13.0			13.3			12.7
			Total operating expenses		89.0			86.3			87.2			85.6
Operating loss					(5.6	)		(7.8	)		(4.2	)		(4.8	)
		License of source code of discontinued products			11.0			–			5.6			–
	Interest and other    income, net				3.2			4.2			3.6			4.3
Income (loss) before    income taxes					8.6			(3.6	)		5.0			(0.5	)
	Provision for (benefit    from) income taxes				3.6			(1.4	)		2.1			(0.2	)
Net income (loss)					5.0	%		(2.2	)%		2.9	%		(0.3	)%

      TOTAL REVENUES. Total revenues increased 11.3% from $13.2 million for the three months ended June 30, 2000, to $14.7 million for the three months ended June 30, 2001, and increased 12.3% from $25.7 million to $28.8 million for the six months ended June 30, 2000 and 2001, respectively. Revenues for the three months ended June 30, 2001 from OS/390 (formerly referred to as “mainframe”) products and services were $12.5 million, an increase of 2.9% from the same period in the prior year; revenues for the three-month period ended June 30, 2001 from client/server products and services were $2.2 million, an increase of 110.5% from the same period in the prior year. Revenues for the first six months of 2001 from OS/390 products and services were $26.0 million, an increase of 7.7% from the same period in the prior year; revenues for the first six months of 2001 from client/server products and services were $2.8 million, an increase of 87.0% from the same period in the prior year.

      LICENSE REVENUES. License revenues increased 22.9% from $5.5 million for the three months ended June 30, 2000, to $6.7 million for the three months ended June 30, 2001, and increased 31.9% from $9.9 million to $13.1 million for the six months ended June 30, 2000 and 2001, respectively. License revenues increased in part due to the continued acceptance of three new products introduced in the fourth quarter of 2000 and first quarter of 2001; the products are TMON for TCP/IP (a networking product), TMON for USS (an e-business infrastructure product) and TMON for IMS (a transaction processing product). Additionally, the Company closed several large deals during the first and second quarters of 2001. The Company has noted a slowing of new license sales in the early part of the third quarter. The Company attributes this slowing to the decline in general economic conditions.

      MAINTENANCE REVENUES. Maintenance revenues increased 3.1% from $7.7 million for the three months ended June 30, 2000, to $7.9 million for the three months ended June 30,2001, and were essentially flat at $15.7 million for the six months ended June 30, 2000 and 2001, respectively. The second quarter increases are primarily due to contractual rate increases.

      COST OF LICENSE REVENUES. Cost of license revenues includes amortization of capitalized software costs, product royalties,

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materials and packaging expenses. Costs of license revenues were $0.6 million and $0.4 million for the three months ended June 30, 2000 and 2001, representing 11.3% and 5.8% of license revenues in such periods. Costs of license revenues were $0.9 and $0.8 million for the six months ended June 30, 2000 and 2001, respectively, representing 8.8% and 6.4% of license revenues in such periods. The decrease from 2000 to 2001 is primarily due to a decrease in third-party royalties resulting from declines in sales of products covered by various royalty agreements.

      COST OF MAINTENANCE REVENUES. Cost of maintenance revenues consists of personnel and related costs for customer support, training and consulting services. Costs of service revenues were $1.7 million and $1.5 million for the three months ended June 30, 2000 and 2001, respectively, representing 21.5% and 18.4% of service revenues in such periods. Costs of maintenance revenues were $2.9 million and $2.9 million for the six months ended June 30, 2000 and 2001, respectively, representing 18.5% and 18.6% of service revenues in such periods. The second quarter decrease in cost of maintenance is primarily due to elevated costs related to the start-up during 2000 of the professional services group to provide post sales training and consulting services for some of the Company’s client/server products. Since the discontinuation of these products in November 2000, the professional services organization has been reduced in size and refocused to provide training services for the Company’s OS/390 products.

      COST TO ACQUIRE DISTRIBUTION RIGHTS. Cost to acquire distribution rights includes royalties paid related to the acquisition of distribution rights as well as the straight-line amortization of international distribution rights that have been reacquired from third party resellers. Cost to acquire distribution rights for each of the three month periods ended June 30, 2000 and 2001 were $0.6 million. Cost to acquire distribution rights for the six months ended June 30, 2000 and 2001 were $1.1 million and $1.2 million, respectively.

      SALES AND MARKETING. Sales and marketing includes personnel and related costs for the Company’s direct sales organization, marketing staff and promotional expenses. Sales and marketing expenses were $5.8 million and $6.8 million for the three months ended June 30, 2000 and 2001, respectively, representing 44.0% and 46.6% of total revenues in such periods. Sales and marketing expenses were $11.2 million and $13.6 million for the six months ended June 30, 2000 and 2001, respectively, representing 43.8% and 47.1% of total revenues in such periods. The increase in sales and marketing expenses continues to be primarily due to increased commission expenses caused by the increased license revenues.

      PRODUCT RESEARCH AND DEVELOPMENT. Product research and development includes personnel and related costs for the Company’s development staff. Product research and development expenses were $3.9 million and $4.0 million for the three months ended June 30, 2000 and 2001, respectively, representing 29.3% and 27.5% of total revenues in such periods. Product research and development expenses were $7.5 million and $7.7 million for the six months ended June 30, 2000 and 2001, respectively, representing 29.1% and 26.8% of total revenues in such periods. The decrease in product research and development expenses as a percentage of revenue is primarily due to the increase in revenues.

      GENERAL AND ADMINISTRATIVE. General and administrative includes salaries and related costs of administration, finance and management personnel, as well as legal and accounting fees. General and administrative expenses were $1.7 million and $2.2 million for the three months ended June 30, 2000 and 2001, respectively, representing 13.0% and 15.0% of total revenues in such periods. General and administrative expenses were $3.2 million and $3.8 million for the six months ended June 30, 2000 and 2001, respectively, representing 12.7% and 13.3% of total revenues in such periods. The increase in general and administrative expenses from 2000 to 2001 is primarily due to the write-off of a large uncollectible receivable balance during 2001. The Company believes that reasonable reserves have been established in this area.

      INTEREST AND OTHER INCOME, NET. Net interest and other income includes interest income earned on cash balances, interest income recorded on installment receivables, interest expense incurred on term and revolving credit facilities, bank fees and exchange gains (losses) incurred by the Company on transactions denominated in foreign currencies. Net interest and other income totaled $0.55 million and $0.46 million for the three months ended June 30, 2000 and 2001, respectively. Net interest and other income totaled $1.1 million and $1.0 million for the six months ended June 30, 2000 and 2001. Of these amounts, $0.4 million and $0.2 million represent interest earned on the Company’s bank balances for the three months ended June 30, 2000 and 2001, respectively.

      LICENSE OF SOURCE CODE OF DISCONTINUED PRODUCTS. During the quarter ended June 30, 2001, the Company concluded an agreement with a company in Japan to sell the source code for parts of the Company’s PerformanceWorks for Unix and NT products which were discontinued in the fourth quarter of 2000. This agreement provides the non-exclusive right to use the source code and to create derivative software products for sale in the Japanese and Asian markets and to branches of Japanese-owned companies outside of that territory. The total sales price for this source code was $2.0 million. Of that amount, the Company recognized $1.85 million in the quarter ended June 30, 2001 and

11

deferred $0.15 million to account for the Company’s commitment of the time of one of its engineers to assist Hitachi in their commercialization efforts over a 12-month period. Direct costs associated with the Hitachi sale amounted to $0.2 million comprising banking, legal and sales incentive costs. The sale is not considered to be part of the Company’s normal business operations and therefore has been so classified; similar transactions are not expected to occur in the future.

LIQUIDITY AND CAPITAL RESOURCES

      At June 30, 2001, the Company had cash and cash equivalents of $26.7 million and working capital of $24.8 million. During the six months ended June 30, 2001, net cash provided by operating and financing activities were $0.4 million and $0.2 million, respectively, while net cash used in investing activities was $2.0 million. The Company invests its cash, which includes the $12.0 million proceeds from the Company’s initial public offering in November 1997, in a money market fund. The Company had no debt as of June 30, 2001, other than normal trade payables and accrued liabilities. Stockholders’ equity at June 30, 2001 was $35.2 million.

      In March 1999, the Company obtained a revolving line of credit in the amount of $10.0 million. The line of credit, which was granted on an unsecured basis, has a floating interest rate of LIBOR plus 1.35%. The line of credit has been extended through June 30, 2002 .

      The Company continues to finance its growth through funds generated from operations. For the six months ended June 30, 2001, cash flow from operations was $0.4 million.

      The Company’s investing activities primarily include expenditures for fixed assets in support of the Company’s product development activities and infrastructure, capitalized software development costs and costs related to the acquisition of distribution rights. During the six months ended June 30, 2001, the Company invested $0.4 million in fixed assets, consisting primarily of computer equipment to expand and upgrade the Company’s development activities.

      The Company believes that cash and cash equivalents at June 30, 2001, cash flow generated from operations and the line of credit will provide sufficient liquidity to meet its needs for at least the next twelve months. To the extent the Company makes acquisitions of other companies, products or technologies, the Company may use working capital, sell or issue additional equity or debt securities or use credit facilities.

NEW ACCOUNTING PRONOUNCEMENTS

      In September 2000, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 140, “Accounting for the Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 140 is effective for transfers occurring after March 31, 2001 and for disclosures relating to securitizations transactions and collateral for fiscal years ending after December 15, 2000. The Company is reviewing the provisions of SFAS 140, and does not believe the adoption will have a material effect on the Company’s financial condition or results of operation.

      In June 2001, the FASB issued SFAS No. 141, "Business Combinations", which addresses the accounting and reporting for business combinations, and SFAS No. 142, "Goodwill and Other Intangible Assets", which addresses the accounting and reporting for acquired goodwill and other intangible assets. SFAS 141 and SFAS 142 are effective January 1, 2002 for the Company. The Company is in the process of reviewing the new pronouncements and does not anticipate that adoption will have a material impact on the Company's financial condition or results of operations.

CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE LITIGATION REFORM ACT OF 1995

      Some of the statements in this Quarterly Report on Form 10-Q are “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995 and are related to anticipated future operating results. Future operating results may be impeded by single or combined events and/or circumstances that have not been presently anticipated. Forward-looking statements are based on Landmark management’s current expectations and assumptions, which may be affected by a number of factors, including, without limitation, the significant percentage of sales consummated in the last few days of each calendar quarter, changes in the Company’s business strategy and focus, continued softness in the mainframe enterprise software market, competitive product introductions resulting from rapid technological advances, price competition, any failure or delay in the Company’s ability to develop and introduce new products, uncertainty of customer acceptance of new products, seasonal factors affecting the Company’s sales, the Company’s ability to attract and retain qualified technical, sales, managerial and other key personnel, the Company’s ability to manage expenses effectively, foreign currency risk, and other factors. Therefore, there can be no assurance that actual future results will not differ materially from anticipated results.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

      The Company has subsidiaries in the United Kingdom, Italy, Germany, France, The Netherlands, Sweden, Spain, Australia, Hong Kong and Singapore that act as distributors of its products. Additionally, the Company uses third party distributors to market and distribute its products in other international regions. Transactions conducted by the subsidiaries are typically denominated in the local country currency, while royalty payments from the distributors are typically denominated in U.S. dollars. As a result, the Company is primarily exposed to foreign exchange rate fluctuations as the financial results of its subsidiaries are translated into U.S. dollars in consolidation. As exchange rates vary, these results, when translated, may vary from expectations and impact overall expected profitability. Through and as of June 30, 2001, the Company’s exposure was not material to the overall financial statements taken as a whole. The Company has not entered into any foreign currency hedging transactions with respect to its foreign currency market risk.

      The Company’s exposure to market risk for changes in interest rates relates primarily to unbilled accounts receivable. At June 30, 2001, the Company has $19.3 million of unbilled accounts receivable, which approximates their estimated fair market value. If market interest rates had been 10% higher at June 30, 2001, the fair market value of the unbilled accounts receivable would have decreased by approximately $0.1 million.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

      None

Item 2. Changes in Securities and Use of Proceeds

(d) The net proceeds to the Company from the initial public offering (SEC File No. 333-35629 effective November 18, 1997) were approximately $12 million and have been deposited by the Company in a money market fund investing solely in short-term U.S. government obligations.

Item 3. Defaults Upon Senior Securities

      None

Item 4. Submission of Matters to a Vote of Security Holders

The Annual Meeting of the Stockholders was held on May 9, 2001 at the Company’s headquarters, 12700 Sunrise Valley Drive, Reston, Virginia.

1. PROPOSAL ONE- Election of directors
Nominees:	For	Withheld
Patrick H. McGettigan	12,105,519	16,070
Katherine K. Clark	12,105,519	16,070
T. Eugene Blanchard	12,105,520	16,069
Dennis J. Bowman	12,105,520	16,069
James P. Donehey	12,105,520	16,069
Patrick W. Gross	12,105,520	16,069
Marie C. Johns	12,105,520	16,069
Sudhakar V. Shenoy	12,105,520	16,069
2. PROPOSAL TWO –Ratification of selection of PricewaterhouseCoopers LLP as independent accountants for		12,105,988
Against		7,373
Abstain		8,228

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Item 5. Other Information

      None

Item 6. Exhibits and Reports of Form 8-K

      (a) Exhibits

3.1	Articles of Incorporation (incorporated by reference to Exhibit 3.1 forming a part of the Company’s registration statement on Form S-1 (File No. 333-35629) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended.)
3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 forming a part of the Company’s registration statement on Form S-1 (File No. 333-35629) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended.)
4.1	Reference is made to Exhibits 3.1 and 3.2
4.2	Specimen certificate of Common Stock (incorporated by reference to Exhibit 4.2 forming a part of the Company’s registration statement on Form S-1 (File No. 333-35629) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended.)
10.2	1989 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 forming a part of the Company’s registration statement on Form S-1 (File No. 333-35629) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended.)
10.3	1991 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.3 forming a part of the Company’s registration statement on Form S-1 (File No. 333-35629) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended.)
10.4	1992 Executive Stock Incentive Plan (incorporated by reference to Exhibit 10.4 forming a part of the Company’s registration statement on Form S-1 (File No. 333-35629) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended.)
10.5	1994 Executive Stock Incentive Plan (incorporated by reference to Exhibit 10.4 forming a part of the Company’s registration statement on Form S-1 (File No. 333-35629) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended.)

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10.6	1996 Advisory Board and directors Stock Incentive Plan (incorporated by reference to Exhibit 10.6 forming a part of the Company’s registration statement on Form S-1 (File No. 333-35629) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended.)
10.7	1998 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.3 forming a part of the Company’s registration statement on Form S-1 (File No. 333-35629) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended.)
10.8	Deed of Lease between Boston Properties Limited Partnership and Landmark Systems Corporation dated January 30, 1998 (incorporated by reference to Exhibit 10.8 forming a part of the Company’s Form 10-K for the year ended December 31, 1999.)
10.9	Employment Agreement between the Company and Frederick S. Rolandi, III dated June 2, 2000 (incorporated by reference to Exhibit 10.1 forming a part of the Company’s registration statement on Form S-1 (File No. 333-35629) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended.)

      (b) Reports on Form 8-K

      None

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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.

LANDMARK SYSTEMS CORPORATION

Date:	August 20, 2001	By:	/s/ Katherine K. Clark Katherine K. Clark President and Chief Executive Officer (Duly Authorized Officer)
Date:	August 20, 2001	By:	/s/ Frederick S. Rolandi, III Frederick S. Rolandi, III Vice President and Chief Financial Officer (Chief Accounting Officer)

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