UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------
FORM 10-Q/A
AMENDMENT NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
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 NO. 0-20740
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EPICOR SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0277592
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
195 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618-2402
(Address of principal executive offices, zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 585-4000
--------------------------------------
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 November 6, 2001, there were 44,181,291 shares of common stock
outstanding.
Epicore Software Corporation is filing this Amendment on Form 10-Q/A to correct
Part I, Item 1, Financial Statements. The Condensed Consolidated Statements of
Operations and Comprehensive Operations (unaudited) for the Three Months and
Nine Months ended September 30, 2001 and 2000 included in Item 1, Part I had a
typographical error on the line "Loss from operations" for the nine months ended
September 30, 2001 and 2000. The loss from operations for the nine months ended
September 30, 2001 and 2000 was reported as $36,198 (in thousands) and $25,639
(in thousands), respectively. The loss from operations for the nine months ended
September 30, 2001 and 2000 should have been $25,639 (in thousands) and $36,198
(in thousands), respectively.
Set forth below is a corrected Part I, Item 1, Financial Statements.
2
PART I
FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS:
EPICOR SOFTWARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 23,279 $ 26,825
Accounts receivable, net 36,251 60,424
Prepaid expenses and other current assets 5,741 5,831
--------- ---------
Total current assets 65,271 93,080
Property and equipment, net 7,042 12,086
Software development costs, net 3,640 6,748
Intangible assets, net 14,575 19,118
Other assets 2,800 3,755
--------- ---------
Total assets $ 93,328 $ 134,787
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,497 $ 11,177
Accrued expenses 28,427 33,343
Current portion of long-term debt 3,682 4,666
Accrued restructuring costs 3,402 539
Deferred revenue 37,642 45,374
--------- ---------
Total current liabilities 80,650 95,099
--------- ---------
Long-term debt, less current portion 2,805 5,621
--------- ---------
Contingencies
Stockholders' equity:
Preferred stock 7,501 7,501
Common stock 44 41
Additional paid-in capital 244,806 240,824
Less: unamortized stock compensation expense (2,019) --
Less: notes receivable from officers for issuance of
restricted stock (9,905) (9,969)
Accumulated other comprehensive loss (3,371) (3,182)
Accumulated deficit (227,183) (201,148)
--------- ---------
Total stockholders' equity 9,873 34,067
--------- ---------
Total liabilities and stockholders' equity $ 93,328 $ 134,787
========= =========
See accompanying notes to condensed consolidated financial statements.
3
EPICOR SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Revenues:
Software license fees $ 8,772 $ 16,356 $ 34,373 $ 57,361
Services 28,924 34,528 94,911 105,638
Other 871 1,043 2,496 3,024
--------- --------- --------- ---------
Total revenues 38,567 51,927 131,780 166,023
Cost of revenues 18,546 28,316 61,694 82,349
--------- --------- --------- ---------
Gross profit 20,021 23,611 70,086 83,674
Operating expenses:
Sales and marketing 13,091 17,558 44,899 57,356
Software development 5,617 6,565 19,965 19,638
General and administrative 6,655 11,944 34,147 43,578
Stock based compensation expense 286 -- 984 --
Restructuring charges and other -- -- 7,610 (700)
Gain on sales of product lines (1,513) -- (11,880) --
--------- --------- --------- ---------
Total operating expenses 24,136 36,067 95,725 119,872
--------- --------- --------- ---------
Loss from operations (4,115) (12,456) (25,639) (36,198)
Other income (expense), net (379) 159 (396) 824
--------- --------- --------- ---------
Loss before income taxes (4,494) (12,297) (26,035) (35,374)
Provision for income taxes -- -- -- --
--------- --------- --------- ---------
Net loss $ (4,494) $ (12,297) $ (26,035) $ (35,374)
========= ========= ========= =========
Unrealized net loss on foreign currency translation
adjustments (186) (959) (189) (1,885)
--------- --------- --------- ---------
Total comprehensive loss $ (4,680) $ (13,256) $ (26,224) $ (37,259)
========= ========= ========= =========
Net loss per share - basic $ (0.11) $ (0.30) $ (0.62) $ (0.85)
Net loss per share - diluted $ (0.11) $ (0.30) $ (0.62) $ (0.85)
Weighted average common shares outstanding - basic 42,058 41,450 41,842 41,394
Weighted average common shares outstanding - diluted 42,058 41,450 41,842 41,394
See accompanying notes to condensed consolidated financial statements.
4
EPICOR SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
2001 2000
-------- --------
OPERATING ACTIVITIES
Net loss $(26,035) $(35,374)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 10,957 12,866
Stock based compensation expense 984 --
Write-down of capitalized software development costs 1,026 5,337
Provision for doubtful accounts 8,831 17,065
Restructuring charges and other 7,610 (700)
Gain on sales of product lines (11,880) --
Changes in operating assets and liabilities:
Accounts receivable 13,780 (2,946)
Prepaid expenses and other current assets (190) 931
Other assets 955 403
Accounts payable (3,680) (4,971)
Accrued expenses (5,517) (6,369)
Accrued restructuring costs (3,027) (5,022)
Deferred revenue (4,548) 4,989
-------- --------
Net cash used in operating activities (10,734) (13,791)
INVESTING ACTIVITIES
Proceeds from sales of product lines 11,413 --
Proceeds from sale or maturity of short-term investments -- 12,114
Purchases of property and equipment (1,420) (4,615)
Capitalized software development costs -- (5,486)
-------- --------
Net cash provided by investing activities 9,993 2,013
FINANCING ACTIVITIES
Proceeds from exercise of common stock options 1 2,240
Common stock issued under the Employee Stock Purchase Plan 880 1,165
Common stock issued under Stock Option Exchange Program 2 --
Principal payments received on notes receivable from officers 64 1,181
Proceeds from term loan -- 10,000
Principal payments on long-term debt (3,800) (702)
-------- --------
Net cash (used in) provided by financing activities (2,853) 13,884
Effect of exchange rate changes on cash 48 (977)
-------- --------
Net decrease in cash and cash equivalents (3,546) 1,129
Cash and cash equivalents at beginning of period 26,825 18,221
-------- --------
Cash and cash equivalents at end of period $ 23,279 $ 19,350
======== ========
See accompanying notes to condensed consolidated financial statements.
5
EPICOR SOFTWARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements included
herein have been prepared by Epicor Software Corporation (the "Company") in
accordance with generally accepted accounting principles and pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC") for
interim financial information for reporting on Form 10-Q. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These unaudited condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
Certain prior period amounts in the Condensed Consolidated Statement of Cash
Flows have been reclassified to conform to the current period presentation.
In the opinion of management, the unaudited condensed consolidated financial
statements contain all adjustments (consisting of normal recurring adjustments
except for the write-down of capitalized software development costs as discussed
below - see Write-Down of Capitalized Software Development Costs) necessary for
a fair presentation of the Company's financial position, results of operations
and cash flows.
The results of operations for the three months and nine months ended September
30, 2001, are not necessarily indicative of the results of operations that may
be reported for any other interim period or for the entire year ending December
31, 2001. The balance sheet at December 31, 2000 has been derived from the
audited financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements, as permitted by SEC rules and regulations for
interim reporting.
REVENUE RECOGNITION
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 97-2, Software Revenue
Recognition. SOP 97-2, as amended by SOP 98-4 "Deferral of the Effective Date of
a Provision of SOP 97-2", was adopted by the Company as of July 1, 1998. In
December 1998, the AICPA issued SOP 98-9 "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions", which requires
recognition of revenue using the "residual method" when (1) there is
vendor-specific objective evidence of the fair values of all undelivered
elements in a multiple-element arrangement that is not accounted for using
long-term contract accounting, (2) vendor-specific objective evidence of fair
value does not exist for one or more of the delivered elements in the
arrangement, and (3) all revenue-recognition criteria in SOP 97-2 other than the
requirement for vendor-specific objective evidence of the fair value of each
delivered element of the arrangement are satisfied. SOP 98-9 was adopted by the
Company on January 1, 2000.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), which
provides further guidance with regard to revenue recognition, presentation and
disclosure. The Company adopted the provisions of SAB 101 during the fourth
quarter of fiscal 2000. The adoption of SAB 101 did not have a material impact
on the Company's consolidated financial statements.
BASIC AND DILUTED NET LOSS PER SHARE
Net loss per share is calculated in accordance with SFAS No. 128, "Earnings per
Share". Under the provisions of SFAS No. 128, basic net loss per share is
computed by dividing the net loss for the period by the weighted average number
of common shares outstanding during the period, excluding shares of non-vested
restricted stock. Diluted net loss per share is computed by dividing the net
loss for the period by the weighted average number of common and common
equivalent shares outstanding during the period if their effect is dilutive.
Common equivalent shares
6
of 1,232,353 and 1,526,914 have been excluded from diluted weighted average
common shares for the three month and nine month periods ended September 30,
2001 as the effect would be anti-dilutive.
The following table presents the calculation of basic and diluted net loss per
common share (in thousands, except per share amounts):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net loss $ (4,494) $(12,297) $(26,035) $(35,374)
Basic and Diluted:
Weighted average common shares outstanding 44,132 41,450 44,044 41,394
Weighted average common shares of
non-vested restricted stock (2,074) -- (2,202) --
-------- -------- -------- --------
Shares used in the computation of basic and
diluted net loss per share 42,058 41,450 41,842 41,394
======== ======== ======== ========
Net loss per share - basic and diluted $ (0.11) $ (0.30) $ (0.62) $ (0.85)
======== ======== ======== ========
SEGMENT INFORMATION
In accordance with SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information", the Company has prepared operating segment information to
report components that are evaluated regularly by the Company's chief operating
decision maker, or decision making groups, in deciding how to allocate resources
and in assessing performance.
The Company's reportable operating segments include software licenses, services,
and other. Other consists primarily of third-party hardware and forms sales.
Currently, the Company does not separately allocate operating expenses to these
segments, nor does it allocate specific assets to these segments. Therefore, the
segment information reported includes only revenues, cost of revenues and gross
profit.
Operating segment data for the three months and nine months ended September 30,
2001 and 2000 is as follows (in thousands):
Software
Licenses Services Other Total
-------- -------- -------- --------
Three months ended September 30, 2001:
Revenues $ 8,772 $ 28,924 $ 871 $ 38,567
Cost of revenues 3,510 14,451 585 18,546
-------- -------- -------- --------
Gross Profit $ 5,262 $ 14,473 $ 286 $ 20,021
======== ======== ======== ========
Three months ended September 30, 2000:
Revenues $ 16,356 $ 34,528 $ 1,043 $ 51,927
Cost of revenues 10,028 17,736 552 28,316
-------- -------- -------- --------
Gross Profit $ 6,328 $ 16,792 $ 491 $ 23,611
======== ======== ======== ========
Nine months ended September 30, 2001:
Revenues $ 34,373 $ 94,911 $ 2,496 $131,780
Cost of revenues 12,771 47,278 1,645 61,694
-------- -------- -------- --------
Gross Profit $ 21,602 $ 47,633 $ 851 $ 70,086
======== ======== ======== ========
Nine months ended September 30, 2000:
Revenues $ 57,361 $105,638 $ 3,024 $166,023
Cost of revenues 20,814 59,671 1,864 82,349
-------- -------- -------- --------
Gross Profit $ 36,547 $ 45,967 $ 1,160 $ 83,674
======== ======== ======== ========
7
The following schedule presents the Company's operations by geographic area for
the three months and nine months ended September 30, 2001 and 2000 (in
thousands):
United Australia/ Latin
States Asia Europe Canada America Consolidated
------ ---- ------ ------ ------- ------------
Three months ended
September 30, 2001:
Revenues $ 26,619 $ 2,321 $ 6,713 $ 2,217 $ 697 $ 38,567
Operating income (loss) (5,279) 244 (109) 1,319 (290) (4,115)
Identifiable assets 62,767 8,115 16,934 4,807 705 93,328
Three months ended
September 30, 2000:
Revenues $ 38,545 $ 2,640 $ 7,985 $ 2,227 $ 530 $ 51,927
Operating income (loss) (6,063) 40 (3,479) 976 (3,930) (12,456)
Identifiable assets 98,877 7,006 22,560 3,881 96 132,420
United Australia/ Latin
States Asia Europe Canada America Consolidated
------ ---- ------ ------ ------- ------------
Nine months ended
September 30, 2001:
Revenues $ 91,799 $ 7,605 $ 22,433 $ 7,606 $ 2,337 $ 131,780
Operating income (loss) (21,151) 78 (8,916) 5,013 (663) (25,639)
Identifiable assets 62,767 8,115 16,934 4,807 705 93,328
Nine months ended
September 30, 2000:
Revenues $ 123,299 $ 8,746 $ 24,389 $ 7,628 $ 1,961 $ 166,023
Operating income (loss) (27,294) 1,332 (8,999) 3,600 (4,837) (36,198)
Identifiable assets 98,877 7,006 22,560 3,881 96 132,420
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes new accounting and reporting standards for derivative financial
instruments and for hedging activities. SFAS No. 133 requires the Company to
measure all derivatives at fair value and to recognize them in the balance sheet
as an asset or liability, depending on the Company's rights or obligations under
the applicable derivative contract. In June 1999, the FASB issued SFAS No. 137,
which deferred the effective date of the adoption of SFAS No. 133 for one year.
The Company adopted SFAS No. 133 on January 1, 2001. The adoption of SFAS No.
133 did not have a material impact on the Company's consolidated financial
statements.
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase method
of accounting for business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interests method. The Company does not believe that
the adoption of SFAS 141 will have a significant impact on its consolidated
financial statements.
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective
January 1, 2002. SFAS 142 changes the accounting for goodwill from
8
an amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, will cease upon
adoption of this statement. The Company is required to implement SFAS No. 142 on
January 1, 2002 and it has not determined the impact, if any, that this
statement will have on its consolidated financial statements. The Company had no
goodwill amortization during the three and nine months ended September 30, 2001.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS No. 143 is required to be adopted for fiscal years
beginning after June 15, 2002. The Company has not yet determined what effect
this statement will have on its consolidated financial statements.
Also in August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which supersedes FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". This new statement also supersedes certain aspects of
APB 30, "Reporting the Results of Operations-Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions", with regard to reporting the effects of a
disposal of a segment of a business and will require expected future operating
losses from discontinued operations to be reported in discontinued operations in
the period incurred (rather than as of the measurement date as presently
required by APB 30). In addition, more dispositions may qualify for discontinued
operations treatment. The provisions of this statement are required to be
applied for fiscal years beginning after December 15, 2001 and interim periods
within those fiscal years. The Company has not yet determined what effect this
statement will have on its consolidated financial statements.
RESTRUCTURING CHARGES AND OTHER
In April 2001, the Company underwent a restructuring of its operations in an
effort to reduce its cost structure through a workforce reduction and the
closure or reduction in size of certain of its facilities. In connection with
this restructuring, the Company recorded a restructuring charge of $5,890,000
during the quarter ended June 30, 2001. As part of the restructuring the Company
terminated 199 employees or 15% of the workforce from all functional areas of
the Company. As of September 30, 2001, these terminations were completed. The
Company expects the remaining severance costs and a substantial amount of the
facilities costs to be paid out by the end of 2001. Although the closure and
consolidation efforts are expected to be substantially complete by the end of
fiscal 2001, lease payments on buildings being vacated or downsized will
continue to be made until the respective non-cancelable term of the leases
expire.
The following table summarizes the activity in the Company's reserves associated
with its restructuring (in thousands):
Balance at 2001 Balance at
December 31, Restructuring Cash September 30,
2000 Charges Payments 2001
---- ------- -------- ----
Separation costs for terminated employees $ -- $ 2,288 $(2,068) $ 220
Facilities closing and downsizing -- 3,439 (812) 2,627
Other costs -- 163 (1) 162
Facilities closing and downsizing - 1999,
1998, 1997, and 1996 restructuring 539 -- (146) 393
------- ------- ------- -------
Accrued restructuring costs $ 539 $ 5,890 $(3,027) $ 3,402
======= ======= ======= =======
During the quarter ended June 30, 2001, an additional charge of $1,720,000 was
included in restructuring charges and other for the write-down of fixed assets
related to assets to be disposed of as a result of the facility closures in
accordance with SFAS No. 121 Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of. These assets
9
consist primarily of leasehold improvements and computer equipment related to
buildings being vacated or downsized.
The remaining restructuring reserves from prior periods of $393,000 relate
primarily to lease commitments on which the Company will continue to make
payments until the respective non-cancelable term of the leases expire.
During 2000, the Company determined $700,000 of the 1999 restructuring reserves
were not needed. This was the result of the Company's ability to close certain
of its facilities for less than the originally estimated amount. No other
adjustments have been made to the restructuring liabilities as of September 30,
2001.
CREDIT FACILITY
On July 26, 2000, the Company entered into a $30.0 million senior credit
facility with a financial institution comprised of a $10.0 million term loan and
a $20.0 million revolving line of credit. On August 8, 2000, the Company
received the $10.0 million proceeds from the term loan. The term loan is due in
36 equal monthly installments, plus interest at the prime rate plus 3% (9.0% at
September 30, 2001). The revolving line of credit expires in August 2003, bears
interest at a variable rate equal to either the prime rate or at LIBOR, at the
Company's option, plus a margin ranging from 0.25% to 1.25% on prime rate loans
and 2.5% to 3.75% on LIBOR loans, depending on the Company's results of
operations. Borrowings under the revolving line of credit are limited to 85% of
eligible accounts receivable, as defined. To date, the Company has not borrowed
any amounts against the revolving line of credit facility. As of September 30,
2001, the Company has borrowing capacity of $6.0 million under its revolving
line of credit.
Borrowings under the credit facility are secured by substantially all of the
Company's assets and the Company is required to comply with certain financial
covenants and conditions, including minimum levels of earnings before interest,
taxes, depreciation and amortization (EBITDA) and tangible net worth. As of
September 30, 2001 the Company was in compliance with all covenants included in
the terms of the credit agreement, as amended.
WRITE-DOWN OF CAPITALIZED SOFTWARE DEVELOPMENT COSTS
During the first quarter of 2001, the Company determined that the carrying value
of its capitalized software development costs related to localized products
marketed in Europe as well as a component of one of its manufacturing products
exceeded their net realizable value. Accordingly, a charge of approximately
$1,000,000 was included in cost of revenues for the first quarter of 2001 for
the write-down of these capitalized costs to their estimated net realizable
value.
During the third quarter of 2000, the Company determined that the carrying value
of its capitalized software development cost related to localized products
marketed in Latin America and continental Europe exceeded its net realizable
value. Accordingly, a charge of $5,300,000 is included in cost of revenues for
the three and nine months ended September 30, 2000 for the write-down of these
capitalized costs to their estimated net realizable value.
STOCK OPTION EXCHANGE PROGRAM
In January 2001, the Company offered to current employees that held stock
options the opportunity to exchange all of their outstanding stock options for
restricted shares of the Company's common stock, at a price equal to the par
value of such Common Stock. All employees who accepted the offer received one
share of restricted stock for every two options exchanged. The restricted stock
vests over a period of two to four years, depending upon whether the exchanged
options were vested or unvested at the time of the exchange. Employees who
elected to exchange their options were ineligible for stock option grants for a
period of six months and one day following the exchange date of January 26,
2001. For the three and nine months ended September 30, 2001 the Company
recorded compensation expense of $286,000 and $984,000, respectively, related to
restricted stock. The Company will record future compensation expense of up to
$2,019,000 over the vesting period of the restricted shares, which represents
the fair market value of the restricted common stock issued on the exchange date
based upon the quoted market price of the Company's common stock, for the plan
participants as of September 30,2001. Compensation expense to be charged to
operations for the remainder of 2001, 2002, 2003, 2004 and 2005 approximates
$235,000, $932,000, $432,000, $387,000, and $33,000, respectively, assuming all
remaining restricted stock grants vest.
10
The breakdown of the compensation charge for the three and nine months ended
September 30, 2001 by the Company's operating functions is as follows:
Three Months Nine Months
ended ended
September 30, September 30,
2001 2001
---- ----
Cost of revenues $ 53,000 $151,000
Sales and marketing 104,000 247,000
Software development 20,000 76,000
General and administrative 109,000 510,000
-------- --------
Total compensation expense $286,000 $984,000
======== ========
SALES OF PRODUCT LINES
In April 2001, the Company sold the assets of its Impresa for MRO product line,
which primarily consisted of accounts receivable and fixed assets, for
approximately $2,900,000 in cash, plus other future consideration. Additionally,
certain liabilities of the Impresa for MRO product line were assumed by the
buyer. This resulted in an after tax gain of approximately $1,683,000 for the
quarter ended June 30, 2001. In September 2001, the Company received final cash
consideration of $1,513,000 for this sale, resulting in an after tax gain of
$1,513,000 for the quarter ended September 30, 2001. These gains are included in
gains on sales of product lines in the accompanying Condensed Consolidated
Statements of Operations. The operations of the Impresa for MRO product line
were not material to the Company's results of operations.
In May 2001, the Company sold the assets of its Platinum for Windows ("PFW")
product line, which primarily consisted of account receivable, inventory, and
fixed assets, for $7,000,000 in cash. Additionally, certain liabilities of the
PFW product line were assumed by the buyer. The sale resulted in an after tax
gain of approximately $8,684,000 for the quarter ended June 30, 2001 and is
included in gain on sales of product lines in the accompanying Condensed
Consolidated Statements of Operations. The operations of the PFW product line
were not material to the Company's results of operations.
CONTINGENCIES
In August 1999, DataWorks Corporation, a company acquired by Epicor on December
31, 1998, filed for arbitration against AAR Corporation with the American
Arbitration Association in Denver, Colorado. The arbitration arose out of the
development, licensing and sale of software by DataWorks to AAR in 1997. AAR
counterclaimed against Data Works alleging breach of contract. In January 2001,
the Company settled this matter by agreeing to pay AAR $2,000,000. The Company
paid this amount during the quarter ended March 31, 2001.
In December 1998, Alyn Corporation filed a lawsuit against DataWorks in San
Diego, California Superior Court arising from the licensing and sale of software
by DataWorks to Alyn in December 1996. In March 2000, the Company agreed to pay
Alyn $1,800,000 to settle the lawsuit. The Company paid this amount during the
first half of 2000.
In November 1998, a securities class action lawsuit was filed in the United
States District Court for the Southern District of California against DataWorks,
certain of its current and former officers and directors, and the Company. The
consolidated complaint is purportedly brought on behalf of purchasers of
DataWorks stock between October 30, 1997 and July 16, 1998. The complaint
alleges that defendants made material misrepresentations and omissions
concerning DataWorks' acquisition of Interactive Group, Inc. and demand for
DataWorks' products. The Company is named as a defendant solely as DataWorks'
successor, and is not alleged to have taken part in the alleged misconduct. No
damage amount is specified in the complaint. The action is in the early stages
of litigation, no trial date is set, and defendants' motion to dismiss the
second amended consolidated complaint remains pending. The Company believes
there is no merit to this lawsuit and intends to continue to defend against it
vigorously. Ultimate outcome of this suit or any potential loss is not presently
determinable.
11
The Company is subject to other legal proceedings and claims in the normal
course of business. The Company is currently defending these proceedings and
claims, and anticipates that it will be able to resolve these matters in a
manner that will not have a material adverse impact on the Company's
consolidated financial statements.
12
SIGNATURE
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.
EPICOR SOFTWARE CORPORATION
(Registrant)
Date: November 20, 2001 /s/ Lee Kim
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Lee Kim
Senior Vice President and Chief
Financial Officer
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