SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
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 000-24435
MICROSTRATEGY INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
(State of incorporation)
8000 Towers Crescent Drive, Vienna, VA
(Address of Principal Executive Offices)
22182
(Zip Code)
51-0323571
(I.R.S. Employer
Identification Number)
Registrant's telephone number, including area code: (703) 848-8600
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 [ ]
The number of shares of the registrant's Class A common stock and Class B
common stock outstanding on August 1, 2000 was 24,749,285 and 55,164,115,
respectively.
EXPLANATORY NOTE
This Form 10-Q/A revises the Consolidated Balance Sheets as of June 30, 2000
as follows: the Company's Series A convertible preferred stock, par value
$0.001 per share ($119,794,000), which was previously included in the line item
"Total stockholders' equity", is being included instead in the line item "Total
liabilities and stockholders' equity".
MICROSTRATEGY INCORPORATED
FORM 10-Q/A
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 (unaudited) and December 1
31, 1999...................................................................
Consolidated Statements of Operations For the Three Months Ended June 30,
2000 and 1999 (unaudited)................................................. 2
Consolidated Statements of Operations For the Six Months Ended June 30,
2000 and 1999 (unaudited) ............................................... 3
Consolidated Statements of Cash Flows For the Six Months Ended June 30,
2000 and 1999 (unaudited).................................................. 4
Notes to Consolidated Financial Statements (unaudited)..................... 5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MICROSTRATEGY INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
June 30, December 31,
----------- -------------
2000 1999
--------- --------
(unaudited)
Assets
Current assets:
Cash and cash equivalents............................................................ $ 93,823 $ 25,941
Restricted cash...................................................................... 28,600 --
Short-term investments............................................................... 6,208 42,418
Accounts receivable, net............................................................. 40,716 37,586
Prepaid expenses and other current assets............................................ 16,041 15,461
--------- --------
Total current assets............................................................... 185,388 121,406
Property and equipment, net........................................................... 54,154 30,594
Intangible assets, net of accumulated amortization of $8,651 and $503, respectively... 43,078 47,154
Deposits and other assets............................................................. 5,057 4,214
--------- --------
Total assets....................................................................... $ 287,677 $203,368
========= ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses................................................ $ 46,656 $ 15,357
Accrued compensation and employee benefits........................................... 16,025 14,912
Deferred revenue and advance payments................................................ 69,262 38,028
--------- --------
Total current liabilities.......................................................... 131,943 68,297
Deferred revenue and advance payments................................................. 10,611 33,255
Other long-term liabilities........................................................... 2,710 --
--------- --------
Total liabilities.................................................................. 145,264 101,552
--------- --------
Commitments and contingencies
Series A convertible preferred stock, par value $0.001 per share, 18 shares
authorized, 13 shares issued and outstanding.................................. 119,794 --
Stockholders' equity:
Preferred stock undesignated, par value $0.001 per share, 4,982 shares authorized; no
Shares issued or outstanding............................................... -- --
Class A common stock, par value $0.001 per share, 330,000 shares authorized;
24,680 and 22,384 shares issued and outstanding, respectively...................... 25 22
Class B common stock, par value $0.001 per share, 165,000 shares authorized;
55,164 and 55,867 shares issued and outstanding, respectively...................... 55 56
Additional paid-in capital........................................................... 145,987 138,943
Accumulated other comprehensive income............................................... 256 1,643
Deferred compensation................................................................ (759) (895)
Accumulated deficit.................................................................. (122,945) (37,953)
--------- --------
Total stockholders' equity......................................................... 22,619 101,816
--------- --------
Total liabilities and stockholders' equity......................................... $ 287,677 $203,368
========= ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
1
MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2000 and 1999
(in thousands, except per share data)
Three Months Ended
--------------------------
June 30,
--------------------------
2000 1999
-------- ---------
(unaudited) (unaudited)
Revenues:
Product licenses................................................................. $ 21,829 $25,177
Product support and other services............................................... 28,515 15,288
-------- -------
Total revenues.................................................................. 50,344 40,465
Cost of revenues:
Product licenses................................................................. 392 563
Product support and other services............................................... 21,776 7,906
-------- -------
Total cost of revenues.......................................................... 22,168 8,469
-------- -------
Gross profit...................................................................... 28,176 31,996
-------- -------
Operating expenses:
Sales and marketing.............................................................. 38,343 21,125
Research and development......................................................... 15,813 6,088
General and administrative....................................................... 17,385 5,316
Amortization of intangible assets................................................ 4,242 20
-------- -------
Total operating expenses........................................................ 75,783 32,549
-------- -------
Loss from operations.............................................................. (47,607) (553)
Interest income................................................................... 441 671
Interest expense.................................................................. (7) (51)
Other expense, net................................................................ (4,969) (14)
-------- -------
(Loss) income before income taxes................................................. (52,142) 53
Provision for income taxes........................................................ -- 56
-------- -------
Net loss.......................................................................... $(52,142) $ (3)
-------- -------
Accrued preferred stock dividends................................................. $ (312) --
Beneficial conversion feature..................................................... $(19,375) --
-------- -------
Net loss attributable to common stockholders...................................... $(71,829) $ (3)
======== =======
Basic and diluted net loss per share.............................................. $ (0.90) $ (0.00)
======== =======
Weighted average shares used in computing basic and diluted net loss per share.... 79,757 76,052
======== =======
The accompanying notes are an integral part of these Consolidated Financial
Statements.
2
MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2000 and 1999
(in thousands, except per share data)
Six Months Ended
----------------------------
June 30,
----------------------------
2000 1999
--------- ----------
(unaudited) (unaudited)
Revenues:
Product licenses................................................................. $ 47,840 $41,595
Product support and other services............................................... 53,119 28,192
--------- -------
Total revenues.................................................................. 100,959 69,787
Cost of revenues:
Product licenses................................................................. 997 1,083
Product support and other services............................................... 37,537 14,515
--------- -------
Total cost of revenues.......................................................... 38,534 15,598
--------- -------
Gross profit...................................................................... 62,425 54,189
--------- -------
Operating expenses:
Sales and marketing.............................................................. 79,855 37,879
Research and development......................................................... 32,013 11,149
General and administrative....................................................... 29,503 9,549
Amortization of intangible assets................................................ 8,148 40
--------- -------
Total operating expenses........................................................ 149,519 58,617
--------- -------
Loss from operations.............................................................. (87,094) (4,428)
Interest income................................................................... 901 1,175
Interest expense.................................................................. (10) (143)
Other income, net................................................................. 1,461 32
--------- -------
Loss before income taxes.......................................................... (84,742) (3,364)
Provision for income taxes........................................................ 250 443
--------- -------
Net loss.......................................................................... $ (84,992) $(3,807)
--------- -------
Accrued preferred stock dividends................................................. $ (312) $ --
Beneficial conversion feature..................................................... $ (19,375) $ --
--------- -------
Net loss attributable to common stockholders...................................... $(104,679) $(3,807)
========= =======
Basic and diluted net loss per share.............................................. $ (1.32) $ (0.05)
========= =======
Weighted average shares used in computing basic and diluted net loss per share.... 79,321 74,926
========= =======
The accompanying notes are an integral part of these Consolidated Financial
Statements.
3
MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2000 and 1999
(in thousands)
Six Months Ended
----------------------------
June 30,
----------------------------
2000 1999
--------- ----------
(unaudited) (unaudited)
Operating activities:
Net loss ........................................................................ $ (84,992) $ (3,807)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ................................................. 14,252 2,855
Provision for doubtful accounts ............................................... 2,004 773
Amortization of deferred compensation ......................................... 136 134
Gain on sale of short-term investments ........................................ (1,356) --
Changes in operating assets and liabilities:
Accounts receivable ......................................................... (5,442) (2,236)
Prepaid expenses and other current assets ................................... 429 (1,454)
Deposits and other assets ................................................... (2,994) (85)
Accounts payable and accrued expenses, compensation and benefits ............ 34,167 (285)
Deferred revenue and advance payments ....................................... 1,665 3,558
Other long-term liabilities ................................................. 1,508 --
--------- ---------
Net cash used in operating activities ........................................ (40,623) (547)
--------- ---------
Investing activities:
Purchases of property and equipment ............................................. (28,032) (10,469)
Purchases of short-term investments ............................................. (1,496) (22,491)
Maturities of short-term investments ............................................ 5,500 3,000
Proceeds from sale of short-term investments .................................... 38,388 --
Increase in restricted cash ..................................................... (28,600) --
Purchases of intangible assets .................................................. (2,428) --
--------- ---------
Net cash used in investing activities ........................................ (16,668) (29,960)
--------- ---------
Financing activities:
Proceeds from sale of Class A common stock and exercise of stock options, net of
offering costs ................................................................. 5,758 43,236
Proceeds from sale of Series A convertible preferred stock, net of offering costs 119,794 --
Payments of dividend notes payable .............................................. -- (5,000)
--------- ---------
Net cash provided by financing activities .................................... 125,552 38,236
--------- ---------
Effect of foreign exchange rate changes on cash and cash equivalents ......... (379) (427)
--------- ---------
Net increase in cash and cash equivalents ........................................ 67,882 7,302
Cash and cash equivalents, beginning of period ................................... 25,941 27,491
--------- ---------
Cash and cash equivalents, end of period ......................................... $ 93,823 $ 34,793
========= =========
Supplemental disclosure of noncash investing and financing activities:
Change in unrealized gain on short-term investments, net of tax ................. $ (1,266) $ (74)
========= =========
Stock received in exchange for products and services ............................ $ 5,974 $ --
========= =========
Issuance of Class A common stock related to consulting services agreement ....... $ 1,600 $ --
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ........................................ $ 8 $ 87
========= =========
Cash paid during the period for income taxes .................................... $ 86 $ 500
========= =========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
4
(1) Basis of Presentation
The consolidated balance sheet of MicroStrategy Incorporated as of June 30,
2000, the related consolidated statements of operations for the three and six
months ended June 30, 2000 and 1999, and the consolidated statements of cash
flows for the six months ended June 30, 2000 and 1999 are unaudited. In the
opinion of management, all adjustments (consisting of normal recurring items)
necessary for a fair presentation of such financial statements have been
included. Interim results are not necessarily indicative of results for a full
year.
The consolidated financial statements and notes are presented as required by
Form 10-Q and do not contain certain information included in the Company's
annual financial statements and notes. These financial statements should be read
in conjunction with the Company's audited financial statements and the notes
thereto filed with the Securities and Exchange Commission (``SEC'') in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
Certain amounts in the prior year consolidated financial statements have been
reclassified to conform to the current year presentation.
(2) Restatement of Financial Statements
Subsequent to the filing of a registration statement on Form S-3 with the SEC
in the first quarter of 2000 which included the Company's audited financial
statements for the years ended December 31, 1999, 1998 and 1997, the Company
became aware that the timing and amount of reported earned revenues from license
transactions in 1999, 1998 and 1997 required revision.
As discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 in Note 3 of the Notes to Consolidated Financial Statements,
these revisions primarily addressed the recognition of revenue for certain
software arrangements which should be accounted for under the subscription
method or the percentage of completion method, which spread the recognition of
revenue over the entire contract period. The effect of these revisions is to
defer the time in which revenue is recognized for large, complex contracts that
combine both products and services. These revisions also resulted in a
substantial increase in the amount of deferred revenue reflected on the
Company's balance sheet as of December 31, 1999. The Company subsequently
reviewed license agreements executed near the end of the quarter ended June 30,
1999 and determined that revisions to its reported revenues for the quarter
ended June 30, 1999 were necessary, primarily to ensure that all agreements for
which the Company was recognizing revenue in a reporting period were executed by
both parties no later than the end of the reporting period in which the revenue
is recognized. The effect of all revisions for the three and six months ended
June 30, 1999 was to reduce total revenues by $5.2 million and $11.6 million,
respectively.
Additionally, the Company also made certain revisions to its balance sheet as
of December 31, 1999. These revisions are discussed in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 in Note 3 of the Notes
to Consolidated Financial Statements.
Accordingly, such financial statements for the periods presented in this Form
10-Q/A have been restated as follows (in thousands, except per share data):
5
Three Months Ended Six Months Ended
--------------------------- -----------------------------
June 30, 1999 June 30, 1999
--------------------------- -----------------------------
As Reported Restated As Reported Restated
------------ ------------- ------------- --------------
Statements of Operations Data
Revenues:
Product licenses $31,057 $25,177 $54,181 $41,595
Product support and other services 14,581 15,288 27,241 28,192
Income (loss) from operations 4,573 (553) 7,114 (4,428)
Provision for income taxes 1,968 56 3,108 443
Net income (loss) 3,211 (3) 5,070 (3,807)
Net income (loss) per share:
Basic $ 0.04 $ (0.00) $ 0.07 (0.05)
Diluted $ 0.04 $ (0.00) $ 0.06 (0.05)
(3) Recent Accounting Pronouncements
In December 1999, the SEC released Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements," which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. Subsequently, the SEC released SAB 101A, which delayed the
implementation date of SAB 101 for registrants with fiscal years that begin
between December 16, 1999 and March 15, 2000. In June 2000, the SEC issued SAB
101B, further delaying the required implementation of SAB 101 by the Company
until the fourth quarter of fiscal year 2000. The Company does not expect the
application of SAB 101 to have a material impact on its financial position or
results of operations.
In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation ("FIN") No. 44, "Accounting for Certain Transactions Involving
Stock Compensation - An Interpretation of APB Opinion No. 25." FIN 44 clarifies
the application of APB Opinion No. 25 and, among other issues, clarifies the
following: the definition of an employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether a plan qualifies as a non-
compensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on its
financial position or results of operations.
In June 1999, FASB issued Statement of Financial Accounting Standards ("SFAS")
No. 137, which delays the effective date of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which will be effective for our
fiscal year 2001. This statement establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. The Company does not expect
the adoption of SFAS Nos. 133 and 137 to have a material impact on its financial
position or results of operations.
(4) Short-term Investments
In December 1999, the Company received 824,742 shares (adjusted for a two-for-
one stock split) of Exchange Applications stock valued at $21.5 million, in
consideration for the sale of MicroStrategy software, technical support and
consulting services. In March 2000, the Company sold 412,372 of these shares at
an average price of $41.72 per share, which resulted in a realized gain of $6.4
million.
6
During May 2000, the Company sold its economic interest in the remaining
412,370 shares of Exchange Applications stock to a financial institution for
$5.8 million, from which the Company recognized a realized loss of $4.9 million.
Overall, the Company has sold all of its economic interest in the shares it
received in December 1999 for a total net realized gain of $1.5 million. Also
during the quarter, the Company sold certain other securities, which resulted in
a realized loss of $137,000.
On June 30, 2000, the Company received an additional 224,359 shares of
Exchange Applications stock, valued at $6.0 million, in consideration for the
sale of MicroStrategy software, technical support and consulting services.
(5) Accounts Receivable
Accounts receivable, net of allowances, consist of the following, as of (in
thousands):
June 30, December 31,
---------- -------------
2000 1999
-------- -----------
Billed and billable........................ $ 82,142 $ 66,181
Less deferred revenue...................... (36,093) (25,266)
-------- --------
46,049 40,915
Less allowance for doubtful accounts....... (5,333) (3,329)
-------- --------
$ 40,716 $ 37,586
======== ========
(6) Consulting Services Agreement
In June 2000, the Company entered into a consulting services agreement with
the controlling stockholder of a software integrator. The agreement requires
the controlling stockholder to refer the employees of the software integrator to
the Company and also to perform certain management services for the Company. In
exchange for these services, the Company issued 57,143 shares of Class A common
stock to the controlling stockholder, which had a value of $1.6 million as of
the consummation date and which are restricted until registered with the SEC.
The Company will issue up to $3.4 million in additional shares of Class A common
stock over the next two years at the then current market price of the Class A
common stock on the date of issuance based on an agreed upon formula including
revenue and attrition objectives. The Company has recorded $1.5 million, net of
$51,000 in amortization expense, related to the first installment as deferred
consulting costs. The first installment will be amortized over two years, the
duration of the management services.
(7) Bank Borrowings
In March 1999, the Company entered into a line of credit agreement with a
commercial bank, which provided for a $25.0 million unsecured revolving line of
credit for general working capital purposes. On May 15, 2000, the Company
entered into a modification of the line of credit agreement, which, among other
things, increased the line to include an additional letter of credit, removed
any financial covenants and cured any financial covenant defaults. The line of
credit is secured by $28.6 million of cash and cash equivalents, which is
classified as restricted cash on the balance sheet. The cash is restricted
through May 31, 2001, the expiration of the agreement. The modified line of
credit bears interest at LIBOR plus 1.75%, includes a 0.2% unused line of credit
fee, and requires monthly payments of interest. As of June 30, 2000, after
consideration of outstanding letters of credit, the Company had $21.2 million of
borrowing capacity under this credit line.
7
(8) Deferred Revenue and Advance Payments
Deferred revenue and advance payments from customers consist of the following,
as of (in thousands):
June 30, December 31,
---------- -------------
2000 1999
--------- ----------
Current:
Deferred product revenue................................... $ 48,634 $ 38,164
Deferred product support and other services revenue........ 46,352 24,267
-------- --------
94,986 62,431
Less amount in accounts receivable......................... (25,724) (24,403)
-------- --------
$ 69,262 $ 38,028
======== ========
Non-current:
Deferred product revenue................................... $ 10,015 $ 9,461
Deferred product support and other services revenue........ 10,965 24,657
-------- --------
20,980 34,118
Less amount in accounts receivable......................... (10,369) (863)
-------- --------
$ 10,611 $ 33,255
======== ========
(9) Commitments and Contingencies
The Company has $2.6 million in commitments relating to a software, data and
consulting agreement, which terminates in 2003, and $1.0 million in commitments
with content providers which extend through 2002.
In April 2000, the Company entered into an agreement to lease additional
office space. Total commitments under the lease, which expires in 2005, are
approximately $540,000.
(10) Litigation
The Company and certain of our officers and directors are defendants in a
private securities class action lawsuit alleging that we have violated Section
10(b) of the Securities Exchange Act of 1934, as amended (the ``Exchange Act''),
Rule 10(b) (5) promulgated thereunder, and section 20(a) and section 20A of the
Exchange Act. The complaint does not specify the amount of the damages sought.
Accordingly, the Company is unable to determine or estimate the outcome at this
time. In June 2000, purported holders of our common stock filed a shareholder
derivative lawsuit in the Delaware Court of Chancery seeking recovery for
various alleged breaches of fiduciary duties by certain of our directors and
officers relating to our restatement of financial results. We have not answered
or otherwise responded to the derivative complaint. It is possible that the
Company may be required to pay substantial damages or settlement costs which
could have a material adverse effect on the Company's financial condition or
results of operations. The Company intends to defend the matters vigorously.
In March 2000, the Company was notified that the SEC had issued a formal order
of private investigation in connection with matters relating to the Company's
restatement of its financial results. The SEC has requested that the Company
provide the SEC with certain documents concerning the Company's revision of its
financial results and financial reporting documents. The SEC indicated that its
inquiry should not be construed as an indication by the SEC or its staff that
any violation of law has occurred, nor as an adverse reflection upon any person,
entity or security. The Company is cooperating with the SEC in connection with
this investigation and its outcome cannot yet be determined.
The Company is also involved in other legal proceedings through the normal
course of business. Management believes that any unfavorable outcome related to
these other proceedings will not have a material effect on the Company's
financial position, results of operations or cash flows.
8
(11) Convertible Preferred Stock
On June 19, 2000, the Company issued 12,500 shares of its Series A
convertible preferred stock in a private placement to institutional investors
for $119.8 million, net of estimated closing costs of $5.2 million. Dividends
are payable quarterly at a rate of 7% per annum, in cash or in shares of Class A
common stock. The convertible preferred stock is currently convertible into
3,744,152 shares of Class A common stock based on the current conversion price
of $33.39 per share. The conversion price may be adjusted at certain future
dates dependent upon the trading price of the Class A common stock and an agreed
upon formula. The convertible preferred stock is also redeemable upon certain
triggering events such as failure of the registration statement to be declared
effective on or before the first anniversary of the initial issuance date and
other events as defined in the Certificate of Designations, Preferences and
Rights of the Series A Convertible Preferred Stock.
The Company recorded a $19.4 million charge attributable to the beneficial
conversion feature of the Series A convertible preferred stock based on the
difference between the fair market value of the Class A common stock on the
closing date of the private placement and the conversion rate. The conversion
rate was computed based on the volume weighted average price of the stock for
the 17 trading days subsequent to the closing date in accordance with the
Certificate of Designations, Preferences and Rights of the Series A Convertible
Preferred Stock.
The Company has accrued dividends of $312,000 during the three months ended
June 30, 2000.
(12) Comprehensive Loss
Comprehensive loss includes foreign currency translation adjustments and
unrealized gains and losses on short-term investments, net of related tax
effects, that have been excluded from net loss and reflected in stockholders'
equity as accumulated other comprehensive income.
Comprehensive loss for the three and six months ended June 30, 2000 and 1999
is calculated as follows (in thousands):
Three Months Ended Six Months Ended
--------------------------- ---------------------------
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
---- ---- ---- ----
Net loss $(52,142) $ (3) $(84,992) $(3,807)
Foreign currency translation gain (loss) 258 (273) (121) (608)
Unrealized loss on short-term investments, net of
applicable taxes (10,837) (74) (1,266) (74)
-------- ----- -------- -------
Total comprehensive loss $(62,721) $(350) $(86,379) $(4,489)
======== ===== ======== =======
(13) Basic and Diluted Net Loss Per Share
Basic net loss per share is determined by dividing the net loss applicable to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted net loss per share is determined by dividing the net
loss applicable to common stockholders by the weighted average number of common
shares and potential common shares outstanding during the period. Potential
common shares are included in the diluted net loss per share calculation when
dilutive. Potential common shares consisting of common stock issuable upon
exercise of outstanding common stock options, convertible preferred stock and
warrants are computed using the treasury stock method. The Company's net loss
per share calculation for basic and diluted is based on the weighted average
common shares outstanding. There are no reconciling items in the numerator and
denominator of the Company's net loss per share calculation. Employee stock
options of 15,241,056 and 11,572,918 and warrants of 78,334 and 114,000 for the
9
three and six month periods ended June 30, 2000 and 1999, respectively, have
been excluded from the net loss per share calculation because their effect would
be anti-dilutive. Additionally, Series A preferred stock, which is convertible
into 3,744,152 shares of Class A common stock, was excluded from the net loss
per share calculation for the three and six months ended June 30, 2000 because
their effect would be anti-dilutive.
(14) Segment Information
The Company applies provisions of SFAS No. 131, ``Disclosure about Segments of
an Enterprise and Related Information.'' SFAS No. 131 requires certain
disclosures about operating segments, products and services, geographic areas,
and major customers. The method for determining what information to report is
based on the way that management organizes the operating segments within the
Company for making operational decisions and assessments of financial
performance. The Company's chief operating decision maker is considered to be
the Company's CEO. The CEO reviews financial information presented on a
consolidated basis accompanied by disaggregated information about revenues by
operating segments for purposes of making operating decisions and assessing
financial performance.
The Company has two operating segments, MicroStrategy Platform and
Strategy.com. MicroStrategy Platform provides scalable, sophisticated and
maintainable solutions that enable businesses to develop and deploy intelligent
e-business systems. Revenues are derived from sales of product licenses and
product support and other services, including technical support, education and
consulting and hosting services. Strategy.com delivers personalized information
to consumers through its personal intelligence network via the web, wireless
applications, protocol-enabled devices, e-mail, mobile phone, fax, pager and
regular telephone. Strategy.com syndicates its channels through network
affiliates and offers them to consumers directly through its website. Revenues
are derived from network affiliate fees, OEM and subscription fees, royalty
fees, advertising fees, hosting fees, and transaction fees. The Company began
operating its business as two segments in the latter part of 1999. Revenues were
recognized for Strategy.com beginning in 2000. Prior years' segment information
has been restated to reflect the operations of Strategy.com.
The accounting policies of both segments are the same as those described in
the summary of significant accounting policies in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999. Certain corporate support costs
are allocated to Strategy.com based on factors such as headcount, gross asset
value and the specific level of activity directly related to such costs.
10
The following summary discloses certain financial information regarding the
Company's operating segments (in thousands):
MicroStrategy
Platform Strategy.com Consolidated
-------------- --------------- -------------
Three Months Ended June 30, 2000
Total license and service revenues $ 49,200 $ 1,144 $ 50,344
Gross profit 28,214 (38) 28,176
Depreciation and amortization 7,111 1,010 8,121
Operating expenses 63,895 11,888 75,783
Loss from operations (35,681) (11,926) (47,607)
Total assets 273,464 14,213 287,677
Three Months Ended June 30, 1999
Total license and service revenues $ 40,465 $ -- $ 40,465
Gross profit 31,996 -- 31,996
Depreciation and amortization 1,369 96 1,465
Operating expenses 31,439 1,110 32,549
Loss from operations 557 (1,110) (553)
Total assets . 110,893 1,961 112,854
MicroStrategy
Platform Strategy.com Consolidated
-------------- --------------- -------------
Six Months Ended June 30, 2000
Total license and service revenues $ 99,702 $ 1,257 $100,959
Gross profit 62,557 (132) 62,425
Depreciation and amortization 12,471 1,781 14,252
Operating expenses 126,247 23,272 149,519
Loss from operations (63,690) (23,404) (87,094)
Total assets 273,464 14,213 287,677
Six Months Ended June 30, 1999
Total license and service revenues $ 69,787 $ -- $ 69,787
Gross profit 54,189 -- 54,189
Depreciation and amortization 2,739 116 2,855
Operating expenses 57,064 1,553 58,617
Loss from operations (2,875) (1,553) (4,428)
Total assets 110,893 1,961 112,854
The following summary discloses total revenues and long-lived assets,
excluding long-term deferred tax assets, relating to the Company's geographic
regions (in thousands):
Domestic International Consolidated
------------- ------------- ------------
Three Months Ended June 30, 2000
Total license and service revenues $39,246 $11,098 $ 50,344
Long-lived assets 99,294 2,995 102,289
Three Months Ended June 30, 1999
Total license and service revenues $33,254 $ 7,211 $ 40,465
Long-lived assets $22,010 $ 1,935 $ 23,945
11
Domestic International Consolidated
------------- ------------- ------------
Six Months Ended June 30, 2000
Total license and service revenues $78,431 $22,528 $100,959
Long-lived assets 99,294 2,995 102,289
Six Months Ended June 30, 1999
Total license and service revenues $54,964 $14,823 $ 69,787
Long-lived assets $22,010 $ 1,935 $ 23,945
Transfers of $1.8 million and $1.4 million for the three months ended June 30,
2000 and 1999, respectively, and transfers of $4.3 million and $3.1 million for
the six months ended June 30, 2000 and 1999, respectively, from international to
domestic operations have been excluded from the above table and eliminated in
the consolidated financial statements.
12
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.
Microstrategy Incorporated
By: /s/ Michael J. Saylor
---------------------------
Michael J. Saylor
Chief Executive Officer
By: /s/ ERIC F. BROWN
----------------------
Eric F. Brown
President and Chief Financial Officer
Date: November 22, 2000